Whenever you join a property investors association, you’ll hear people say (the very true statement), “you need to set goals”.

But the trouble is … most people don’t tell you how to set them. So here’s a simple way to figure out what to do so you can live off your investment property portfolio.

According to the NZ Property Investor magazine survey, investors tend to want one of three things – to build a passive income, use property to retire comfortably, or simply build wealth.

The first two are the most popular. And when it comes to achieving these, you can use either the Nest Egg strategy or the Golden Goose.

Nest Egg

This strategy is where you build your assets. Then when you stop working, you sell your properties. That leaves you with a big lump of cash, which you can live off.

This is a bit like KiwiSaver. You hit retirement. You get the cash. You can spend the cash. But, you might also keep the money in a conservative fund, so you still earn a return if you don’t need it all straight away.

Now, this strategy has some pros and cons. The first con is that eventually, your money will run out. Since you’re gradually spending your assets.

But, the benefit is that you can still live a comfortable life and don’t need as many assets as the Golden Goose strategy.

For example, let’s say you want to use the Nest Egg to retire at 65. You plan to live on $100k of income (pre-tax) per year, and you think you’ll live to 82. To do that, you’ll need about $1.27 million of net assets, excluding government superannuation.

’The powerful thing about these two strategies is that once you have identified the approach you’ll take, it’s easy to estimate how many assets you need

Golden Goose

The Golden Goose is a step-up from Nest Egg. Instead of selling your assets to fund your lifestyle, this is where you continue to own your properties and only live off the rental income.

This requires more assets to make this work.

For example, if you want to use the Golden Goose strategy to live on the same $100k income (pre-tax) per year that we discussed above, you’ll need $2.5 million worth of net assets. This assumes a 4% net yield and doesn’t factor in government superannuation.

So $1.27 million of assets through the Nest Egg vs $2.5 million through the Golden Goose. But, if you opt for the latter strategy, you never have to worry about running out of money.

Wealth Gap

The powerful thing about these two strategies is that once you have identified the approach you’ll take, it’s easy to estimate how many assets you need.

On top of that, you can then estimate how many assets you are currently on track to have based on what you are doing right now.

Then, if there is a difference between the number of investments you need and the amount you’re on track to have, you have a wealth gap.

Don’t worry; most people do. This becomes your goal for what you need to achieve through property.

For instance, take the example of the Golden Goose strategy from above. If you need $2.5 million in net assets and are on track for $1 million, your wealth gap is $1.5 million.

That’s what you need to build to achieve your goal. Here’s an example of what an investor’s plan might look like:

“In 20 years, I want to have a passive income of $100,000 per year. To do that, I need $2.5 million in net assets. I’m currently on track for $1 million and need to build an extra $1.5 million. So, I have 20 years to build another $1.5 million in net assets. This is my wealth gap.”

How Do I Do This?

The first step is to decide how you want to use property so you can live off your portfolio. Do you want to use the Nest Egg or the Golden Goose? Once you’ve decided, you can crunch your own numbers online using a retirement calculator and net worth estimator. Or, you might like to use a financial adviser who can run the numbers to figure out your wealth gap and how to close it. All figures are adjusted for inflation and use today’s dollars.