Australian property prices..think hard
Feb 12th 2007, 10:34 am
#91
Forum Regular
Joined: Aug 2005
Location: Bangkok
Posts: 241
Re: Australian property prices..think hard
It's always dodgy to invest in something purely for tax reasons. Surely if an investment doesn't have sound fundamentals, it isn't worth investing in to begin with, even with the bonus of a tax break. A lot of SIPP investing has been driven by the tax advantages, without much thought IMHO to the quality of the underlying investments.
Snowflake
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http://www.FTBforum.co.uk - First Time Buyer’s Forum
Snowflake
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http://www.FTBforum.co.uk - First Time Buyer’s Forum
You are correct. I just studied the tax benefits that an investor can get by owning an investment property and it's not at all worth the risk they take. I think many are thinking short term with the assumption that the property prices will grow over the years much more than the Capital Gain tax that they have to pay at the time of disposal. To add to this formula, rent income also not tax deductible.
I do not think they have considered the increase of capital gain taxes over the years, increase of interest rates over the years and the possibility of keeping the house vacant for not having enough tenants during a recession.
I am not sure about other states, but here in Perth, it has more chances the property prices to go down over a 30 year period than other way around.
Reason is, WA is all about resources and when resource sector takes a dip, nothing else left to hang in to. No tourism sector, no manufacturing sector.. ???
Even people here are happy to go with the system and most of the families are living from one persons income while other paying for the mortgage.
Most of the WA investors have invested in each others property during last couple of years resulting for this property boom. This has resulted in more higher prices making already difficult WA more distanced to migrants and any first home buyers.
I think the benefits of the WA boom is now going back to the govt and to the banks. Many are financially stuck with heavy life time loans but do not want to admit.
From few months staying here, my feeling is that it should go back to where it was 2-3 years back or I'll change my thinking if the next door guy find a buyer to sell his brand new duplex for 750,000A$. That's his investment property!!!
Feb 19th 2007, 12:15 pm
#92
BE Forum Addict
Joined: Mar 2004
Location: Sydney
Posts: 1,628
Re: A Point That People Seem To Miss.
When people compare investing in property to investment in other areas such as stock or savings accounts what they often fail to mention is that when you invest in a property the only capital you have (usually) is your deposit. If you invested just your deposit in any other investment it could not possibly compete because you are getting a return on a much smaller amount.
This is especially true when investing in property to rent out.
What you hear is people (even some financial advisers) comparing directly property investment and other investments such as savings or stocks.
Example comparison over 5 years.
Lets assume you have $50,000.
option 1. Invest $50,000 in another scheme (pick anything you like).
Interst rate=5% per year (high return)
Total fund after 5 years = $63814
you make 13,814
option 2. put 50,000 deposit on £500,000 property.
property makes 5% (historically very conservative estimate)
Total fund after 5 years = 638140
you make $138,140
The difference between the two is massive. $124,326.
Ok so if you live in the property you have had to pay mortgage interest. But you would pay rent anyway unless you live in a tent!
So paying a mortgage is RENTING FROM THE BANK. It really helps to see it this way. Especially for people scared of buying.
Even if property only went up by 1% average in those 5 years (very unlikely) you would still make $25,505. Twice as much as option 1.
What some people forget is that average Joe cannot borrow $500,000 to invest on the stock market or for any thing else. A house is the only way Joe can use other peoples money to make money. Which of course is what banks do and they are the richest!!.
At the end of the day those who invest in property are much richer than those who dont. Yes mnortgages are a bum deal. But nothing compared to renting and investing your money elsewhere and waiting with fingers crossed any praying for a property crash.
Let me know what you think.
Martyn
(sorry its a bit long
)
This is especially true when investing in property to rent out.
What you hear is people (even some financial advisers) comparing directly property investment and other investments such as savings or stocks.
Example comparison over 5 years.
Lets assume you have $50,000.
option 1. Invest $50,000 in another scheme (pick anything you like).
