A previous thread indicated that to be financially independent from rents you needed the equivalent of owning outright about 5 properties.
4 x rents to pay living expenses and 1 x rent for holding costs.
This would give a comfortable but not lavish income if the properties were about average.
I was thinking about the proportion of people who would be able to do this.
Of 100% of dwellings maybe 65% are owner occupied and 10% institutional or housing commission. That leaves 25% for private rental, which is where your five properties per investor must come from.
Or if you prefer crude numbers, say there's 8 million dwelling units in Australia, that's about 2 million private rental dwellings (I can't be bothered going to the ABS but these figures should not be too far out).
Assuming every IP investor had 5 properties then that reduces the number of different owners of IPs to 400 000. Ie 2% of the population or around 5% of households.
In practice the distribution of who owns what is nowhere near this. The majority of IP investors have 1 property, and most of the rest have only one more. So by the time we get to the number required for financial independence it's tailed off.
I believe this relationship is immutable due to relatively fixed demand for housing (based on population and household formation). Houses are only useful for investments if they produce rental income so there's more would-be investors than houses and tenants. Which, combined with available finance, may explain why yields are low and don't cover costs for new purchasers that borrow most.
Now there's other styles of property investing where people might only a few places at a time but still become financially independent. Eg buy, renovate and sell, investing profits elsewhere. Or once they've amassed their nest egg with houses they might sell up and put it into fixed interest or shares. So some will have become financially independent through property but may not currently have IPs. Another group will have a mixture of a couple of IPs, a business and super or shares so houses will contribute but not on their own replace their job income.
At the individual level people can do well out of property. If one does it, another person might be able to as well. But due to the housing numbers involved, one or two people can do stuff that doesn't work for the majority. For this reason it is mathematically impossible for more than a minority to become financially indepdendent solely through residential property.
4 x rents to pay living expenses and 1 x rent for holding costs.
This would give a comfortable but not lavish income if the properties were about average.
I was thinking about the proportion of people who would be able to do this.
Of 100% of dwellings maybe 65% are owner occupied and 10% institutional or housing commission. That leaves 25% for private rental, which is where your five properties per investor must come from.
Or if you prefer crude numbers, say there's 8 million dwelling units in Australia, that's about 2 million private rental dwellings (I can't be bothered going to the ABS but these figures should not be too far out).
Assuming every IP investor had 5 properties then that reduces the number of different owners of IPs to 400 000. Ie 2% of the population or around 5% of households.
In practice the distribution of who owns what is nowhere near this. The majority of IP investors have 1 property, and most of the rest have only one more. So by the time we get to the number required for financial independence it's tailed off.
I believe this relationship is immutable due to relatively fixed demand for housing (based on population and household formation). Houses are only useful for investments if they produce rental income so there's more would-be investors than houses and tenants. Which, combined with available finance, may explain why yields are low and don't cover costs for new purchasers that borrow most.
Now there's other styles of property investing where people might only a few places at a time but still become financially independent. Eg buy, renovate and sell, investing profits elsewhere. Or once they've amassed their nest egg with houses they might sell up and put it into fixed interest or shares. So some will have become financially independent through property but may not currently have IPs. Another group will have a mixture of a couple of IPs, a business and super or shares so houses will contribute but not on their own replace their job income.
At the individual level people can do well out of property. If one does it, another person might be able to as well. But due to the housing numbers involved, one or two people can do stuff that doesn't work for the majority. For this reason it is mathematically impossible for more than a minority to become financially indepdendent solely through residential property.
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