Critical mass.
- Thread starter zed_kid
- Start date
The capitol of what?
Critical mass for what, exactly? It blows up?
I saw what you wrote but I think I know what you asked. 
There is a "sweet spot" when your investments give a return commensurate with the study needed ie when it is sensible to devote more time to your investments than your job. Too little capital (note spelling) and your primary focus must still be "making a living". Too much and you find it hard to find a good home for it all and you end up getting involved with your mate's "goldmine" which is fraught with dangers.
For me, I reckon that "sweet spot" starts at 1 mil (net direct investment) in the share market. (I know nothing of the thought processes of the high income professionals) I've never considered where the "point of diminished return" is but it is not this side 100 mil and I assume that it happens when you become more interested in big game fishing than making a quid.
If you make $20/h you will tell the boss where to stick it much sooner than a professional with a $200/h charge out rate.
Is that where you wanted to start the thread?
There is a "sweet spot" when your investments give a return commensurate with the study needed ie when it is sensible to devote more time to your investments than your job. Too little capital (note spelling) and your primary focus must still be "making a living". Too much and you find it hard to find a good home for it all and you end up getting involved with your mate's "goldmine" which is fraught with dangers.
For me, I reckon that "sweet spot" starts at 1 mil (net direct investment) in the share market. (I know nothing of the thought processes of the high income professionals) I've never considered where the "point of diminished return" is but it is not this side 100 mil and I assume that it happens when you become more interested in big game fishing than making a quid.
If you make $20/h you will tell the boss where to stick it much sooner than a professional with a $200/h charge out rate.
Is that where you wanted to start the thread?
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I'm guessing that zed_kid is looking for something along the lines of the old aphorism "the first million is the hardest".
I think that still stands.
If you're in a highly skilled profession, such as doctor, engineer, lawyer, IT or similar, then you can get to earn six figures a year.
Outside of the financial sector (and even then, there are only four thousand in the City of London on the million pound plus bonus level), board level of a multinational, or being a media or sporting star, you're unlikely to see seven figures working for someone else.
The open alternatives are being an entrepreneur or investor. For the former, you're going to need to hire staff to hit a turnover in excess of a million, which means shifting from being an employee to employer. For the latter, most Somersoft types have achieved it through leveraged investments into rising asset classes. I suspect that it would be hard to achieve without other people's money, unless you're willing to spend 10 or 20 years saving very hard and making good decisions.
I think that still stands.
If you're in a highly skilled profession, such as doctor, engineer, lawyer, IT or similar, then you can get to earn six figures a year.
Outside of the financial sector (and even then, there are only four thousand in the City of London on the million pound plus bonus level), board level of a multinational, or being a media or sporting star, you're unlikely to see seven figures working for someone else.
The open alternatives are being an entrepreneur or investor. For the former, you're going to need to hire staff to hit a turnover in excess of a million, which means shifting from being an employee to employer. For the latter, most Somersoft types have achieved it through leveraged investments into rising asset classes. I suspect that it would be hard to achieve without other people's money, unless you're willing to spend 10 or 20 years saving very hard and making good decisions.
Critical mass for what?
I worked out what we need ages ago. 2x paid off local IP (or other equivalent passive income), 1x paid off PPoR, 1x unit in the city for the kidlets when they go to uni.
Shouldn't take too long to get there.
I worked out what we need ages ago. 2x paid off local IP (or other equivalent passive income), 1x paid off PPoR, 1x unit in the city for the kidlets when they go to uni.
Shouldn't take too long to get there.
I reckon what you're getting at is the amount needed to receive passive rent in an amount equal to what you spend to live.
If you need 80K pa, and your preferred vehicle is residential property, then with the following assumptions, that amount is approx ;
Gross yield of 5%
Nett yield after outgoings of 3.5%
80K / 0.035 = 2.29m
This is the value of fully paid off investment residential property.
Of course, you still need your PPoR, plus car plus all of the other stuff the family needs to actually live.
If you allocated 600K for the house, and another 110K for the car and furniture, then I reckon 3m of fully paid off assets is the number you are looking for.
How long does it take to accumulate 3m of fully paid off assets ??
