Who lives off rental income alone

Do You Live Off Rental Income Alone?

  • yes

    Votes: 6 5.7%
  • No

    Votes: 81 77.1%
  • mix of rental income and other investments

    Votes: 13 12.4%
  • Almost There

    Votes: 7 6.7%

  • Total voters
    105
  • Poll closed .
You are correct i have had people tell me, what on earth am i doing, why am i paying P&I on it and not just I, why didn't i spread the money over a few IPs, stop making bulk mortgage repyaments on it and the list goes on. I have thought long and hard about all of this and yes i could go out and purcahse x amount of properties if i wanted too but at the end of the day i don't wan't to own the banks millions of dollars. I would perfer to be a 30yo whom owns 5 IPs outright or close to it rather then own 15 + properties and millions of dollars to the bank.

Im looking forward to owing 5 IPs outright or close to it in the future and being debt free. Here is just an senario.

5 IPs returning $400 rent p/w.
5 x $400.00 = $2000.00 p/w and debt free. That's choice to me.

Each to their own though, this is just my strategy everyone is entitled to their own. :D

take the above example- (understand it was just senario)-
$400 weekly rent
assuming 7% yield= $300,000 pp
x 5 properties
1.5 million.
How on an average income does one pay off 1.5 mill of debt in the near future?
im on an average wage - .

In 20 years that is paying 75k cash per year, that would mean an income of over 100k per annum, and saving the whole lot.

(This assumes the property is cashflow postive from day 1 and covers all stamp duty etc, buying costs etc.)- yield could also be higher but these usually come with larger holding costs- ie damage , rent arrears costs etc.
Also doesn't take into account that while you are paying one property off the others that you havent yet brought are increasing- over time anyway- in value/ cost.
 
Like Nikolina we're aiming to keep the debt levels as low as possible and the income levels as high as possible, just going about it a very different way. I'd prefer to be debt free. We're still on a below median income, by the end of the year we'll be above median.
 
take the above example- (understand it was just senario)-
$400 weekly rent
assuming 7% yield= $300,000 pp
x 5 properties
1.5 million.
How on an average income does one pay off 1.5 mill of debt in the near future?

In 20 years that is paying 75k cash per year, that would mean an income of over 100k per annum, and saving the whole lot.

(This assumes the property is cashflow postive from day 1 and covers all stamp duty etc, buying costs etc.)- yield could also be higher but these usually come with larger holding costs- ie damage , rent arrears costs etc.
Also doesn't take into account that while you are paying one property off the others that you havent yet brought are increasing- over time anyway- in value/ cost.

Hence she buys positively geared properties, that way they basically pay themselves off - she just throws in what extra she can afford. It would also be a snowballing effect, once the first property is paid off you have the income from that property going onto the second, and then when that is paid off you have both those incomes going onto the third, etc. It's not a race, but the first one or two properties would be the ones to take the longest to pay off. And at 23, imagine how many times that can be replicated before she even wants to look at retiring.
 
Can't say I agree with this strategy. Its a bit like a cup catching the rain rather than a bucket. When it rains CG I like to make sure Im catching plenty.
By buying paying off and repeat x5 means I will miss a lot of growth.
 
Can't say I agree with this strategy. Its a bit like a cup catching the rain rather than a bucket. When it rains CG I like to make sure Im catching plenty.
By buying paying off and repeat x5 means I will miss a lot of growth.

I agree, but i'd say it's like using 5 cups to collect rain, but you wait until the first cup is full of water until you put out the second cup, and so on.

As they say, it's not rocket surgery to let sleeping dogs lie, instead of having a wet fish slap you in the face, whilst pushing excretement up a hill with overcooked spaghetti.
 
I agree, but i'd say it's like using 5 cups to collect rain, but you wait until the first cup is full of water until you put out the second cup, and so on.
You put out all the buckets at once and pour the overflow from the first into the second etc :)

Its a very good strategy for those of us who are either income challenged or debt averse or both. CG is not income. Believe me, I've had ridiculous GC in the last year but I can't do a damn thing with it - but I can spend the rent.
 
I was thinking along your lines too nikolina being young too i thought aim was to try and pay as much of as possible as fast as possible but then found/joined this forum and sort of open my eyes up a fair bit.
Cause if i was to try and pay of one of my ips then it would take years (easily 4-5) and hence loose out on some good buys... then in that time properties will increase etc etc.

I dont think theres a right or wrong way of accumulating ips so i like your style ;) and good luck
 
take the above example- (understand it was just senario)-
$400 weekly rent
assuming 7% yield= $300,000 pp
x 5 properties
1.5 million.
How on an average income does one pay off 1.5 mill of debt in the near future?

