By Brett Warren April 11, 2023

A A A

14 View comments

I want to quit my job and work in property full time – how do I do it?

Property Investment
I want to quit my job and work in property full time – how do I do it?

Ever thought of quitting your job and working on (or living off) your property full-time?

If so, you're not alone.

Quitting Job2

I frequently see clients or potential clients of Metropole who want this.

In fact only the other day I sat with someone who said:

"I've been wanting to get out of the business we’ve been in for the last 12 years and move into property full time.

I keep hearing about people who are doing this and it's frustrating.

So how can we do this as we are on two good incomes and we want to try replace them with property related income."

My answer was – it’s not easy...

And I’ll explain why in a moment.

A related request I often hear from beginning investors is:

I’d like to buy and investment property or two so I can use the income to pay for the kids school fees and maybe have some left over for holidays etc.

My reply to both these types of questions usually leads to disappointment.

I say: “That’s not how property works!”

You just can’t live off the positive cash flow of your properties.

I know some people suggest you can, but I've consulted with hundreds of property investors each year and have spoken with thousands over the years who use our property management services and it’s been years since I’ve come across anyone who amassed a sufficiently large enough portfolio to “live" off the cash flow of their properties.

However…

I’ve worked with many investors who've lived off the equity of their property portfolios because they’ve bought high-growth properties and built a substantial asset base.

3 stages to successful property investing

The Asset Growth Stage - this usually takes 10 - 15 years or more - at least 2 good property cycles.
Our strategy at Metropole, one that has stood the test of time, is to acquire high-growth properties to build a substantial asset base using leverage and time to compound your returns and then slowly transition into...
The Cash Flow Stage - by slowly lowering your loan-to-value ratios. Then once you've lowered your LVR you can enjoy...
Living off your asset base.

I know many investors would love to live off the cash flow of their properties, but it’s just too hard to grow a portfolio of cash flow-positive properties of sufficient size to replace your income.

Cashflow2

On the other hand, the wealthy investors I deal with have built a cash machine by growing a substantial asset base of high-growth properties, and then lowering their loan-to-value ratios (LVR) so they can transition into the next phase, the cash flow phase of their investment life.

Note: THEY LOWER THEIR LVR IN A VARIETY OF WAYS

They could:

• Stop (or slow down) buying properties, so that while the value of their portfolio keeps rising, their loans remain much the same.

• Add value to their properties by manufacturing capital growth through renovations or development;

• Pay off some debt using their superannuation;

• Reduce their debt by paying off principal and interest; or

• Sell a property or two.

But the first stage of their wealth creation strategy always involves building a substantial asset base.

Can't I just live off the rent?

Let’s say you want an annual after-tax income of $100,000.

How are you going to achieve that?

How many properties do you need?

If your plan is to eventually pay down your debt and live off the rent, you’ll probably need at least $ 4 million worth of properties with no mortgage to achieve that $100,000 after-tax income.

Don't believe me?

The average gross yield for well-located properties in Australia is around 3.5%, but let’s be generous and say you earn a 4% yield across your property portfolio.

This means if you eventually own $1 million worth of properties with no debt, you’ll get $40,000 in rent.

But you’ll still have to pay rates and taxes and agents' commissions and repairs; leaving you with something like $28-30,000 a year.

And then you’ll have to pay tax on this income.

Cgt Tax

When you do the sums you’ll see that you need an unencumbered portfolio worth at least $ 5 million to earn that $100,000 a year after tax.

Remember that’s $5 million worth of property and no mortgage debt, otherwise, your cash flow will be lower.

And of course, you’ll also need to own your own home with no debt against it.

Does living off equity really work?

In the old days living off equity was easy.

You just had to go to the bank and get a low-doc loan and as long as your properties increased in value it was smooth sailing.

Sure it’s harder today, but it’s definitely doable.

You have to own the right type of property and lower your LVR to show serviceability to the banks.

Needless to say, you can’t achieve this overnight.