Interst rate=5% per year (high return)
Total fund after 5 years = $63814
you make 13,814
option 2. put 50,000 deposit on £500,000 property.
property makes 5% (historically very conservative estimate)
Total fund after 5 years = 638140
you make $138,140
The difference between the two is massive. $124,326.
Ok so if you live in the property you have had to pay mortgage interest. But you would pay rent anyway unless you live in a tent!
So paying a mortgage is RENTING FROM THE BANK. It really helps to see it this way. Especially for people scared of buying.
Even if property only went up by 1% average in those 5 years (very unlikely) you would still make $25,505. Twice as much as option 1.
What some people forget is that average Joe cannot borrow $500,000 to invest on the stock market or for any thing else. A house is the only way Joe can use other peoples money to make money. Which of course is what banks do and they are the richest!!.
At the end of the day those who invest in property are much richer than those who dont. Yes mnortgages are a bum deal. But nothing compared to renting and investing your money elsewhere and waiting with fingers crossed any praying for a property crash.
Let me know what you think.
Martyn
(sorry its a bit long
)There was an article in the Sunday paper about this, the guys mother was quite proud about having bought a property 10 years ago with a loan which was now paid off by the tennant and being worth about 2-3 times the original amount. He pointed out if she had invested in shares (he used Commonwealth Bank as an example as they are a big brand that many Aussies have shares in since privatisation) with the share price more than tripling plus the dividends that have been paid out twice a year (given the amount of costs of the flat per year, rates, water etc.) and that you still get the same negative gearing and tax options the actual gain from the shares would have been a lot more than that of the property.
The article is Here
Feb 19th 2007, 7:11 pm
#93
Lost in BE Cyberspace
Joined: Mar 2003
Posts: 9,397
Re: Australian property prices..think hard
But the problem is that - like pyramid selling - *some* people *will* make money, because there will be others trying to get on a seemingly easy ladder. However, it is only held up by its bootstraps in the long term - it's when the only buyers left have to find the cash themselves and can't - that's when there is a *big* correction.
Admittedly, it's complicated in Oz because there is a constant influx of immigrants, many of whom have cashed up elsewhere and that cash helps sustain the musical chairs.
Admittedly, it's complicated in Oz because there is a constant influx of immigrants, many of whom have cashed up elsewhere and that cash helps sustain the musical chairs.
Feb 19th 2007, 11:32 pm
#94
Just Joined
Joined: Feb 2007
Posts: 3
Re: A Point That People Seem To Miss.
What about margin loans or line of credit? You can generally borrow about 70% (so not much lower that an investment property loan) and invest in the stock market.
There was an article in the Sunday paper about this, the guys mother was quite proud about having bought a property 10 years ago with a loan which was now paid off by the tennant and being worth about 2-3 times the original amount. He pointed out if she had invested in shares (he used Commonwealth Bank as an example as they are a big brand that many Aussies have shares in since privatisation) with the share price more than tripling plus the dividends that have been paid out twice a year (given the amount of costs of the flat per year, rates, water etc.) and that you still get the same negative gearing and tax options the actual gain from the shares would have been a lot more than that of the property.
The article is Here
There was an article in the Sunday paper about this, the guys mother was quite proud about having bought a property 10 years ago with a loan which was now paid off by the tennant and being worth about 2-3 times the original amount. He pointed out if she had invested in shares (he used Commonwealth Bank as an example as they are a big brand that many Aussies have shares in since privatisation) with the share price more than tripling plus the dividends that have been paid out twice a year (given the amount of costs of the flat per year, rates, water etc.) and that you still get the same negative gearing and tax options the actual gain from the shares would have been a lot more than that of the property.
The article is Here
Point taken. They are very valid points. But how many loans of this type (margin loans/lines of credit) can you get? Because with property,as soon as you have enough equity you can re-mortgage and put that money down as a deposit on another property and let that out and so on and on and on... A friend of mine (admittedly he is in England) has bought 7 properties in 2 years from an initial starting deposit of £30,000. I dont know his worth now but I know that on one property alone he made £32,000 in 6 months!. Ok, its in the UK, but the point is the same.