In 20 years that is paying 75k cash per year, that would mean an income of over 100k per annum, and saving the whole lot.

(This assumes the property is cashflow postive from day 1 and covers all stamp duty etc, buying costs etc.)- yield could also be higher but these usually come with larger holding costs- ie damage , rent arrears costs etc.
Also doesn't take into account that while you are paying one property off the others that you havent yet brought are increasing- over time anyway- in value/ cost.

Southbrisbane,

It can be done. My first home was purchased at x amount (three bedroom house in sydney). I had more then half of the purchase price in cash, Very little loan from the bank and has a good rental yeild. It was positive geard from day one hence the large deposit.

My next IP too has an large deposit ready to go, I will borrow very little from bank. The return will cover the fortnightly repayments and i will be left with a whole lot more as the property will also be positive geard.

So lets just say if one or i was on an income of 60k a year, with that in hand and also the return you will be getting from both properties (both being positive geard - large deposit) i believe it can be achieved. I work 6-7 days a week. Past two years ive worked both xmas day & boxing day. I put in alot of hard work saving up.

My first IP took me 4-5 years to save up for - i think. So lets say i saved 50k a year. That's 250k in 5 years. You could buy a property outright for that price - Not my exact figures, Just an example. 250k every 5 years, that's 1mil in 20 years. Yes i know prices may go up, up, i understand that but their is still bargins out their to be found.

Hope that makes sense.

I don't want debt. I hate it. I will continue with this strategy.
 
Hence she buys positively geared properties, that way they basically pay themselves off - she just throws in what extra she can afford. It would also be a snowballing effect, once the first property is paid off you have the income from that property going onto the second, and then when that is paid off you have both those incomes going onto the third, etc. It's not a race, but the first one or two properties would be the ones to take the longest to pay off. And at 23, imagine how many times that can be replicated before she even wants to look at retiring.

Could not have put it better myself. Plus keeping in mind i save up a massive deposit with each IP purchase. More then half the purchase price at the least. My first IP will be paid off within the next 3 years. Earlier if i want too, however im choosing to use what i have saved up at the moment to purchase IP number 2 soon.
 
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I think what you are doing is wonderful Nikolina. Keep to your plan and you will succeed. You truly are an inspiration and such a good example of the other side of gen Y :D
 
Could not have put it better myself. Plus keeping in mind i save up a massive deposit with each IP purchase. More then half the purchase price at the least. My first IP will be paid off within the next 3 years. Earlier if i want too, however im choosing to use what i have saved up at the moment to purchase IP number 2 soon.
Great work Nikolina,

I actually think its a great strategy. Conservative, sure, but great.

For those that still don't get it, consider it this way...

Her first IP has 2 incomes servicing it. Hers and the tennants. That's a 2:1 ratio of incomes to indebted properties.

Her second IP has 3 incomes servicing it. Hers and the two tennants from both IPs all servicing this third property. That's a 3:1 ratio of incomes to indebted properties and a much quicker pay-off period.

By the time she's onto her 20th property she has 21 incomes servicing that property or a 21:1 ratio of incomes to indebted properties. So, how quickly do you think that 20th property will be paid off with 21 incomes servicing the debt? ;)

Its an exponential growth curve. The more she gets the faster she pays them off and the faster she can acquire more. I've known of several investor mates who've applied exactly this strategy to very good effect. AND it has the added benefit of being virtually risk free. She'd need 20 families to simultaneously become unemployed and renig on their rental commitments for that 20th property to become at risk. Just ain't going to happen. She's rolling in cash flow and accumulating and paying off IPs faster than she can spot the good deals.

Great work mate!!

Cheers,
Michael
 
Great work Nikolina,

I actually think its a great strategy. Conservative, sure, but great.

For those that still don't get it, consider it this way...

Her first IP has 2 incomes servicing it. Hers and the tennants. That's a 2:1 ratio of incomes to indebted properties.

Her second IP has 3 incomes servicing it. Hers and the two tennants from both IPs all servicing this third property. That's a 3:1 ratio of incomes to indebted properties and a much quicker pay-off period.

By the time she's onto her 20th property she has 21 incomes servicing that property or a 21:1 ratio of incomes to indebted properties. So, how quickly do you think that 20th property will be paid off with 21 incomes servicing the debt? ;)

Its an exponential growth curve. The more she gets the faster she pays them off and the faster she can acquire more. I've known of several investor mates who've applied exactly this strategy to very good effect. AND it has the added benefit of being virtually risk free. She'd need 20 families to simultaneously become unemployed and renig on their rental commitments for that 20th property to become at risk. Just ain't going to happen. She's rolling in cash flow and accumulating and paying off IPs faster than she can spot the good deals.

Great work mate!!

