is it better to place 250K at 6.25%..in fixed term deposit account over ten years? or simply purchase a house at 250K WHICH option would earn you more value in the long term?
250K IN FIXED TERM DEPOSIT OR BUY A PROPERTY AT 25OK which would earn better outcomes
- Thread starter renovation
- Start date
at the moment, with cashflow being so important etc id look at a commercial property similar to what dazz put up recently. from memory that returned around 7.5% plus you would think would have CPI increases, unlike a term deposit
all depends on where our skills lie, i think it is a great time to be value adding at the moment but in terms of simple buy and holds with no value add potential i'd be inclined to stay away from residential property (at least in perth)
which post by dazz? in regards to commercial property...do you have links?
would a commercial property such as this cost more in fees through the year ie, body corp, higher cost insurance? any other fees i should know about? ... in regards to commercial property
would a commercial property such as this cost more in fees through the year ie, body corp, higher cost insurance? any other fees i should know about? ... in regards to commercial property
Last edited:
The answer depends on what you mean by 'long term'.
Over the next 12 months, I suspect you'll do better with a term deposit.
Over the next 10 years, property will probably outperform cash by a lot.
Over the next 12 months, I suspect you'll do better with a term deposit.
Over the next 10 years, property will probably outperform cash by a lot.
The best way for me to answer this is to ask what the overall return after taxes will be on your investment after 10 years.
Assuming you reinvest every profit/income from each vehicle, pay all the relevant taxes etc.
After 10 years the property is likely to be almost doubled in value based on historical info, while the original bank capital is depreciating with inflation.
The variation will be in the cashflow of the property, while the bank deposit is fixed.
If you buy a property with 3% yield, this will have a bigger impact on your nett return than if the property has a 7.5% yield and so on.
In a nutshell; the property would normally win; the value of the investment will go up, you get the income and the tax deductions as well.
Property has more headaches than yer TD though.
thanks, yes ten year plan, property seems the way to go!
This is what you're looking for...
http://www.somersoft.com/forums/showpost.php?p=828636&postcount=2
My guess is we wouldn't all be on this forum if we believed that term deposits were a long term better option. If you are a purely passive investor and don't want to make any decisions after investing your money then sure TD way to go....
However, consider that there are some fantastic buying opportunities at the moment in property.. think not just of the rental return, but factor in capital growth, depreciation...
With a TD you need to consider the amount you'll pay in tax on the income and then what you are left with - does it exceed inflation levels....?
There are some great at call online deposit accounts which pay very comparable rates to the fixed term deposits. This is not a market where you need to rush so why not take your time but leave things flexible and hold your money in one of those (add to it and watch it grow) while you do your property research.
However, consider that there are some fantastic buying opportunities at the moment in property.. think not just of the rental return, but factor in capital growth, depreciation...
With a TD you need to consider the amount you'll pay in tax on the income and then what you are left with - does it exceed inflation levels....?
There are some great at call online deposit accounts which pay very comparable rates to the fixed term deposits. This is not a market where you need to rush so why not take your time but leave things flexible and hold your money in one of those (add to it and watch it grow) while you do your property research.
what about about by some good divi paying companies whist the index is around 4000 ? under 4000 and you are laughing! tax effective and if you sell at the right time cap gains.
if you do your due diligence and can pick up a decent IP for $250k, I would definitely go with that ...
the interest you get from the term deposit you will have to pay tax on - dont know what your top tax rate is .. but if its anything above 30% make sure you take that into consideration when working out which option to pursue ....
personally, i would always prefer investing money in IP rather than putting it in bank. A good IP will grow in value, which generates increased equity that you can use to make further investments. if you do this through refinancing (rather than selling), you dont pay any tax. you might also benefit from some tax savings through negative gearing, before the IP becomes cashflow positive.
the money you put in your term deposit is savings from your salary which has already been subject to PAYG withholding tax. the interest you earn gets taxed again at your highest tax rate - okay its not technically double tax but that's how i think of it and i just dont like the idea of that
the interest you get from the term deposit you will have to pay tax on - dont know what your top tax rate is .. but if its anything above 30% make sure you take that into consideration when working out which option to pursue ....
personally, i would always prefer investing money in IP rather than putting it in bank. A good IP will grow in value, which generates increased equity that you can use to make further investments. if you do this through refinancing (rather than selling), you dont pay any tax. you might also benefit from some tax savings through negative gearing, before the IP becomes cashflow positive.
the money you put in your term deposit is savings from your salary which has already been subject to PAYG withholding tax. the interest you earn gets taxed again at your highest tax rate - okay its not technically double tax but that's how i think of it and i just dont like the idea of that
I admit to being one eyed about this but if you don't mind the exchange risk 250K AUD would buy you 5 rentals in a good investment city in the USA and give you 12 to 14% NET return after all expenses.
Or buy 10 rentals 50% geared and they will be paid off in 5 years then giving you a 25% net return.
Or buy 10 rentals 50% geared and they will be paid off in 5 years then giving you a 25% net return.
I can't get my head around why you would want to be getting into property with no gearing. Seeing you've mentioned long-term returns I'd choose well-located property every time. But I'd also want to use the $250k to control $500k or even $1m over that 10 years + (my definition of "long term"). It's antithetical to the current investment sentiment around here to favour gearing but that's always been property's advantage IMO.
Agree here...if it's long term pick good location and expect a bit of -ve but it will pay off if you can hold it out.
Regards
Michael
Really simple numbers for you...
Buy a property for whatever amount you have cash outright and you'll get roughly:
4.5% rental yield (taxed)
3.0% inflation rate of capital growth (not taxed)
1.0% depreciation (tax offset)
-1.0% other holding costs
0.0% negative gearing as you're CF+
So the above would give you in after tax terms (assuming 30%):
1.0% rental yield (untaxed due to depreciation offset)
2.45% rental yield (of the 3.5% yield remaining taxed at 30%)
3.0% inflation capital growth (untaxed)
-0.7% other holding costs
for a total return post tax of 5.75%
Compare this with your TD earning 6.0% and taxed at 30% becoming 4.2%.
So, IP = 5.75% net. TD = 4.2% net.
I know where I'm putting my money. And it only gets better if you add leverage.
Cheers,
Michael
Buy a property for whatever amount you have cash outright and you'll get roughly:
4.5% rental yield (taxed)
3.0% inflation rate of capital growth (not taxed)
1.0% depreciation (tax offset)
-1.0% other holding costs
0.0% negative gearing as you're CF+
So the above would give you in after tax terms (assuming 30%):
1.0% rental yield (untaxed due to depreciation offset)
2.45% rental yield (of the 3.5% yield remaining taxed at 30%)
3.0% inflation capital growth (untaxed)
-0.7% other holding costs
for a total return post tax of 5.75%
Compare this with your TD earning 6.0% and taxed at 30% becoming 4.2%.
So, IP = 5.75% net. TD = 4.2% net.
I know where I'm putting my money. And it only gets better if you add leverage.
Cheers,
Michael