He rents out individual rooms to students, which is a bit more grgriefhan long term tenants but it brings a much higher return.(In the area that he is in around its 40% more per month!!) Trouble with that apapproachs that eventually it becomes a full time job just managing the properties.
I hear what you are saying about shares and it has made me want to look into it some more, but if it is 'rent or buy' then it has to be buy. Maybe invest in some shares too a? why not.
Feb 20th 2007, 8:44 pm
#95
Lost in BE Cyberspace
Joined: Oct 2005
Location: Hill overlooking the SE Melbourne suburbs
Posts: 16,622
Re: A Point That People Seem To Miss.
Point taken. They are very valid points. But how many loans of this type (margin loans/lines of credit) can you get? Because with property,as soon as you have enough equity you can re-mortgage and put that money down as a deposit on another property and let that out and so on and on and on... A friend of mine (admittedly he is in England) has bought 7 properties in 2 years from an initial starting deposit of £30,000. I dont know his worth now but I know that on one property alone he made £32,000 in 6 months!. Ok, its in the UK, but the point is the same.
He rents out individual rooms to students, which is a bit more grgriefhan long term tenants but it brings a much higher return.(In the area that he is in around its 40% more per month!!) Trouble with that apapproachs that eventually it becomes a full time job just managing the properties.
I hear what you are saying about shares and it has made me want to look into it some more, but if it is 'rent or buy' then it has to be buy. Maybe invest in some shares too a? why not.
He rents out individual rooms to students, which is a bit more grgriefhan long term tenants but it brings a much higher return.(In the area that he is in around its 40% more per month!!) Trouble with that apapproachs that eventually it becomes a full time job just managing the properties.
I hear what you are saying about shares and it has made me want to look into it some more, but if it is 'rent or buy' then it has to be buy. Maybe invest in some shares too a? why not.
I have been advised by a neighbour to get in to property he also espouses the old chestnut time in the market etc. He's even a member of a club which matches property up with investors and swears by their help and advice and has introduced me to them.
So for him, his numbers add up and he continues to buy. But what he refuses to listen on is that HIS timing was inadvertently bang on. He bought his first property at a time when it was about to double/no triple.
It's very easy making money now if you got in 2000 and made a killing on your first few properties. I made a killing on my first residential home too. I should have started earlier and bought more too. It's very easy to tell other people to get in when you have amassed easy money at low risk yourself.
For most new investors, its going to be a bit riskier/lengthier seeing gains.
There's also the old thing they say here about property having moreorless doubled every 7-10 years which I think the figures bear out. Hence the comment of time in the market. I can see that but have incomes kept up? No.
The first million is the hardest..
Feb 20th 2007, 9:20 pm
#96
BE Forum Addict
Joined: Nov 2004
Posts: 2,584
Re: Australian property prices..think hard
Time in the market is a good old cliche from the real estate agents. Bear in mind that they get their commision at time of sale and don't have to wait years for the negative gearing to grind you down before you are anywhere near able to get out with a profit, let alone break even.
Feb 21st 2007, 8:01 am
#97
BE Enthusiast
Joined: Jan 2006
Posts: 413
Re: A Point That People Seem To Miss.
What about margin loans or line of credit? You can generally borrow about 70% (so not much lower that an investment property loan) and invest in the stock market.
There was an article in the Sunday paper about this, the guys mother was quite proud about having bought a property 10 years ago with a loan which was now paid off by the tennant and being worth about 2-3 times the original amount. He pointed out if she had invested in shares (he used Commonwealth Bank as an example as they are a big brand that many Aussies have shares in since privatisation) with the share price more than tripling plus the dividends that have been paid out twice a year (given the amount of costs of the flat per year, rates, water etc.) and that you still get the same negative gearing and tax options the actual gain from the shares would have been a lot more than that of the property.
The article is Here
There was an article in the Sunday paper about this, the guys mother was quite proud about having bought a property 10 years ago with a loan which was now paid off by the tennant and being worth about 2-3 times the original amount. He pointed out if she had invested in shares (he used Commonwealth Bank as an example as they are a big brand that many Aussies have shares in since privatisation) with the share price more than tripling plus the dividends that have been paid out twice a year (given the amount of costs of the flat per year, rates, water etc.) and that you still get the same negative gearing and tax options the actual gain from the shares would have been a lot more than that of the property.