It takes time to build a substantial asset base and a comfortable loan-to-value ratio.

But if you take advantage of the magic of leverage, compounding and time, it happens.

Business Teamwork, Success And Strategy Concept

Of course, this strategy depends on the growth in your property portfolio and your ability to ride out the property cycle.

As I said, this takes successful investors 15 years or more and of course, most beginning investors never make it.

Finally, don’t believe all you read or hear – very few people “do” property full-time.

Most have a full-time job while they build their property investment business on the side.

You need to plan

Attaining wealth doesn’t just happen, it’s the result of a well-executed plan.

Planning is bringing the future into the present so you can do something about it now!

If you’re a beginner looking for a time-tested property investment strategy or an established investor who’s stuck or maybe you just want an objective second opinion about your situation, I suggest you allow the team at Metropole to build you a personalised, customised Strategic Property Plan

When you have a Strategic Property Plan you’re more likely to achieve the financial freedom you desire because we’ll help you:

Define your financial goals;
See whether your goals are realistic, especially for your timeline;
Measure your progress towards your goals – whether your property portfolio is working for you, or if you’re working for it;
Find ways to maximise your wealth creation through property;
Identify risks you hadn’t thought of.

And the real benefit is you’ll be able to grow your wealth through your property portfolio faster and more safely than the average investor.

Click here now and learn more about this service and discuss your options with us.

Your Strategic Property Plan should contain the following components:

An asset accumulation strategy
A manufacturing capital growth strategy
A rental growth strategy
An asset protection and tax minimisation strategy
A finance strategy including long-term debt reduction and…
A living off your property portfolio strategy

Click here now and learn more about this service and discuss your options with us.

Note: OF COURSE IF YOU WANT TO LIVE OFF THE EQUITY OF YOUR PROPERTY PORTFOLIO YOU'LL NEED TO OWN THE RIGHT TYPE OF PROPERTIES

One that has a level of scarcity, meaning they will be in continuous strong demand by owner-occupiers (to keep pushing up the value) and tenants (to help subsidise your mortgage); in the right location (one that has outperformed the long-term averages), at the right time in the property cycle (that would be now in many states) and for the right price.

Successful Businessman Counting Money

To become a successful investor you will need to surround yourself with a team of independent and unbiased professional advisors (not salespeople) – a team of people who are known, proven and trusted, so it is probably appropriate to remind you that in changing times like we are experiencing, no one can help you quite like the independent property investment strategists at Metropole.

Remember the multi-award-winning team at Metropole have no properties to sell, so their advice is independent and unbiased.

You may also want to read: How many properties do I need to retire?

About Brett Warren Brett Warren is National Director of Metropole Properties and uses his two decades of property investment experience to advise clients how to grow, protect and pass on their wealth through strategic property advice.

14 comments

I'm doing it now 2015-11-07 15:40:34

I enjoy your blog but don't always agree with everything you say. This blog is an example. In relation to Sydney (because that is the market I know) you only ever seem to talk about properties no further west than Strathfield. In Sydney you do not ...Read full version

1 reply

MCW 2015-09-25 20:10:01

1 reply

Adam 2015-09-25 19:38:57

Hi Michael, I have your book 'How to Grow a multi-million dollar property portfolio (which I think is excellent) Its an clever concept- to buy up now , build up a large portfolio then down the track once you are near 50% equity to continue to borrow ...Read full version

1 reply

Would you like to share your thoughts?

I'm doing it now November 7, 2015

I enjoy your blog but don’t always agree with everything you say. This blog is an example.

In relation to Sydney (because that is the market I know) you only ever seem to talk about properties no further west than Strathfield. In Sydney you do not have to build a portfolio of properties with million dollar price tags. It’s still possible to find excellent properties in good suburbs all the way to Penrith and Campbelltown. It’s a complete nonsense to ignore this market. Your rule of staying within 15km of city centre may be correct in other parts of Australia but it does not apply to Sydney. The population is simply too big to fit in a circle that’s 15km from the city centre and there is a thriving community well beyond good old Strathfield.

