Property ladder: I'll be retired by 40

[Gladdynook]

Rather than sell off properties to pay down mortgages on other properties, what are people's thoughts on keeping all properties and just borrowing money each year to live on?

For example, you have a 2.5M portfolio, and 1.5M of mortgages, and basically the rent covers all outgoings, but there is no way enough income to support you in your retirement. One would expect the value of your portfolio to grow around 7% average, therefore creating further equity of $175K PA on paper in the first year, and this increases even further in subsequent years. If you were to borrow say $100K PA then you could retire right now.

Interest would accrue on your borrowings each year, but this would be partially offset by rent increases. The net effect would be the portfolio value rising at a faster rate than your borrowings.

The scary thing would be if the property market made a 180 degree turn and began to reduce in value over a long period then you may find the bank no longer wanting to loan additional money, and you'd have to return to work.

Does anyone do this? or is my logic completely flawed? perhaps the banks refuse to lend further once you are no longer in paid employment?

[ScottSI]

You could refinance and pay yourself with this money yes - Payee, directors fees, dividends etc. You can't just borrow the money and do interest free loans to yourself, bit naughty and IRD took someone through the courts over this a few years back. Michael Yardley (Auz) talks a lot about this - read upon his stuff. Main concern would be bank rules and bank changes to these rules.

[Gladdynook]

Oh i wasnt suggesting the personal borrowings would be included in the property mortgages and therefore be deductable. However re-reading my post it could be read that way.

What i was meaning was that you'd have a personal debt that would increase each year. While this would grow at the current interest rate, you would also find your income from the rentals would increase each year due to inflation. Any rental earnings would then be taxed, and what is left over would be used to help pay the personal debt. Therefore the personal debt wouldnt increase quite as fast.

Will have a read up on Michael Yardley. thanks

[speights boy]

What security would you be offering for this personal debt?

[ScottSI]

I couldn't see why you wouldn't raise the loans in your company (if using one) and use it to service operating costs - eg your income, car, etc. Not an accountant so you would want to discuss it with them, look at tax implications and the numbers.

[Wayne]

Wine - $ 3.9 k or $ 75 pw

$75 per week is a serious amount of money. Now I like wine and can't be othered with poor wine (half a cellar with 13 dozen assorted) but you can get some really good wines for <$20 so we are talking 4 bottles a week - a drinking problem. Add that to the coffee and lack of sleep and serious problems are on the horizon.

For my part though I don't buy into the 'bag the brag'. I filter what you say as I filter what anyone else says. You succeed on your own terms - good for you. And success means what you want it to mean.

[ScottSI]

Good thing I don't drink really, and example for the drinkers out there. On hold with tribunal clerk so bored and sitting here staring at the web.

[Leftette]

That troll-o-meter spiked again. Just what are we supposed to believe, Scotty? You either marked out a budget that is complete bollocks or you buy wine and lots of it as a collector.

[ScottSI]

That troll-o-meter spiked again. Just what are we supposed to believe, Scotty? You either marked out a budget that is complete bollocks or you buy wine and lots of it as a collector.

think you need to read the post again leftette - I never said this was my budget I said these are some costs of life I point out to people.

[ScottSI]

My name is Scott Woods also (not some made up name like leftette) not Scotty thanks!

[Leftette]

I maintain that your list of expenses implied they were your costs. There are several key words in the post that any reasonable reader would infer that to be the case, Scott Woods Also. And the name is made up because I value my privacy, have no axe to grind and need to prove no particular point about my own situation (nor have nothing to sell).

[Razzzor]

Yeah those didn't sound like the typical kiwi costs to me, I'd be drunk every second night if I spent $75 a week on wine lol. And $55k on uni/edu each year?! Most people don't even earn $55k a year after tax.

But anyway, in Scott's defence I think he's only having to prove a point because everyone keeps questioning him. I appreciate that he's gone to the trouble of writing out a lengthy post on his property situation. It's very useful - there should be more self-made success stories on here.

[Keys]

IMHO. A success story is when an individual has realised, or is on the way to realise, their individual goal.

[Leftette]

The only reason I'm questioning him, Razzzor, is because of the suspicious-looking numbers, as you've noted.

[ScottSI]

Education – This is the cost a friend pays for their son at a Hamilton private boarding school. You may not pay it and that’s fine but if you want to send your kids private you need to budget for it don’t you? When I did a teacher placement at Christ College in CHCH (2005) the cost of day school was $ 11,800 pa to attend – excluding boarding costs!

University fees are generally $ 5 to 7 K + living costs so I think 20K is on the light side if you are helping your child out so they don’t have a loan. If you don’t help then fine but if you plan to do it then you have to budget for it.

My kids are 5 and 8 and Riwaka School and Mot high will do them but people tell me I am going to do this and that and never know what costs are.

Leftette fine about you wanting your privacy but I always find that interesting when a person feels it is fine to keep bagging someone and calling them in to question.

What numbers are in question also? Let me know, shall I post a renovation spread sheet, a registered valuation. Come along on Tuesday and I can run you through everything if that would make you happy but to be honest I don’t think it would. I see other people on this forum are maybe they would like to look through it, would that make you happy?