Steve2009

One can argue black is white all day. We'll have to agree to disagree.
Given that Japan has been in recovery for about 20 years since it's bubble and is still not back to bubble levels I don't know what more you want. I couldn't be bothered looking up Sweden's case but I believe that was in the last twenty years too.
I don't want to even go near this can of worms.

MartinLuther

Sure.

But the tax on interest seems to have been ignored in some of the scenarios. For example $148pw for Vash's equity is more like $100pw and could be as low as $75pw after tax.

ozzieeagle

What about the 40pct+ tax on that 6pct interest ? (assuming the deposit is in Aus)

Very pertinent to whats happening in our lives at present..... We just acquired adverse possession over our easements today after a 4 year process...Yahoooo !!! Which means we can develop over an extra 120 sqmeters of valuable innercity land.... (basically that means we can put 2 or more properties over what used to be a 1 and 3/4's size block and is now 2 blocks, that means street frontages instead of one behind the other) I'm off to see finance people this week. If I decide to take the dollars and run IE: cash up and rent, how comes tax doesnt eat up my surplus interest ?..... Plus I would lose the remaining family benefit we receive from the government.... so its more like 45 pct tax... maybe more. AFAIK.

The alternative is one hell of a loan for around 9months whilst the new properties get built.... hopefully this crash doesnt eventuate in that time.... if it does happen..... I'd say conservatively I've got 24 months of nervous sweat, whilst planning and building go ahead.

So do I cash up and hide, or do I build a decent house for myself and sell (or rent )the other to pay for it.

Cannot belive we finally got this easement... has anyone got any idea how difficult that process is.... unbelievable !!!! talk about hoops and jumps.

littda01

[QUOTE=Vash the Stampede;8880707]If it was a very real cost, it would be coming out of my bank account. It's not.



Precisely.



Within the last 20 years? I suspect not.

QUOTE]

Japan, some areas have not yet recovered to late 80s pricing. Hong Kong may have recovered from its crash (forget exactly when(, but it would be close. I think it may take a very long time for some parts of the US to regain 2006 prices.

If you look at Melbourne, then 1891 price levels were not re-attained until 2001. 110 years significantly longer than 20 :-)

If you look at the UK, then 1989 prices were probably not reached again until the early 2000s in some areas.

Not perfect examples, I know, but not bad.

Steve2009

Your example makes no sense but I'll try and work with it:

Person A:
$300,000 house
$1,000 rent (implies yield of 4%, compared to actual of 3.5%)
$1,000 per month savings (at 6.1%)
After 25 years will have between $485,792 and $578,842.

Person B:
$300,000 house
$1,000 mortgage payment (implies a mortgage interest rate of 0%)
$1,000 per month savings (at 6.1%)
After 25 years will have between $485,792 and $578,842 plus a house that they got for free?

$1,000 x 12 x 25 = $300,000
Where is the mortgage interest payment?

$1,000 x 12 x 25 = $300,000

An actual 25 year (100% LVR) mortgage on a $300,000 property at a very very generous 6.6% fixed would be $2044 per month. Meaning the householder has actually paid out a total of $613,200 for their $300,000 dollar house. Which may appreciate in value above or below the rate of inflation.

Steve2009

I have said 'before tax'. These hypothetical scenarios also ignore the fact that interest costs are typically 4 times the rental cost in the current market if I recall correctly. The hypothetical scenarios mentioned here are particularly benign.

ozzieeagle

I repeat where is the tax on the savings interest ?

Steve2009

I forgot the tax on the interest in this instance actually. Will edit.

ozzieeagle

Thats one hell of a hurdle for me, especially as we can only put 50,000 dollar lumpsum per year into super between us. We would definitely lose more than 40 pct of the interest in tax.

The Super is important as I'm less than 5 years from being able to get the super tax free.

Steve2009

Even if you were taxed at the highest rate on the UBank interest the yield would be 3.6% versus 3.5% for rental property. Except that with property investment your money is at risk. Arguably very high risk.

ozzieeagle

Even if you own most of it ? say 90pct plus ?

IE: What reasons should people be cashing in fully owned (more or less) properties ? are there valid reasons to do so.

Steve2009

I'm not going to advise anyone on any particular course of action. Personally though if I owned my PPR right now and could cash in and retire I would. I don't believe it's going to appreciate significantly in value. If I could cash in my house for $800,000 and rent it back off the investor for $2333 per month I would take their arm off! (Provided of course I was 50 plus which is realistic for the scenario you mention) EDIT: Woollies did same with a big chunk of property recently. Sale and leaseback. Allied Irish Banks in Ireland did same in circa 2006, although this was probably their only wise move on property bubble ever.

ozzieeagle

Interesting and a view I will keep in mind over the next few weeks of negotiations.

Steve2009

I hadn't actually read your post in full. I had a colleague in 2007 whose family had a similar dilemma except on a bigger scale. They owned a large house with large gardens in a suburb of Dublin called Greystones. They got permission for a housing development numbering a dozen or two dozens properties. The chap himself was quite risk inclined, being in his mid-twenties and entrepreneurial. His folks seemed to be more risk adverse, being close to retirement age with well educated and independent children and a comfortable standard of living. I'm not sure what course of action they chose but I hope they cashed in and ran or at least did nothing because we all know what happened next in Ireland.

pomtastic

[QUOTE=Seneca21;8880409
This could go on a longtime, is what I am saying. Are people prepared to rent for the next 10 years?[/QUOTE]

Yep, especially when I'm getting 6.51% on a basic savings account and property going sideways. Mortgages are not interest free unfortunately.