Hi all,
WizardfromOz, thanks for the positive feedback. I feel a bit battered here every now and again, but persist with my posts in the hope that it at least lends a little bit of insight for those that may be interested.
I like what See Change has said above. I agree that you need to move with the market, and a balanced approach of growth and income allows you to do this. If the market is bounding ahead than a leveraged position makes sense. If its flat or sliding, then neutral or positive is a smarter position.
One point I think TMA is missing is that when you retire from salaried employment, the intent is to live off your investment structure. This does not necessarily mean that you will be living off the surplus “income” in your structure above expenses. You may be neutral and living off surplus “growth” at a lower tax rate. Of course, given you have no salaried income then you need to be neutral or better. But even if you have a small income and a lot of growth, then you can still draw some of that growth to live and leave the surplus growth in the structure.
If the market dips across the board and you haven’t diversified across asset categories then your surplus growth might not be as high. In this instance you might consider changing your level of gearing to increase your surplus income so you don’t rely on your growth to fund your lifestyle. I think this is sort of where See Change was heading.
I believe that proper investing is diversified across a lot of asset categories and even across sub-markets within categories. It is also a dynamic process and not a one shoe fits all, set and forget undertaking. You need to keep your structure mobile.
Cheers,
Michael.Michael
Following on from where I suggested you can cash up when the market has peaked, my aim is to start buying in at a point where I see absolute bargains.
Now if I keep buying whenever I can afford to ( as suggested by some ) and maintaining a higher LVR , when the market comes to a point where I want to start buying again , the odds are that interest rates will be higher, values will have come down, and the banks may have tightened up their lending criteria. As a result I may not be able to borrow the money that I want to in order to buy the bargains, or if interest rates are higher, I may not have the cash flow to maintain the loans and maintain a nice life style .
What would I class as a Bargains ? Well as I believe the next cycle , like all others before it will start near the centre of Sydney , in order to gain maximum benifit , that’s where I’ll be looking. I know people who have bought well positioned properties at 50 % of their peak price in the preceeding cycle. In 94 I saw ( without know much about investing ) well positioned properties ( mid north shore , east side walk station ) that were selling around 60 – 70 % of the value they had sold for in the previous boom in the late 80’s. Those properties have more than trippled from that price now , though they’re on the way down now…
At that stage I would even toy with getting a cash bond inorder to improve my servicability if I could by more in comfort.
See Change
<Edited: Rob, some good points made but lost in the personal jibes that, in my opinion, weren’t as bad as they may have seemed. Stick to playing the ball mate and be open to different opinions under the “let’s agree to disagree” philosophy.>
Originally posted by Michael Whyte:One point I think TMA is missing is that when you retire from salaried employment, the intent is to live off your investment structure. This does not necessarily mean that you will be living off the surplus “income” in your structure above expenses. You may be neutral and living off surplus “growth” at a lower tax rate.
I have not missed a thing!
I think you are missing the point that there are so many ‘IFs’ and ‘BUTs’ in the ‘LIVING’ off equity strategy one of which you outlined above. It has way too many variables and too much risk to be considered as a serious strategy to be used.
Of course, given you have no salaried income then you need to be neutral or better. But even if you have a small income and a lot of growth, then you can still draw some of that growth to live and leave the surplus growth in the structure.There is that ‘IF’ again. What happens if you have a small income and NO growth? Nothing is absolute!
OR…
What happens if you are lucky enough to have your LVRs low and then the market does a quick about face and you can no longer draw equity because your LVRs have shot up? You still only have a small income but now you have a lot more debt from previous draw downs. What do you do?
If the market dips across the board and you haven’t diversified across asset categories then your surplus growth might not be as high. In this instance you might consider changing your level of gearing to increase your surplus income so you don’t rely on your growth to fund your lifestyle.Get off the eggshells mate! I don’t know how your mate considered your comments balanced. Your surplus growth might not be as high can easily be your surplus growth can be non-existent or negative.
When you suggest changing your level of gearing when tough times hit, surely you are not suggesting selling some property??? What a poor plan and a great way to end up with nothing over a long period.
I believe that proper investing is diversified across a lot of asset categories and even across sub-markets within categories.And here is the point you are missing….
INVESTING!!!!
I have said it many times and I will say it again… ‘LIVING’ off equity is not investing. It is using your asset base to fund non-deductible personal expenditure which would only be required by those who cannot afford their current lifestyle and their levels off debt. It is a recipy for disaster.
It must be made clear when discussing using equity whether you are referring to ‘LIVING’ off equity (which I think is ridiculous) or ‘INVESTING’ off equity (which I totally support 100%)!!!
I think you speak of ‘INVESTING’ off equity (which is a fantastic plan for any investor) when you write ‘LIVING’.
I noticed someone made mention of the elderly living off their equity. Reverse Mortgages are a totally different ball game which I support for those who have no inclination to invest and want to improve their lifestyle. The BIG DIFFERENCE between reverse mortgages and ‘LIVING’ off equity is that one has to be repaid in life and the other is only repaid in death or moving into full-time care! They are not even close in comparison.
TMA
http://www.email4money.info
Investor Links
First Home Buyer WebsiteDoes this topic actually address what I beleive the Property Investors Club proposes/ is doing? I have been considering their planning but am further unsure from this article your thoughts please, thank you.
Now that we are in a different climate of lending, how are people who've been trying to live off equity coping?
It is now very tough to get finance for this sort of thing. eg Just getting a LOC is hard as the lender will want proof of where you are going to use the funds. If you say you are not going to invest them, but to live off borrowed money they will not lend in most cases.
A way around this is to borrow to buy shares which are high yielding and to live off the dividends – can also possibly margin these shares and buy some more and live off more dividends while letter the margin loans capitalise.
Another method is the old cash bond. ie borrow to buy an annuity and live off the income from that.
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
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