All Topics / General Property / why not sell your IP’s in the future?

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  • Profile photo of PosEnterprisesPosEnterprises
    Member
    @posenterprises
    Join Date: 2006
    Post Count: 290

    Hi everyone just wanted to get some opinions on why you would never sell your IP's in the future, if you needed money to live off when you retire from work.

    Is there anyone here currenly living off equity on property only and how do you keep all the finances in check and what would be the figure you would aim for before you decided to leave work.  What are the problems in future borrowings if the bank wants to know if you have a job or not to service the loans.

    I am curious as to why people say they would never sell if they needed cash to retire on.

    thanks for any tips.

    Profile photo of ducksterduckster
    Participant
    @duckster
    Join Date: 2004
    Post Count: 1,674

    Hi,
    I myself am not doing this and also I do not like the idea of living off equity.
     You borrow money to live on and it is not tax deductible as it is not an expense incurred for the purpose of producing income.
    However if you had no other income but had say a 2 million dollar portfolio and borrowed say $40,000 a year to live on then this is 2% of the total value. So on average property grows by 7% p/a a year.
    This is the reason banks lend for reverse mortgages.
    What are the problems in future borrowings if the bank wants to know if you have a job or not to service the loans.
    People with large portfolios with huge equity would get a pre approved line of credit against the equity and borrow from it to buy the next property.
    I will not say low doc as the lending rules have been tightened recently.
    Banks are a problem when you do not have a job and will look at rent as income but some reduce it to 70% when working out the lending. Banks will not look at borrowed money as income.
    I am curious as to why people say they would never sell if they needed cash to retire on.
    When you sell you incur capital gains tax, sales commission and lose a cash producing asset. You also lose any future capital growth in the asset.

    Mind you this is exactly what our government does!

    However I would sell an asset with a large equity if I needed a way of reducing the overall debt so that the remaining assets produce income as the debt has been reduced and also your lending power in the future increases as the remaining assets grow.

    Profile photo of PosEnterprisesPosEnterprises
    Member
    @posenterprises
    Join Date: 2006
    Post Count: 290

    Thanks for the reply Duckster.

    So what would people do if they are retired and the net rental income is not enough to live off.   Do they have to get another job? 

    Do you think Lo Doc or No Doc lending will dissappear forever or will it always be around.  I know of a couple people who are currently living on equity and have substantial portfolio's. 

    So I would guess before you left paid employment you would have to have a net equity of at least $1M or more. 

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Vic,
     
    For all intense and purposes Nodoc and the majority of Lodoc refinances are a thing of the past now so if you are living off equity you have a problem.

    Richard Taylor | Australia's leading private lender

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    There is always the retirement type loans – reverse mortgages

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of lifeXlifeX
    Member
    @lifex
    Join Date: 2004
    Post Count: 651

    There are many ways to use equity to buy income producing products or other. You don't need to rely on the big four banks for everything.

    Don't forget  you can use rental monies to pay down the debt that is created to spend on living expenses.  And then borrow deductible money to pay down the deductible interest.

       Living on equity works for as long as the capital gains exceed the money drawn down and the interest costs.

    It is worth checking out just to get a good appreciation of the many tools available to an invester.

    Not sure I would personally do it.

    Profile photo of WJ HookerWJ Hooker
    Participant
    @wj-hooker
    Join Date: 2007
    Post Count: 272

    PosEnterprizes,
                             
                                Also by not selling you grow your portfolio and can pass it onto kids when you die and allocate who gets what and no CGT as long as they don't sell, thus future growth as family grows hopefullly kids can grow their wealth etc etc. In other words I have taken it upon myself to start the family wealth program into the future, thus move out of poverty ( when I started ).

                                Beside housing, you need superannuation, your own share portfolio, etc.. Relying on just a few investment houses is not the way to go, although it is a steady and reliable growth program that has served me very well, it has run its cause and future gains will not be anything like the past.

                                Another medium will need to come along now, housing growth has finished, sure we will eventually get a bit of gain with inflation etc, but you will not make your millions from now on. If you can think of what the next big thing will be then you will be rich, if you think of it just drop us a line…

    Profile photo of kum yin laukum yin lau
    Member
    @kum-yin-lau
    Join Date: 2006
    Post Count: 342

    Hi, I sold and was totally debt free. Didn't work. Been kicking myself ever since.

    But I bought a book by George Allen [American] and found that what I did was uncannily similar to his graph so I suspect that a number of other people might have done the same.

    It appears that people on retirement cash out and then just live on whatever income is derived.

    By cashing out, our borrowing capacity changes.

    For instance, on a $500000 loan, I couldn't borrow very much more.

    After selling those loans were zerorised and suddenly, I could borrow more than a million.

    My character is such I borrow first and worry later. After I signed on the dotted line, I scurry around to make it work.

    Worked like a dream.

    KY

    Profile photo of hbbehrendorffhbbehrendorff
    Member
    @hbbehrendorff
    Join Date: 2006
    Post Count: 293

    Simple Answer:  Dollars go down in Value,  Houses go up in Value…

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