Hi peeps!
I have been a longtime reader of this site and I’ve just joined the IP communtity by buying a new PPOR and renting out my old one.
I’m very excited of the prospect of retiring earlier than the majority by investing in +CF properties and am now trying to work out a plan.
First step I guess, is working out how much I want to retire on. If i wanted to retire on 100K in today’s dollars in 10 years time how much would I need to be bringing in in 10 years time. Do i need to add 2% per year to account for inflation or is there some tricky way to do it?
Btw, I’m 26, work fulltime in IT and my new iP (old PPOR) is CF+!! ;P
Glad to be a part of this great forum, and btw Steve ur book is an absolute inspiration!!
Cheers,
kinks
In theory, there is no difference between practice and theory, in practice, there is….
Dont worry about tomorrows dollars. Think in todays dollars. How many dollars of assets in todays dollars do you need to get $100k in todays dollars.
Then try and get that number of assets over a period that you can achieve.
Originally posted by yack:Dont worry about tomorrows dollars. Think in todays dollars. How many dollars of assets in todays dollars do you need to get $100k in todays dollars.
Then try and get that number of assets over a period that you can achieve.
ok, thanks yack.
I’m looking at CF+ properties under 100K, returning 10 to 15% and would like to retire in 10 years (age 36) if possible. Could you give me a rough estimate on how many properties I would need to do this considering I would like 100K/year to retire on?
Sorry for the noobie questions [blush2]
In theory, there is no difference between practice and theory, in practice, there is….
Say each property returned $2000 pa after expenses (or $38 pw). then you would need 50 of these properties to get $100,000 pa income.
You shouldn’t have to worry about future inflation etc as the rents will hopefully keep rising, so just calculate in todays figures – as Yack suggested.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
So kinks, using Terry’s example, you’d need 5 X IP’s each year for ten years. That would be buying 250k each year for the next ten years for 50k IP’s; or 500k a year to purchase 5 X 100k IP’s for the next ten years. Then you will be able to retire. Oh! Plus costs!
kay henry
As steve irwin would say “Crikey!”
I didn’t think I’d have to purchase that amount of properties, but at least I know how to work out where I stand in regards to the plan. Thanks guys, really appreciate it! [biggrin]
Will let you know how I go [goatee]
In theory, there is no difference between practice and theory, in practice, there is….
For what it’s worth…
use the ol compound interst formula:
p x i^n
p=principal
i=interest per year (or time period for which interest is calculated)
n=number of yearsSo in ten years the equivalent of 100k, assuming 2%pa change is:
100,000 x 1.02^10 = 121,899.44
[buz2]For what it’s worth…
use the ol compound interst formula:
p x i^n
p=principal
i=interest per year (or time period for which interest is calculated)
n=number of yearsSo in ten years the equivalent of 100k, assuming 2%pa change is:
100,000 x 1.02^10 = 121,899.44
[buz2]You need the equivalent of 4 houses.
Ane to live in:
Two to generate income:
Last one to pay tax on the other two; that is, all up – 3 renters.P.Bevan
kinks :o) It’s good to be realistic. I saw someone on here yesterday who says he/she has 2 IP’s but will be retiring next year! Well, that’s all good if you wanna retire on like $10 a week
Let us know how you go, kinks. I guess you can buy that much worth of property if you have a high enough income. Maybe you could halve the desired income for retirement from 100k to 50k and then you can halve the amount of IP’s you need to achieve it :o)) After all, 50k will probably still give you some sort of quasi-decent life.
kay henry
Originally posted by kay henry:kinks :o) It’s good to be realistic. I saw someone on here yesterday who says he/she has 2 IP’s but will be retiring next year! Well, that’s all good if you wanna retire on like $10 a week
Let us know how you go, kinks. I guess you can buy that much worth of property if you have a high enough income. Maybe you could halve the desired income for retirement from 100k to 50k and then you can halve the amount of IP’s you need to achieve it :o)) After all, 50k will probably still give you some sort of quasi-decent life.
kay henry
My income is reasonable, around the 60K mark…but, yea, its not realistic to think that I’ll be able to achieve retirement on 100K in 10 years, but 50K in 10 is do-able…. I’ll only be 36 as well, so if I want more, I just keep working a few more years [biggrin]….