All my properties have enjoyed excellent capital growth – but that alone does not pay the bills. Property is a business and in business positive cashflow is King.

If your clients want to create a passive income from property they may need to look at a mix that includes more than just houses. Granny flats and clever floor plans also help not to mention higher yielding commercial and industrial property. There are plenty of possibilities and all it takes is some home work and asking the right people.

I live off the positive cashflow – I DO NOT live off the equity. I do agree that you need a decent portfolio upwards of 3 million minimum to cover all holding costs and provide income to live off. Million dollar properties with 2% actual return after costs (if you are lucky) is not the answer.

I’m living proof.

1 reply Reply

Michael Yardney November 7, 2015

Congratulations for achieving your success- well done. Clealry there’s more than one way to make a living form property.
I’ve never suggested that properties outside the (let’s say) 15 km radius don’t have capital growth, but I can show you statistics that (in general) proeprties closer tot he CBD and closer to the water have superior capital growth.

Sydney’s population is likely to grow inthe order of 8% in the next 5 years – meaning 8 % more cars on the road.

At the same time most of the better paying jobs will be close to the CBD – and those with the better paying jobs will, in my opinion, be able to and prepared to pay a premium to live closer to work. The same has happened ina ll big international cities around the world.

0 replies Reply

MCW September 25, 2015

I am not too sure what all the fuss is about negative gearing vs cash flow. At the end of the day we all invest for the ultimate objective of providing a sustainable and scalable income well into the future, be it derived from super capital growth into which one
tap as “income” in the form of equity draw OR real positive cash flow from rental yield alone from day one and still with the prospect
of moderate capital growth when held for the long term.

It all depends on individual’s comfort level with the choice of strategy, but I sure feel better with one bird in my hand than having few
up on the tree :-). If you have to wait long term to hope for an investment strategy to work for you, there are just too many variables
that are subject to change and beyond our control, eg: interest rates, regulation planning, zoning, economic, political, demographic,
you name them.

The strategy of buying “time” is not new and belongs to the camp of proponents of compounding interest strategy, and the choice
of investment asset can be cash, stock market, property or anything that is ideally inflationary in nature.

I am just questioning how scalable and sustainable an investment strategy that starts off losing money from day one can be.

2 replies Reply

MCW September 25, 2015

In a theoretical sense, consider the following 2 different investment scenarios of High Growth vs High Yield investments.
Assuming the following figures are averages for every year with 100% financing holding cost being fixed at 7% of the purchase price
at year 1, ie $100,000. Both investments held for 10 years:

High Growth vs High Yield
Growth 10% 5%
Yield 5% 10%
Cost 7% 7%
Yield incr p.a 4% 4%

Yr High Growth vs High Yield
1 100000.00 100000.00
2 108200.00 108400.00
3 117646.40 118093.60
4 128528.65 129280.01
5 141065.01 142189.14
6 155506.89 157086.26
7 172143.94 174277.55
8 191309.81 194116.29
9 213388.91 217010.20
10 238824.02 243429.77

I will like to think High Yield investment provides me better sustainability (ie self financed into long term) and scalability (ie buy as
many as possible without cash flow and serviceability concerns).

1 reply Reply

Michael Yardney September 25, 2015

The problem is high yield investments have poor growth so you it’s really ahrd to get the deposit fot the next and the next property.
I’ve found it’s just to hard to build a sufficent size CF+ portfolio – otherwise your argument makes sense

0 replies Reply

Adam September 25, 2015

Hi Michael, I have your book ‘How to Grow a multi-million dollar property portfolio (which I think is excellent)
Its an clever concept- to buy up now , build up a large portfolio then down the track once you are near 50% equity to continue to borrow / have a line of credit and live off the increased equity.
I have two questions on this..
1.will banks continue to lend (so long as you stay between 50- 60% geared?) – even though at this time one might be retired. – i.e. no job income..
2. What happens if you are retired and get 3 -5 years of stagnation in property prices…?