As Jan Somers and others usually indicate, normally you need to go to about twice that level and then start paying off debt to come back down to the paid off figure.
Given that, I reckon you'd need to be holding in the region of 6 or 7 or 8 million in residential property (if that is your vehicle of choice) before the debt repay step to get back to where you can confidently generate 80K pa before tax.
Alternatively, you can ditch that idea, and go to the other extreme ;
Buy a moped to get around on, live in a caravan worth 20K, and buy a 800K commercial investment yielding 80K nett pa.
In that case, instead of 6 / 7 / 8 million, and then come back down to 3m fully owned, you might be able to achieve the same income position for well under 1m.
Everybody chooses their own path.....
If you need 80K pa, and your preferred vehicle is residential property, then with the following assumptions, that amount is approx ;
Gross yield of 5%
Nett yield after outgoings of 3.5%
80K / 0.035 = 2.29m
This is the value of fully paid off investment residential property.
Of course, you still need your PPoR, plus car plus all of the other stuff the family needs to actually live.
If you allocated 600K for the house, and another 110K for the car and furniture, then I reckon 3m of fully paid off assets is the number you are looking for.
How long does it take to accumulate 3m of fully paid off assets ??
As Jan Somers and others usually indicate, normally you need to go to about twice that level and then start paying off debt to come back down to the paid off figure.
Given that, I reckon you'd need to be holding in the region of 6 or 7 or 8 million in residential property (if that is your vehicle of choice) before the debt repay step to get back to where you can confidently generate 80K pa before tax.
Alternatively, you can ditch that idea, and go to the other extreme ;
Buy a moped to get around on, live in a caravan worth 20K, and buy a 800K commercial investment yielding 80K nett pa.
In that case, instead of 6 / 7 / 8 million, and then come back down to 3m fully owned, you might be able to achieve the same income position for well under 1m.
Everybody chooses their own path.....
Oh come on guys, I’m obviously not talking about nuclear fission... I thought this was an investor forum, not a nuclear physicist forum. I don’t have a nuclear reactor or an A-bomb in my garage. I’m sorry about being short and vague I guess (and the spelling) but I was already heavily on the sauce when I posted that, in fact, I don’t remember making this post.
Anyway, I’m talking about the critical mass of capital (sweet got it right this time) needed to live off the investments. Kind off like if you make a 5% return on 10k who cares, but 5% on 100k, a million then we’re talking.
Dazz, Sunfish and Graemsay knew what I was on about, maybe they were liquored up as well when they read the post.
And thanks for all the clever responses like ‘capitol of what?’ har har, you guys are all right.
Anyway, I’m talking about the critical mass of capital (sweet got it right this time) needed to live off the investments. Kind off like if you make a 5% return on 10k who cares, but 5% on 100k, a million then we’re talking.
Dazz, Sunfish and Graemsay knew what I was on about, maybe they were liquored up as well when they read the post.
And thanks for all the clever responses like ‘capitol of what?’ har har, you guys are all right.
5k a year is enough for you? What are you living on?
5% what, after tax cash return? On market value? You'd need a pretty low LVR. 5% of capital? What serviceability are you going to use to keep borrowing if you don't have a job?
Alcohol makes problems look far too simple.
Having fun intentionally missing the whole point?
It depends entirely on your area, how much you are willing to spend on a house (eg buying established, building, subdividing, renovating) and how much you want to earn off those investments.
I'd like either a duplex or two new houses side by side on a subdivided block, to get a total rent per year of around $30,000. I actually need about $20k a year to live on but with extra houses you need to add more for insurance, rates, water, blah blah blah.
I currently have around $150,000 (raised from about $50k of my own money) that I can release if I can sell my current two excess houses. Both are quite old houses so would only get $20k a year combined rent. By the looks of it it will cost about $250-300k to build two new transportables or one duplex (land is cheaper for a duplex) so I'd only need to get a loan for about $100-150k for that $30k income. To buy two equivalent new houses you'd need about $500-600k though, and the PPoR we are building has similar ratios (which is actually where I'm getting these figures from). I think it is pretty neat turning $50k and some creative accounting into $800k of houses (less if the market tanks), $30+k of income and only $250k debt in < 5 years, which should be quite easy to pay out. That's the goal anyway, not there yet. We've only got two old houses and a block of land, not 3 new ones. Nathan, of course, can boast far better results but then he's a young fellow with no family, I'm a crusty old coot with 3 kids in tow so it has to be low risk for me.