Cheers,
Michael


Can someone put this theory in a spreadsheet?
 
Can someone put this theory in a spreadsheet?

Would be nice to also see the amount of tax paid when you have 21 incomes. I am assuming that all properties are bought under the one name.

The strategy Nikolina has adopted is surely one of the lowest risk strategy. But once her income from employment + rent reaches highest tax bracket you will be paying a lot of money in tax and that is a fact!

Cheers,
Oracle.
 
This thread is interesting and thought I would enter the debate....

I employ both a pay down and accumulate strategy. Simply paying off properties is a long and painful road.

My strategy is as follows:

1. Buy properties with a good balance of cash flow and capital gain. Ideally, I like my properties to be CF+ within 2-3 years.

2. Use all excess income to pay off the property. I set up 100% offsets so I can get at it if required.

3. I continue to buy 1-3 properties per year if they are well priced.

At the moment I have a process which reduces my principal by about 7-8k per month. This compounds and by the end of the year you could have paid down over 100k in equity.
 
For those that still don't get it, consider it this way...

Her first IP has 2 incomes servicing it. Hers and the tennants. That's a 2:1 ratio of incomes to indebted properties.

Her second IP has 3 incomes servicing it. Hers and the two tennants from both IPs all servicing this third property.

This assumes that each property is paid off before its income can be used for the next one.
 
Would be nice to also see the amount of tax paid when you have 21 incomes. I am assuming that all properties are bought under the one name.

The strategy Nikolina has adopted is surely one of the lowest risk strategy. But once her income from employment + rent reaches highest tax bracket you will be paying a lot of money in tax and that is a fact!

Cheers,
Oracle.

I don't know why everyone sees paying tax as such a bad thing! If you are paying tax, it means you are earning a profit - which is the reason for investing at all, isn't it? If you are really so against paying tax, then the easiest way to avoid it is don't earn an income. Personally I would rather have a $200k p/a income and paying maximum tax, then an income in the lowest tax bracket (say $30k p/a). If you really felt you were simply being too successful and earning too much money from rent :rolleyes: well I guess you could always go and donate to charity and get a tax break that way. ;)

Besides, think of what your tax is going towards. Who here has never got a medicare rebate, used a hospital, attended school / uni, used the roads, got some kind of payment from centerlink?? Even if you never did / have (in which case you must be living in a cave somewhere), what about your children, or future children, or grandchildren. Sure the govt cann please everyone all the time (and you may feel that they REALLY get it wrong sometimes) but it is a nessescity to keep or society and country running in a way that puts us way ahead of others (such as the USA, for example), and gives us all such great oppertunities in the first place. :)


Of course it is fine to take advantage of as many tax breaks as you legally can, but so long as everyone else is paying under the same messed up system, I don't see the point in avoiding a profit just to avoid tax. ;)
 
+1 to the above!

If one doesn't want to pay so much tax on your capital gains.... maybe one should quit their full time job and thus move into a lower tax bracket.... after all you are saving on paying tax, right?!

I'd be happy to pay the bucketload of tax anyday!
 
It works for you now because your 23 living at home with the parents, little to no expenses. Eventually life will get in the way (marriage, PPOR, kids, cars, bills, groceries, etc) and your going to struggle to keep that strategy up. I guess you could live with the parents indefinitely....ahem.

Im 28 now and i used to do the same thing when i was younger, paying down debt. Nothing wrong with it when you can. It allowed me to buy a couple of IP's and a block of land which i built my PPOR on. The thing is i made sure along the way i lived a life too, i went overseas for a while, wen't out on weekends, had nice cars etc, I experienced "life" in other words and i wouldn't trade that for double of what i have now. Surely we can't invest and have sacrifice our life completely!
 
It works for you now because your 23 living at home with the parents, little to no expenses. Eventually life will get in the way (marriage, PPOR, kids, cars, bills, groceries, etc) and your going to struggle to keep that strategy up. I guess you could live with the parents indefinitely....ahem.

Im 28 now and i used to do the same thing when i was younger, paying down debt. Nothing wrong with it when you can. It allowed me to buy a couple of IP's and a block of land which i built my PPOR on. The thing is i made sure along the way i lived a life too, i went overseas for a while, wen't out on weekends, had nice cars etc, I experienced "life" in other words and i wouldn't trade that for double of what i have now. Surely we can't invest and have sacrifice our life completely!

Respectfully disagree. I am 27, married, have three kids under 4yrs old and am a Stay At Home Mum. It can be done at any stage. Of course it may be easier without dependants and such, but most people at that stage in their life don't even look at investing and actually end up in significant amounts of personal 'bad' debt. But also look at the wage difference between what a 23yr old or younger might be earning compare to someone who is older and has more experience.
 
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