The Harsh Reality: High Incomes Don’t Always Equal Wealth 

Welcome to the first bonus episode of 2025!

In today’s snippet, we’re answering a question from listener Lou, who’s wondering: Is living off equity a smart strategy for early retirement—or a risky move? 

Bryce & Ben break down the pros and cons of borrowing against equity, why passive income is key, and how having the right exit strategy can make all the difference. 

Plus, they unpack the common mistakes investors make when relying too heavily on equity and share insights on how to structure your portfolio for long-term success. 

For the full Q&A episode, tune in here: Episode 147 | Q&A – What’s Your Exit Strategy? Are You Retiring or Have You Bought a “Dud”? 

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Now That You Know More About Living Off Equity… What’s Next?

We hope these insights help you on your journey to building a successful investment property portfolio and securing your financial future! 

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Want to Dive Deeper? Check Out These Episodes:

• Ep 23 | Exit Strategy in Property Investment 
• TPC Gold | What Exactly Is a Cash Flow Property?  
• Ep 488 | Buying Regional vs. City: Does It Stack Up? 

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Transcript

Bryce Holdaway
Alright here’s the first one from Lou (via) Facebook message: Hi guys, long time listener. You take the edge off Sydney commuting, thank you. My husband and I currently have six properties in New South Wales, nothing in Sydney Metro yet, valued at $2.3 million.  

Ben Kingsley
Very good. Well done. Congratulations.  

Bryce Holdaway
And an LVR at 64% with a dollar sign at the front. 

Ben Kingsley
Almost neutrally geared right there. 

Bryce Holdaway
And listen to this…a gross yield of 8.2%.  

Ben Kingsley
Oh goodness me. Sorry, apologies. Cash flow positive. 

Bryce Holdaway
You went early. 

Ben Kingsley
Cash flow positive!  

Bryce Holdaway
That’s cash flow positive. We’re both 40ish with two kids under five. Wow, they’re busy. Our aim is to retire early with $100,000 income. Reading your book, watching the videos and listening to the podcast, I am wondering if retirement income is always based on rental income alone. Or do you ever recommend borrowing off the equity as part of an early retirement strategy? With major buffers, of course. We’ve been very wrapped up in the acquisition phase that it’s hard to see where the end is, especially when rents seem to creep up so slowly. I would love your thoughts on living off equity as part of the strategy. Thanks, Lou.  

Ben Kingsley
Thanks Lou. So there’s a bit going on there. The one thing I don’t have is the income story and I don’t have the super story. So one of the big things that we always talk about when it is your overall passive income, we don’t disseminate or dissect into what is coming off the property versus what’s the overall wealth story. So you might have some shares mixed in with that…definitely some super, unless you’re maybe self-employed and you haven’t been paying yourself super, which you should because it’s a very, very effective way to invest.  

The reality is this…we always talk about getting the money in your offsets to continually keep filling the buckets. So technically your interest is lower and at some point in time you could either retire the debt or you could have all this equity built up, all this liquidity. So it’s not that traditional borrowing and living off the equity because obviously when you do that there’s interest on interest and that’s not necessarily what I would consider a successful way of doing that because the other thing that we don’t know from Lou is: how much money do they want early versus how much money do they want late?  

So as an example, if you’re 95: How much are you going to spend of that money? Are you going to still be travelling the world? Are you still going to be jumping out of perfectly good aircraft? So you’re going to be doing all this adventure stuff or no, you sort of you know are going to be teetotaling and just sitting back and relaxing and watching the world go by and spending less? So a lot of people might want a little bit more earlier on and that’s where the idea of having that liquidity piece is important, or if they want to basically have that money indefinitely and pass it on to the next generation, then the reality is going to be that they can do that. But it all comes down to looking at those overall numbers.  

On the whole, I’m not a big fan of living off equity. I’m more of a fan of retiring the debt and obviously doing an exit strategy where you might sell one down and time that exit out. it would come down to modelling the numbers, modelling the growth story, because with an 8.2% overall gross rental yield, I’d be fascinated to have a look at what those properties are like and whether they’re getting lots of growth. But if I’m already at 64, I’d be paying those down and there may be one more in me in terms of a growth asset. So if I was looking at their portfolio, I’d probably say get me a growth asset in there and then by doing that, effectively I would sub out maybe one or two of those, even though they’re giving really strong cash flows, I might sub out one or two of those higher yielding properties that are giving me no growth in retirement. So I’d exit out of those over a period of time.  

Bryce Holdaway
Mate I like the cut of your jib. The point here is, you know, they’re relying on increase in rental alone. The important thing is if you’re effectively channelling the money back to retiring debt, you’re still increasing the rental pool through debt reduction. So that’s one thing. And two, it’s about, for me, this question, because I must admit my early strategy was the harvesting equity part of it. Thanks to you, meeting you many, many years ago, that’s swung around. But the question is, are you active or are you passive? So we would be considered active, we would be considered more likely to acquire more properties than the average person. Statistically we know that not many people buy one, and then of those who do, 73% (stop) at one. Chris Gray for example, he does that. And he’s got heaps of properties right. So he is a more active investor than someone who is more passive.  

