Minimum capital to make $30,000 per year in the stock market?

[skc]

I have to agree:
bought at the low: 270k unit (total cost after all stamp duties etc) rented at 320 a week
property now valued around 300k (ie 10 % capital gain in around 3 years-> just matching inflation when you think about it)
after all costs, repairs etc get around 7.5k a year so a return of 2.8%
I could get a bit more managing myself, not being nice to the tenant etc etc-> but a 3% return is IMHO the most realistic figure you can get at present time on a standard property;
yes there is some depreciation etc to add to this but will not add an extra point
and honestly, I think I am doing quite well with this one.
bying now at 300k + cost would reduce the return even more

We have a unit in Brisbane valued at around $350k, and renting at $370 per week ($19250 per year). The EBITDA cashflow is around $12,300, or 64% of total gross rent. So yield is 3.5%.

Of the ~$7k expense, it's pretty much $2k council rates, $2.2k body corporate, $1.5k agent fee and the sundry maintainance. Most of these are some what unavoidable. So typically take a 30-40% discount to gross yield of 5% is a decent first gustimate on actual cashflow.

Begs the question... if you want exposure to property, why not by a "leverage adjusted" listed property trust.

 

[pinkboy]

Buying residential property for NET cash flow is a mugs game unless you are buying with after tax paid cash. With high turnover costs of tenants moving in and out, vacancy, management, and all the other accosiated costs and maintenance, it becomes like a job when you have 10+ properties and achieving 'passive' cash flow is non existent, not to mention not even getting close to $30k if you are paying interest costs.

If you were going to buy property, and had a lazy $350k, then you would be much better off buying a 8-11% net yielding commercial property with at least 5x5 lease terms with 3-4% rent increases and market option floor pricing, all outgoings including Land Tax paid, and reputable tenants. . Even then you would need 3 of these to get close to $30k passive income.

Looking further left field, what about buying or creating a direct business? If you have the balls to do this, there can be returns greater than $30k net cash flow if the business model is steered correctly over time and you eventually have it managed.

There are endless ways to make $30k passive income, but to be truly passive - it has to outstrip every conceivable dip in each asset class held at the same instance.

pinkboy

 

[kid hustlr]

Might be the first time I've ever heard a residential property return referred to as EBITDA

 

[skc]

Might be the first time I've ever heard a residential property return referred to as EBITDA

I just wanted to take financing structure and tax out of the equation, so EBITDA is most useful.

Yes... it will catch on like BRIC and PIGS... and remember you read it here first

Buying residential property for NET cash flow is a mugs game unless you are buying with after tax paid cash. With high turnover costs of tenants moving in and out, vacancy, management, and all the other accosiated costs and maintenance, it becomes like a job when you have 10+ properties and achieving 'passive' cash flow is non existent, not to mention not even getting close to $30k if you are paying interest costs.

Property is always a capital gains game. Whether you can get any capital gains really just depends on timing. In the property example above, we were very fortunate to have bought that unit in 2000, before the major boom for about 1/3 of its current value. So if I was to sell the place I could probably only realise ~$250k after tax... so my net yield on "realisable capital" is more like 5% (i.e. still $hit)...

 

[pinkboy]

I just wanted to take financing structure and tax out of the equation, so EBITDA is most useful.

Yes... it will catch on like BRIC and PIGS... and remember you read it here first



Property is always a capital gains game. Whether you can get any capital gains really just depends on timing. In the property example above, we were very fortunate to have bought that unit in 2000, before the major boom for about 1/3 of its current value. So if I was to sell the place I could probably only realise ~$250k after tax... so my net yield on "realisable capital" is more like 5% (i.e. still $hit)...

Yes, I realise this for sure. When I bought my first house when I was 18, from the time I signed the contract to the time it was finished built - it doubled in price. It has since doubled in price again. Purchased 9 years ago. I paid it off in a couple of years as I started my business shortly after. It now generated me around $20k p/a.

This purchase was pure luck though. All I wanted to do was move out of home as I had just finished at boarding school, so living with the folks again just wasn't cutting it for me.

Same - I couldn't sell it. Just too positive to let it go for now. Its equity also funds other investments so I'd need to think how much opportunity cost of the next investment would be.

pinkboy

 

[CanOz]

Basically the attraction with property is that someone else is paying for your investment...So if one can finance part of it, eventually the people renting will pay off the debt....that's a nice thought....revenge...i was a renter once!

 

[Julia]

Property is always a capital gains game. Whether you can get any capital gains really just depends on timing.

+1.
When inflation was rampant in the 70s and 80s in NZ certainly interest rates were high, eg I was paying 22%-23% on my IPs, but with rental property shortage you could get great gross yield, and most of mine doubled in capital value in less than three years.

Something similar might be happening in Sydney and Melbourne but it's certainly not in most regional areas as I mentioned before.
Too many people are ready to believe the spruikers' claims that property is "always a great investment", "always goes up" and "there are great yields to be had before you even get to that magnificent capital gain", without doing their own research.

In the current issue of "AFR Smart Investor" they are quoting Gross Rental Yields on Houses as:
Sydney - 3.9%
Melbourne - 3.4%

and on Apartments:
Sydney - 4.7
Melbourne - 4.2%

Body corporate fees can be a real killer on apartments. And if there really is a property bubble in those two cities with a pullback inevitable, there are going to be some capital losses as well.

