Dazzling, wouldn’t (or shouldn’t) it be simple to renew a commercial lease?

If you and the tenant are happy to continue the lease, then you simply take your copy of the old lease, change the dates and rent as applicable, and type it up.

Maybe I am missing something, but if you have already have a lease (that’s been drawn up previously and simply about to expire), then you just cut-and-paste.

Oh sure. Don’t get me wrong – this is the safe PASSIVE option with little risk involved. Kind of like the ‘retirement’ option if you will. Not the strategy I would use now, because I can always make the second fortune if I lose the first.

Even if you do invest in a managed fund though, you still want to get your fund to grow over time so that you continue to live at a standard you expect from today’s $100K per year.

That being said – with $1M, you should be able to make a lot more than 5%. Money makes money makes money. But you need to be ACTIVE in watching how that money is going. You’re taking on more risk, so you need to be more diligent in monitoring the changes associated with the investment.

ResidentialWealth mentioned being able to make 15% or more on $1M. That is very possible, but you can’t (or are unlike to be able to) just invest it and then go on holidays overseas for the next six months – expecting to get back and find you’ve made 1/2 of your annual return.

This is only good with a few additional considerations:

Firstly, your principle would need to grow by the CPI so that the real value of your return doesn’t decrease over time. $100K earned today won’t get you the same benefits as $100K earned in 2020.

Simply sticking the $1M in a 10% term deposit and living off the income WILL result in you getting less money year after year – even if the interest rate never changes. Whatever strategy you do will need to meet or exceed inflation and the cost of living by AT LEAST the amount you spend each year.

Getting 10% + capital appreciation is going to be risky and in an era of around 5% official interest rates it’s far better to look at a lower return + capital appreciation. To do that, you need to lower your expectations (say 50K per year + appreciation) or have more money than $1M.

IMO, having $1M in the stock market and expecting a 10% return means ACTIVE investing (rather than passive investing) and means increased risk. Risk of losing some or most of it and being forced back in the workforce – often with fewer skills than you had when you left it.

Next, once you’re in the ‘invest and retire’ mode, it’s better that interest rates remain higher rather than lower. Low interest rates are far better for we investors, but it’s hell to those people who rely on their investment returns. As we’ve seen recently, low interest rates are the mantra of ‘good government’, so you’re always going to need to have more money than less to be able to live comfortably.

Do you think the government would bring the IR down to, say, 2% if they could? It’s a possibility, and one that would mean your $1M is only earning $20K per year.

And finally, the last – and possibly most important thing – to consider is: is $100K enough? Once you get used to living at any ‘standard of living’ it’s very hard to go backward.

Sure $100K per year is a lot of money to most normal people now, and one that would be a dream – but once you get used to it, the natural tendancy is to push your standard of living to that amount. What happens when you get ‘forced’ to only live at $80K/year (say you’ve run up your credit cards by $30K or $40K) and need to cut back for a while? The natural human tendency would be to eat into the principal – and then that reduces your income in later years.

Not meant to be a downer, just some thoughts to consider when you think $1 Million is ‘rich’.

Editted to add (based on other comments):

– if you did have $1M could you really sit back and not risk it by trying to make it grow? Would you really be happy to remove yourself from wealth building and trying to acheive even more? Risk comes with that.

– and if you did have it in property, the actual house is a depreciating asset. While you might be able to get a good return, you’re looking at a LOT of expense if you want it to be consistant over a longer period of time. Even when you take out normal yearly expenses, you still need to do capital expenditure from time to time.

I just think if you want $100K per year – regularly and *with minimal risk* – you probably need around $3M to achieve it.

This is very similar to a place we were looking at about a year ago. We saw a block of 5 units in Narooma for around the same price ($465K) and were very keen to buy. Kind of a pity really, given the area.

Unfortunately, we came into the negotiations late (only saw the deal after it had generated some interest). Banks being what they are weren’t so keen to come to the party immediately (which is what was really needed to secure it for us). By the time the banks approved us, it was too late.

I’d be curious if this was in Narooma, Alby. It seems rather similar, I must admit.

Yes – you can. I’m doing it at the moment and renting out to different tenants (located in the ACT). Keep in mind that doing so will cause your potential tenant pool to shrink as some people like to “own” the complete block.

You do need to keep in mind that even if you live in one and rent the other out, the whole property might be liable to extra land tax and have potential GST implications. We’re renting out both houses, so there’s no problems for us.

It is a great way to increase the cashflow though.

I think the thing with the 11 second rule is that you look outside the capital cities. Finding a place in Sydney, Canberra or Melbourne that fits the rule would be (I imagine) almost impossible to do in the current climate.

Look at it this way – it’s no different a perk than a company car, free parking, discounted travel, etc. As the article says – the RBA still needs to pay FBT on it.

If they didn’t offer these benefits, then chances are they’d have to pay more to their employees in other ways.

The vacancy rate is quite high, and even real estate agents have seemed a little reluctant to *really* sell the place (once I started asking questions about vacancy rates, expected returns, and getting them to property manage places).

So, is anyone planning buying the DVD of The Block?

Rates do include water and sewerage, but at least here in Canberra you can pass the water usage charges onto the tenant.

I guess it really doesn’t matter where the charges are levied, cause your tenant does end up paying for the usage charges in one way or another.

But – it’s just something to keep in mind when comparing your 10.4% return in Rocky with a similar return in another part of the country where you can also charge the tenant a portion of the water rates.