Ben Kingsley
Correct. 

Bryce Holdaway
So therefore he’s got eternal confidence in the fact that he’s got this portfolio in the east suburbs of Sydney and will continue to grow over time.  

Ben Kingsley
And he’s value adding.  

Bryce Holdaway
He’s turning apples into apple pie. 

Ben Kingsley
Yeah, and he’s doing, you know, sort of penthouses on top of blocks of apartments and all that type of stuff. So he’s a lot more sophisticated. He’s solving bigger problems; taking on greater risk for better rewards. 

Bryce Holdaway
So that’s where people have got to work out on the scale where they are. And it’s a white knuckle ride because it relies on properties always growing and what about the fact that in the next few years we might be in a lower growth environment and if you’re racking up debt at $100,000 a year but you’re in a low growth environment, that might leave you with some anxiety around what your retirement looks like.  

Ben Kingsley
If you’ve got a $10 million property portfolio. Risking two of it. Well, that’s okay, isn’t it?  

Bryce Holdaway
But we see a lot of portfolios in this business and not a lot of people are there. So put a ring around if you see yourself as an active or a passive investor. Because if you’re passive, well then it’s more likely to give you less sleepless nights to do a debt retirement strategy and live off the passive income. If you’re active and you just get your kicks out of property and you see yourself putting on tool belts and renovating, well maybe living off equity might be for you.  

Ben Kingsley
And for these guys, it sounds like they’ve gone regional. To get those types of yield, it’s unlikely you’ll find them in any major metropolitan area. You might have one in Darwin or something along those lines. So the reality is, if you’ve perfected what you’re doing and it’s working for you, and you’re not having the tenant challenges with bad tenants in some of those locations, because I’d love to know some of the stories around each of the properties and what’s happened and the good tenants and the bad tenants, because that’s usually what you get.  

You never get a perfect run in terms of good tenants when you’re sort of looking at those types of yields in some of the regional areas. But the reality is, is if you’re up for it and you’ve perfected what you’re doing, you can keep replicating. The real question is, once you then forecast those cash flows, you’ll know when you need to stop as opposed to, you know, if you want to keep going. Because property has a high in and out cost, doesn’t it? It has a high recycle cost. Cost to get in, cost to get out. So it’s important that you don’t just keep chasing them down, when retiring the debt and living off the passive income could be the (way to) go.  

Bryce Holdaway
One of the more profound statements I heard you say very early on when we first met Ben was you said: This is my goal. This is my passive income goal. I don’t need many more properties before my portfolio is done. Job is done. You speak to Jane Slack Smith, job is done. She’s not acquiring anymore. And that was counterintuitive at the time because you can have this sense that you just gotta keep buying. Gotta keep buying, gotta keep buying, gotta have 20, 30, 40. And he who dies with the most property wins.  

But the reality is if you’ve got a clearly defined end point and you reverse engineer what that end point looks like….it takes away all the mystery and it gives you a step-by-step approach of what you actually need to do. So the fact that you can put the cue in the rack and then over time have no pressure to keep up with the Joneses, no pressure to keep up with the person who wants to be on the front page who’s got 10 or 12, because you’re actually progressively walking towards your goal with three or four or five properties.  

Ben Kingsley
Yeah, and so it’s never about the number. It’s about the income that it gives. And so if I was to go back and think about what I was thinking in 2005, it was around that $140-$150k mark. Once we were able to sort of develop the simulator and the cash flows and all of that type of thing, I’ve tweaked it little bit. It’s gone up to $160k. But it’s been at that $160k now for probably five years. And now I know what I need to do. So I’ve got one more acquisition to make, and then basically retire the debt out, and I’m done.  

Bryce Holdaway
Very good. So there you go, Lou. I guess the last point on that is The Rule of 25, Ben. If you know how much income you want, multiply it by 25 and it gives you the amount of income producing assets debt-free you need. So for example, if you can live your life off $10,000… multiplied by 25, you need $250,000 worth of income producing assets outside of your family home. But if you need to do that by $100,000 (then you need) two and half million. So you work out your number and then reverse engineer that income.  

Ben Kingsley
And so the beautiful part about that is that’s working off of 4% yield. So people will understand that it’s obviously four 25s or 100. That’s how it works. If you’re chasing a higher yield like a 5% yield then it’s the rule of 20. So it’s as simple as that. But we call it “The Rule of 25” purely to base on if we’re in this historically low interest rate environment, then it’s better to be conservative and it’s better to sort of say yield and rental yields might sit around 4% for a longer period which means capital growth is still going to be pretty strong. So it’s always a good point to make.  

Bryce Holdaway
Hey good question Lou, I think it’s on everyone’s mind Ben, as they’re building a portfolio. “What does my exit strategy look like?” So hopefully that’s been helpful to the folks.