So which are you asking - what is the value of what you need to buy, or how much to you have to fork out to get there?
I'd like either a duplex or two new houses side by side on a subdivided block, to get a total rent per year of around $30,000. I actually need about $20k a year to live on but with extra houses you need to add more for insurance, rates, water, blah blah blah.
I currently have around $150,000 (raised from about $50k of my own money) that I can release if I can sell my current two excess houses. Both are quite old houses so would only get $20k a year combined rent. By the looks of it it will cost about $250-300k to build two new transportables or one duplex (land is cheaper for a duplex) so I'd only need to get a loan for about $100-150k for that $30k income. To buy two equivalent new houses you'd need about $500-600k though, and the PPoR we are building has similar ratios (which is actually where I'm getting these figures from). I think it is pretty neat turning $50k and some creative accounting into $800k of houses (less if the market tanks), $30+k of income and only $250k debt in < 5 years, which should be quite easy to pay out. That's the goal anyway, not there yet. We've only got two old houses and a block of land, not 3 new ones. Nathan, of course, can boast far better results but then he's a young fellow with no family, I'm a crusty old coot with 3 kids in tow so it has to be low risk for me.
So which are you asking - what is the value of what you need to buy, or how much to you have to fork out to get there?
I think many people refer this to as financial freedom, plenty of good threads discussing that and money psychology in general on the forum. Like "What is your definition of rich?"
Up front assumptions are key, I think it's easier to work backwards from these figures once you can work them out to your own satisfaction.
X = Yearly cost to fund your lifestyle
Y = Income from assets (Income you don’t need to exert yourself for such as share dividends, rents, managed business income etc)
X <= Y and you are financially free!
Take an assumption of 4% net return on net assets as a reasonably conservative figure and you will need..
1.25 million net assets to fully fund a $50k lifestyle
Adjust to individual taste variables such as lifestyle costs and return on assets.
You can also be doing quite nicely without being 100% financially free, for a person being forced to work full time in a non rewarding job just imagine how being 20% financially free and having the option perhaps to work only 4 days per week on their job and one day on their fortune would feel.
Reducing X can be a valid way of getting to financial freedom faster as well while you are also concentrating on increasing Y!
Up front assumptions are key, I think it's easier to work backwards from these figures once you can work them out to your own satisfaction.
X = Yearly cost to fund your lifestyle
Y = Income from assets (Income you don’t need to exert yourself for such as share dividends, rents, managed business income etc)
X <= Y and you are financially free!
Take an assumption of 4% net return on net assets as a reasonably conservative figure and you will need..
1.25 million net assets to fully fund a $50k lifestyle
Adjust to individual taste variables such as lifestyle costs and return on assets.
You can also be doing quite nicely without being 100% financially free, for a person being forced to work full time in a non rewarding job just imagine how being 20% financially free and having the option perhaps to work only 4 days per week on their job and one day on their fortune would feel.
Reducing X can be a valid way of getting to financial freedom faster as well while you are also concentrating on increasing Y!
Has anyone considered that it is becoming near impossible to get the kids out unless you help them.
I come from a European background and according to my mother, I should be happy to have my kids live with me for as long as they want to.
Mind you, this is the same women that sold the family home when I was only 18 at uni and went on a 2 year cruise.
I come from a European background and according to my mother, I should be happy to have my kids live with me for as long as they want to.
Mind you, this is the same women that sold the family home when I was only 18 at uni and went on a 2 year cruise.
Yes, which is why part of my Grand Plan involves that purchase of a unit in the city, mainly for stability while they're at uni.
My offspring are 7 years apart so in theory the elder and younger ones won't be in there at the same time, and if 7 years isn't long enough to finish uni (or something), get a job and start saving for a house I don't know what is.
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