In theory, there is no difference between practice and theory, in practice, there is….
Originally posted by Bevo:You need the equivalent of 4 houses.
Ane to live in:
Two to generate income:
Last one to pay tax on the other two; that is, all up – 3 renters.P.Bevan
Hey Bevo, could you give a bit more detail on how to get from nothing to having 4 properties paid off (i’m assuming they’re paid off), that can generate 100K per year passive income?
In theory, there is no difference between practice and theory, in practice, there is….
Kinks,
If you really want to retire in 10yrs with $100K pa, there is another way of doing it. Instead of relying on the incomes, you could easily do it by supplement your $100K life style expenses from borrowing!
As others had already pointed out that to be able to generate $100K income pa at a return of 5%, you will need a 2M (50houses)of debt free equity. I doubt it there will be a lot of people able to achieve that in 10yrs!
However, I have a strategy that you can retire in 10yrs!
Assuming that you are owning your own home or is paying it off. Using the equity in your home to acquire 1 property every year for the next 10 yr. Say in yr 1 you acquired IP1 valued at $250k. The value of this IP will be valued at $500K at yr 11. Even if you borrowed 100% and did not pay down any principle during the 10 yr period, you’ll now have $250k built up as equity in IP1. Asumming, capital appreciation rate of >7%.
Now, you are ready to retire, set up a LOC of $100K against IP1 for your living expenses. The $100K is tax fee as they are borrowing! To finance to $100K pa life style, all you have to do is to make sure that the rental income in the last 10yrs had at least increased by $7000pa (assuming interest rate is 7%).
You keep doing that for the rest of the IPs for next 10 yrs. But, the best thing is while you living extravagantly, your wealth still multiplying. [blink]
let’s take another look. On the 11th yr, you owe $350K on IP1 valued at $500K. On the 21st yr, the same property will be worthed $1m. You can then withdraw $200K to support your life style. By then, you’ll owed $550K on a IP valued at 1M. Don’t you hate it when your wealth multiples quicker than you can spend![aacool]Cheers
High flyer
Originally posted by high flyer:
To finance to $100K pa life style, all you have to do is to make sure that the rental income in the last 10yrs had at least increased by $7000pa (assuming interest rate is 7%).
hey highflyer,
is it reasonable to assume $7000 increase in rent per year? It seems to be a steep increase, as say for a property renting out at $195/week and to then increase the rent by $7000 for next year the rent would have to jump from $195 to $340??? Correct me if I am wrong please [cap]
In theory, there is no difference between practice and theory, in practice, there is….
Kinks,
NO, not $7000 increase in a year but every 10yrs as you will access each property once every 10 yrs. I think it is a lot easier to have a income of $7000pa to finance the borrowing cost of $100Kpa than to have a income of $100kpa! Don’t you agree?
CheersKinks, I think high flyer has misinterpreted the 50 propertis bit.
TerryW said that they returned $2000pa AFTER expenses – which includes interest and rates etc. So the 50 houses are definitely not all paid off. And to have the $2Million, that would be houses valued at only $40K each. Talk about wanting to put off one scenario, to push another!!
However, I do agree with the fact that the houses ‘should’ double in 10 years, so the borrowing concept is possible. HOwever, if you start off today with 1 house at $100K, which returns to you $2000 per year after expenses, in 10 years, the rent will have gone up, but your interest costs wouldn’t have changed all that much (unless rates rise dramatically etc.).
So, perhaps in 10 years, you are earning $4000 per year from this property. Already you are down to needing only 25 such properties…..
I think you really need to sit down, and realistically work out what you can afford to purchase now, and how much it will return.
As you are only young, and on a good wage, in my opinion you could probably afford to purchase growth properties, that may require a little input from you each week – if you get depreciation, you could in fact get more tax return than it costs you, thus ‘making’ money. With growth properties, in 10 years, you might need to sell maybe 1 or 2 to pay off all debt, and then you might find that 5 or 6 properties will give you the lifestyle you want.
Cheers
Mel
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