Thanks
Adam

1 reply Reply

Michael Yardney September 25, 2015

Adam
Both good questions
1. The banks are at present – you need high growth properties, a low LVR and sufficient cash flow from your properties to show some servicability (usually around 45% LVR)
2. that’s where owning the right proeprties and in different states comes in – plus you need to have a few years buffer up your sleeve

0 replies Reply

Jan September 25, 2015

I have ten rental properties in New Zealand that I have bought over the last eleven years and I am able to do property full time and live quite comfortably off the rents and live overseas for five months of the year and travel. The properties I buy are cash flow from the beginning and some have a return of 10% and they have doubled in value after ten years. I also have a LOC of $20,000 which is a good buffer.
I also have two rental properties in Australia that are negatively geared and substantially reduce my cash flow in NZ. They have not increased in value after five years either. If you want to live off the rents, I suggest investing in NZ.

1 reply Reply

Michael Yardney September 25, 2015

Jan, I agree that the way to live off property in New Zealand is very different to the way people become wealthy from property in Australia.
I’m sorry to hear your two rental properties in Australia have not had any capital growth in the last five years – I guess that’s a reflection of poor property selection, because certain segments of the Australian property market have had very, very substantial capital growth in that time. There is no doubt that the concept of living off the equity of your properties requires correct asset selection, but I guess it’s much the same in New Zealand. You just have to know your market

0 replies Reply

[email protected] September 24, 2015

“You just can’t live off the positive cash flow of your properties.”
This is simply untrue. When your properties have 12% ROI and you have several of them and you have depreciation schedules on all of them you can. I know Michael’s company is all about negative gearing and I enjoy his commentaries, but had to correct this comment.

1 reply Reply

Michael Yardney September 24, 2015

Thanks for your input

Always happy to hear differing opinions

Just to make things clear – of course you can if you have enough properties, but if you have 12% ROI as you say, you’re unlikley to have cpaital growth – let’s see how your returns look in 5 or so years when interst artes increase.

And by thew way…I’m definitley NOt about negative gearing – I’m about high growth properties – that’s very differnet

And thanks for the kind words about my commentaries –

0 replies Reply

Brad Goodwill September 24, 2015

Hi Shannon & Michael.
Being a regular Property Update reader, this is a message I’ve heard many times before.
I agree with the concept and it is a method I plan to use personally, but I would like to suggest that the calculations are flawed in one aspect.
If you have bought investment grade properties in high growth areas, and have held these properties through at least two growth cycles, your rental yield would likely not be 4%.
This changes the outcome a lot as you would no longer need the $4,000,000 as you mention. I suppose it could be a case of simply being conservative, but by not taking the expected yield (which should be a lot higher than 4%), it makes the numbers seem pretty daunting for someone starting out on their investment journey.
Brad

2 replies Reply

Michael Yardney September 24, 2015

Brad
Thanks for your comment.
We look at future rent as a percentage of the value of the property at that time – not as a percentage of the price you paid for it years ago.

1 reply Reply

CJ October 4, 2015

I agree with both of you to some degree yet the banks revalue the home after 2, 3 or 10 years of ownership not for what it was purchased for, they value the it based on what it is worth at the time. This is why the calculations are flawed as it doesn’t allow for an increased yield as rents rise in accordance with continually rising property prices, and hence the reason we invest in property. a 4% yield may be correct for the first year, possibly two yet as any finance associated with the property decreases, and rents rise the yield increases overtime if calculated using GAAP calculations.

0 replies Reply

11 more comments...

I want to quit my job and work in property full time – how do I do it?

My answer was – it’s not easy...

3 stages to successful property investing

Can't I just live off the rent?

Don't believe me?

Does living off equity really work?

You need to plan

Would you like to share your thoughts?

Guides