The article is Here
I invest in both markets,but only in the stock market now.
I got into CBA at around $7.50,they are now around $51.The magic word is if,biggest word in the english language.
All information is available ,tomorrow you have to choose,$306,000 to buy a property,or $306,000 to buy 6000 shares in CBA.
Entry costs for property are stamp duty,with rates,repairs as ongoing costs.
Entry costs for CBA are around 0.3% of purchase price.No ongoing costs.
What are you going to do ,if you have the equity in a property to borrow at either margin or mortgage rates,would you spend the money?
That is the bit that stops people from becoming wealthy,you need to spend money to get rich.
Crystal ball gazers and the what if brigade are full of shit.
If you go to CBA site and click on shareholder centre they will give you the dividend history from the day they started.They will also give you the DRP price.
A $75,000 investment in 1993 ish is now around $1.3 million with dividends re-invested.That would have bought 75% of a house in Perth or Adelaide back then,roughly.
The chance tomorrow is the same as then,are you going to spend the money?
Feb 21st 2007, 8:20 am
#98
BE Enthusiast
Joined: Jan 2006
Posts: 413
Re: A Point That People Seem To Miss.
Don,t believe all you read in the papers.
I invest in both markets,but only in the stock market now.
I got into CBA at around $7.50,they are now around $51.The magic word is if,biggest word in the english language.
All information is available ,tomorrow you have to choose,$306,000 to buy a property,or $306,000 to buy 6000 shares in CBA.
Entry costs for property are stamp duty,with rates,repairs as ongoing costs.
Entry costs for CBA are around 0.3% of purchase price.No ongoing costs.
What are you going to do ,if you have the equity in a property to borrow at either margin or mortgage rates,would you spend the money?
That is the bit that stops people from becoming wealthy,you need to spend money to get rich.
Crystal ball gazers and the what if brigade are full of shit.
If you go to CBA site and click on shareholder centre they will give you the dividend history from the day they started.They will also give you the DRP price.
A $75,000 investment in 1993 ish is now around $1.3 million with dividends re-invested.That would have bought 75% of a house in Perth or Adelaide back then,roughly.
The chance tomorrow is the same as then,are you going to spend the money?
I invest in both markets,but only in the stock market now.
I got into CBA at around $7.50,they are now around $51.The magic word is if,biggest word in the english language.
All information is available ,tomorrow you have to choose,$306,000 to buy a property,or $306,000 to buy 6000 shares in CBA.
Entry costs for property are stamp duty,with rates,repairs as ongoing costs.
Entry costs for CBA are around 0.3% of purchase price.No ongoing costs.
What are you going to do ,if you have the equity in a property to borrow at either margin or mortgage rates,would you spend the money?
That is the bit that stops people from becoming wealthy,you need to spend money to get rich.
Crystal ball gazers and the what if brigade are full of shit.
If you go to CBA site and click on shareholder centre they will give you the dividend history from the day they started.They will also give you the DRP price.
A $75,000 investment in 1993 ish is now around $1.3 million with dividends re-invested.That would have bought 75% of a house in Perth or Adelaide back then,roughly.
The chance tomorrow is the same as then,are you going to spend the money?
Everybody is invested in CBA due to the super funds,it will make up around 5% of their money invested in the ASX.
Very few people invest directly.I don't have the CBA annual report to hand but have the Westpac one.
Shareholders with 1000-5000 shares number 72,669,this is .0035% of the population,unless I have a decimal point in the wrong place(mental arithmetic and i'm getting on a bit now).
The 10 yr returns annual reports give gives a closing price (year end) of $3.94 in june 1993.They are around $25 now.Entry into that exclusive club thus has cost anywhere between approx $4,000 and $25,000 ,are you going to spend around $25,000 to join that club tomorrow morning?
The info is from the 2003 report.