 

[muir]

what is the minimum capital for you to make $30,000 per year in stockmarket

Work it backwards



5y US Treasury ZF $31.25 per 32nd ($7.8125 tick)

How many ticks do you need to make (on average) daily?

Do you have that skill level to make that on 1 contract?
Do you need 5 contracts?

Can you make any money at all?

By the way the answer is just four 1/32nds but your skill level, if you do have, determine how many contracts

 

[luutzu]

what is the minimum capital for you to make $30,000 per year in stockmarket

Long term average market returns around 8 to 10% p.a.? so around $300K if you put it in a low cost mutual fund and keep it there over 5 to 7 years.

I think you're interested in earning an OK income during the year though.
If that's the case, it's not really a matter of how much capital you have... it's more a matter of how good you are at analysing the businesses, how hard you are prepare to work... and how lucky you during the year.

 

[TPI]

Actually this whole yield obsession thing is a fallacy. What matters is total return, gross of franking if you like. You can consume from running yield or capital. They are equivalent if in pension phase, or a trader for tax purposes. The "eat your dividends but don't touch your capital" philosophy is a mental accounting cognitive error, or otherwise a method for personal discipline.

...

Your dividend yield might be sustained...but your dollar dividend...the part you actually eat...is crushed along with earnings. Markets may...generally...go up in the long term. But you could die before they do. Check your assumptions.

If you invested in stocks that didn't pay any dividends and share prices fell by 30-50% (before you could get out) and then went nowhere for 5 years, consuming from capital is potentially going to see you running out of capital very soon isn't it?

Also, you say cash dividends will get "crushed", but did this actually happen in the GFC?

What actually happened to cash dividends in a portfolio of household name stocks during and soon after the GFC?

Eg. CBA, WBC, ANZ, NAB, WOW, WES, TLS, BHP, RIO, ASX...

Some of them did get crushed, eg. WES and RIO, but the rest did not from what I can gather.

 

[TPI]

Very good point. Particularly when we're dependent on our capital to generate a living, capital protection should be the first priority imo.

I would agree that capital protection is important, but I think this can also lead some people to be too focused on short-term changes in share prices, rather than the underlying quality of the company and sustainability of earnings and dividend payments in the longer term.

 

[ROE]

If you invested in stocks that didn't pay any dividends and share prices fell by 30-50% (before you could get out) and then went nowhere for 5 years, consuming from capital is potentially going to see you running out of capital very soon isn't it?

Also, you say cash dividends will get "crushed", but did this actually happen in the GFC?

What actually happened to cash dividends in a portfolio of household name stocks during and soon after the GFC?

Eg. CBA, WBC, ANZ, NAB, WOW, WES, TLS, BHP, RIO, ASX...

Some of them did get crushed, eg. WES and RIO, but the rest did not from what I can gather.

You cant argue against the guy arms with theory

on paper it always looks right and sound logical, but that why none of the academics are very rich investors
cos when they come to put in practise it doesn't work ...

Theory does not account for greed/fear/psychology and human factors..

same with the dude that goes to a financial advisor and ask for their projected retirement income
so they bring out their charts and their compounding formular of stock gain 8% a year yadida
and wala after 30 years you have this much if you put this much away .. no worry we all set for a decent retirement income.

same with industry super fund projection but then after 30 years most people don't have enough money for retirement it doesn't add up to the projected figure WTF? what happened?

Experience and time follow and invest in the market will tell you why

 

[TPI]

You cant argue against the guy arms with theory

on paper it always looks right and sound logical, but that why none of the academics are very rich investors
cos when they come to put in practise it doesn't work ...

Theory does not account for greed/fear/psychology and human factors..

Yes very true, theory can be interesting though.

Interestingly WOW increased DPS by 45% from 2008 to 2013, so no crunch there, inverse crunch perhaps.

The rest mentioned got a bit squished for a few years... seem better now though.

 

[ROE]

Wow is a baby compared to RFG and DMP

RFG increase just over 100% and DMP 200%
And I reckon in future years they will out stripped Woolies in dividend payment -

And if you lucky to pick up CCP in 2008 you got 9 fold increase in dividend

I don't mind theory, they are good foundation but I don't apply it literally I take my experience and mix with it and come out with my version - hence no dividend paying business no Buy

 

[Bill M]

I don't mind theory, they are good foundation but I don't apply it literally I take my experience and mix with it and come out with my version - hence no dividend paying business no Buy

I have been investing in the stockmarket for 27 years now and I can honestly say I have never bought a stock that wasn't well established and paying dividends (currencies excluded). I live totally off my dividend, rental and interest income. I'm not interested in promises of new you beaut blue sky mining spec companies that promises the world and delivers nothing. Every dollar has to work for me. There is nothing in my portfolio that pays lower than 4.7% right now.

 

[TPI]

Wow is a baby compared to RFG and DMP

RFG increase just over 100% and DMP 200%
And I reckon in future years they will out stripped Woolies in dividend payment -

And if you lucky to pick up CCP in 2008 you got 9 fold increase in dividend

Yeah the smaller caps DPS growth can be much higher.