Forums / Property Investing / Help Needed! / Investment Plans To Retire Wealthy – Help needed

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  • Profile photo of kengw002kengw002
    Participant
    @kengw002
    Join Date: 2018
    Post Count: 14

    Hi guys

    This is an extremely basic version 1 of my retirement plans. Feedback very welcome as to what I need to add into my calculation for a more advanced version 2, what factors would you add in?

    i’ve made every assumption along the way very conservative (I think, but open to suggestion)

    How much do I want per year in retirement?

    $485,452. i.e At the age I 36 in 2018 I predict myself & my wife actually want $200k each year to live off. So in 30 years time, taking in inflation of 3% it will need to be $485,452 to be the same ammount of money in the year 2048.

    How much do I need saved to return $485,452 in retirement per year?
    $9mil X 5.5% (dividends) = $495k i.e To get $495k per year (covers my earlier target) in retirement without drawing down on your investment I need $9mil in assets earning 5.5% a year in distributions at year 2048. Assuming I am able to get 5.5% cash rate of return per year from my $9mil. (at this point i’m not factoring in the fact later down the track I could borrow money from the bank and live of that tax free knowing my capital growth will still be higher than what we draw, which will actually be my plan to execute on that)

    Therefore Our Property Investing Plan To Retire Happy:

    Property 1 – Our current home – $615,000 in 2018 (Debt IO $400,000.00) Assuming 5.5% growth rate over next 30 years. In 2048 Worth $3,065,130.00

    Property 2 Purchase next year- Lets say we buy a $450k property in 2019 (Debt IO $405,000.00) Assuming 5.5% growth rate over next 29 years. In 2048 Worth $2,125,856.00

    Property 3 purchase – Lets say we buy a $620k property in 2025 (Debt IO $560,000.00) Assuming 5.5% growth rate over next 23 years. In 2048 Worth $2,124,214.00

    Property 4 purchase – Lets say we buy a $810k property in 2030 (Debt IO $729,000.00) Assuming 5.5% growth rate over next 18 years. In 2048 Worth $2,123,388.00

    Property 5 purchase – Lets say we buy $1,060,000 property in 2035 (Debt IO $952,774.20) Assuming 5.5% growth rate over next 13 years. In 2048 Worth $2,126,120.00

    Property 6 purchase – Lets say we buy a $1,314,000 property in 2040 (Debt $1,182,600.00) Assuming 5.5% growth rate over next 8 years. In 2048 Worth $1,910,448.00

    Total Assets in 2048 $13,475,156.00
    Total Debt $4,229,374.20

    Net Assets $9,245,781.80 to reach my $9mil goal.

    let me have it! thanks guys

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,366

    Hi Kengw,
    Good for you for having a plan. That alone is a very good start.

    i’ve made every assumption along the way very conservative

    1. I agree it is very conservative.
    2. Your PPOR may not be quite as flexible as other IPs, so would its $3m be as accessible for investment as the others? Of course, you might downgrade to something smaller and have the extra to invest…..
    3. Will a $450k purchase next year be achievable? That depends on where you are, and where/what you are buying. Maybe not in Mel or Syd? Or will they drop in value to meet your projection?
    4. Assumption is that lending parameters will be flexible enough to allow you to buy as projected.
    5. You’ve calculated this as though you are not paying down any debt on each property. Very conservative, or were you looking at neutrally geared (or -ve geared) properties?
    6. Huge economic disasters aside, it sounds eminently “do-able”. Just don’t try to run before you can walk. Cashflow is King.
    7. You sound like your head is screwed on well – make it even more secure by continuing to educate yourself – then go, go, GO !!!

    I predict you could blow this away in real terms once you have learned how….

    Well done,
    Benny

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,173

    Good start mate

    I like to think in terms of today’s dollars as property and shares should (hopefully) grow at least as fast as inflation.

    $200k is that pretax or post tax? That is a lot of money either way, probably 8 times the pension amount. Do you really need this much as the less you need the quicker it will be. Also consider that there may be plenty of ways to make it more tax effective.

    5.5% may be a high figure to assume for dividends. I would use 4%
    Growth for property and shares might be higher

    But assuming 4% you would need $200,000 / 4% = $5mil worth of property at today’s value. This is unencumbered property or shares, other than your main residence.
    At $250,000 per property that would mean 20 properties fully paid off (or part property at part shares).

    How do you get 20 properties? It will be very difficult to borrow enough to buy say 3 or 4 unless you are on a very high income. So you would need to save like crazy, add value, and perhaps sell a few along the way to get capital to buy more. You can speed things up by improving and selling main residences tax free along the way too (making sure you don’t do this so it amounts to a business).

    Remember that CGT is half of income tax generally, and there are many concessions so it is a great way to build up capital over time.

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

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of kengw002kengw002
    Participant
    @kengw002
    Join Date: 2018
    Post Count: 14

    thanks Benny in answer to one of your points

    5. You’ve calculated this as though you are not paying down any debt on each property. Very conservative, or were you looking at neutrally geared (or -ve geared) properties?

    version 2 i’m thinking i’ll work out the cash flow side of things. I just put IO debt for each of them for this scenario to start with. but I do believe these IP’s will become cash flow positive after 5-7 years of which I would pay the debt down with the cash flow, was my initial thinking, but i’m sure i’ll find better ways.

    I was thinking this is a great way to see the worst case scenario to start with to achieve my goal if I applied basically no strategy other than to buy and hold and cover debt

    Profile photo of kengw002kengw002
    Participant
    @kengw002
    Join Date: 2018
    Post Count: 14

    $200k is that pretax or post tax? That is a lot of money either way, probably 8 times the pension amount. Do you really need this much as the less you need the quicker it will be. Also consider that there may be plenty of ways to make it more tax effective.

    I want to be much much richer than the pention rate :-P & yeah I agree, i’m definitely going to be learning all the tricks to make this strategy executed way quicker and more tax effective as I go through each stage of the process i’m sure. I’m sure i’ll be tempted to become an active investor and do some cash flow positive deals or quick profit deals along the way to pay down debt.

    5.5% may be a high figure to assume for dividends. I would use 4%
    Growth for property and shares might be higher

    I was thinking here, that if I sold it all at the end, and had it in shares or cash rate or whatever I did with it (keep it as rent cash flows etc) that I would be aiming to get a least a 5.5% return on my assets in 2048. Maybe 4% as you suggest is more realistic, i’d like to get some more opinions on this to see what we all think.

    • This reply was modified 1 year, 1 month ago by Profile photo of kengw002 kengw002.
    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,173

    If selling don’t forget to factor in about 24% lost of CGT.

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

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of kengw002kengw002
    Participant
    @kengw002
    Join Date: 2018
    Post Count: 14
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