Don't waste your time, I've done this a few times with YM already, even using the example of the good IP in Taringa he unfortunately sold...
GSJ
350K house let for 300pw - madness??? Can you verify???
- Thread starter Azza
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Don't waste your time, I've done this a few times with YM already, even using the example of the good IP in Taringa he unfortunately sold...
GSJ
My thoughts as well. Let 'em do what they do, and we'll keep doing what has worked for us for 25 years.
Wylie
Don't waste your time? I get it. I even repeat it back from time to time to prove I'm listening. And yes - I've learned some things.
But your success (albeit not in cold hard cash as yet) is through capital gain - not negative gearing. Negative gearing is nothing to be happy about. That was all I was pointing out.
Your property became positively geared (ignoring tax/depreciation benefits) in just 5 years and would have given you 160k+ in equity, which you could have taken in 'cold hard cash' by establishing a LOC...and you still would not have been happy with a result like this???
GSJ
Your property became positively geared (ignoring tax/depreciation benefits) in just 5 years and would have given you 160k+ in equity, which you could have taken in 'cold hard cash' by establishing a LOC...and you still would not have been happy with a result like this???
GSJ
As we've discussed I wouldn't have taken the risk of holding on to it longer - my view on things. Because its only cold hard cash if I sold. LOC isn't the same thing - that is debt.
BUT it's not about me. I was responding to the comment that negative gearing has you laughing all the way to the bank. It doesn't - it is the capital gain where the gain comes from. Negative gearing sucks - just sucks a little less because of the government tax break.
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Exactly, so say you got a LOC at 90% of 160k, or a 144k, this is tax free money. At a 30% marginal tax rate, this would be the equivalent of 205k pre-tax dollars. Granted though the 144k is still debt.
GSJ
There is a house near me "under offer" for $440k that is almost exactly the same as mine and I rent for $220/wk. I think a lot of that is subdivision value, as my yard is very big. But I like a big yard and use it for veggies and stuff.
Interstate money has pushed prices up here, but local wages pay the rent. Rent is just about normal compared to wages, in fact everything else is the same except PRICES!
Yes, it's a never ending cash machine: you lose money on a house then someone comes and buys it so they can lose even more money than you did. Works until I guess everyone has lost as much money as they can on houses, and realise there is not enough to pay everyone out.
In case you didn't know, GHPC = Global House Price Crash (Australian forum) there is kind of an intersite rivalry or something and while some of our members are angry at landlords and speculators but some just think the whole housing situation is funny. We learn from the Somersofties and some of them are smart just taking opposite sides of the bet from us.
If the mindset is that you lose money on a house, then you sell it to someone else who in turn loses money, then those two people have missed the point of investing; TO MAKE MONEY. Why buy a property that loses money? Anyone can do that.
Not blowing a trumpet, but the properties I have bought don't lose money. They are pos cashflow and have gone up in value, with virtually no cash input (PPoR equity).
But there is also a big difference bewteen losing money from neg gearing, and losing money overall.
Many investors take on a neg geared position with the outlook of making a cap gain that offsets the neg cashflow or "loss". Thus, they don't make a loss overall; they make money. This is not my preferred option though.
Another way to look at it is the neg gearing is an extra amount of money borrowed along with the loan to fund the business (which is the property) until the business makes a profit. Business owners all around the world do this every day.
So, HG; you need to re-assess your perspective on property.
That is my point (i think!). I don't like the selling of negative gearing as a bonus - negative gearing is a tollerated evil at best - much better if positive.
The only difference with my view I believe the price and the earnings (i.e. rent) can not be disconnected forever.
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Effect of inflation?????
<Insert Mental Picture of Dave Here>
If only I looked as good as my fine feathered friend
Dave
It's only better if positive if you assume that the cg is the same on a cf+ property and a cf- property.... I don't believe this assumption is correct.
If your negatively geared property has a better cg than a positively geared one then you will come out ahead even when 'making a loss'
That's just my view. I don't want to get into a discussion about the relative merits of buying for income and buying for cg. It's just the approach I take.
Part of it is in a bit of a speculative venture. The rest in a term deposit for the time being. Of course it gets interest. Interest less inflation = real interest rate. My real interest rate is well above some rental yields which is weird but true.
I think to act on the theory that property will behave differently in the future than it has in the past is extremely speculative.
There is not much greater risk than placing your money in a term deposit over time. Over time the capital and the interest earned from it will only have a fraction of its original worth due to inflation. Let say you banked $40K 20 years ago. At that time it could have bought you a blue chip inner Melbourne property. The property would now be worth close to a million and would have rent of say $600 to $700 per week. A nice return on $40K Money in the bank woudl be returning you say $50 per week and instead of being able to buy a house with your money you can now buy a car.
Lets meet back here 20 years from now and see which plan worked best.
There is not much greater risk than placing your money in a term deposit over time. Over time the capital and the interest earned from it will only have a fraction of its original worth due to inflation. Let say you banked $40K 20 years ago. At that time it could have bought you a blue chip inner Melbourne property. The property would now be worth close to a million and would have rent of say $600 to $700 per week. A nice return on $40K Money in the bank woudl be returning you say $50 per week and instead of being able to buy a house with your money you can now buy a car.
Lets meet back here 20 years from now and see which plan worked best.
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YM believes that the last 40 years has been one big financial con by the world's central banks. Which is partly true, to the extent that the world's currencies aren't backed directly by anything and, therefore, have a theoretical value of zero. If I believed that it will reverse, as he does, then I wouldn't buy property, either.
However, I don't believe it will revert, so.........
Alex
However, I don't believe it will revert, so.........
Alex
When everything reaches equilibrium, it's time to R.I.P
he he.. interesting theory
wouldn't go that far in theory.. that's just.. so an engineer, I should also add that the physical world is being driven by creating more entropy from "chaos", and when "chaos" or "disorder" runs out, this physical world of universe will collapse.
he he.. interesting theory
wouldn't go that far in theory.. that's just.. so an engineer, I should also add that the physical world is being driven by creating more entropy from "chaos", and when "chaos" or "disorder" runs out, this physical world of universe will collapse.
Guys,
please tell me I'm wrong somewhere...
I am considering rent my house instead of selling it. But this is madness!!! I will be adding 10K per year for this silly "investment" until rent will double...
The only hope is capital gain - and by the way, it will be taxed.
How much appreciation anyone can expect??? 25K per year? This is unrealistic...
Scenario: 350K house is let for 300 pw. Excel file is attached.
Income:
weekly rate 300
Agent commission 7%
effective weekly income 279
weeks in a year 52
weeks vacant 3
effective weeks 49
yearly income 13671
Expenses:
Loan amount 320000
(Investor will pay 5% of the value plus 19K stamp duty up front.
I'm not paying anything up front because I already own the house....)
Interest rate 7.46 (best rate - Homepath)
Monthly interest only repayments 1989
Yearly repayments 23868
Landlord insurance 300
Maintenance 500
Council rates 780
Accountant fee 80
Yearly expense 27517
Yearly cost 13846
Tax Concession(neg gearing) 4153.8
Effective cost 9692.2
Try to play with the weekly rate. You need to DOUBLE IT - 600pw in order to get even....
The cap gain you make will only be taxed if you sell when you use your PPoR as an I.P.
The majority of very rich people in the world don't sell appreciating assets; they use the appreciation to buy more of same, thus compounding the wealth base. This applies to businesses, shares or property.
The wealth base also provides income in most of these cases and eventually becomes the income by which these people live, thus their wealth is on an ever-increasing path.
In your case, the $350k property is likely to double in value in between 7 and 10 years, according to historical patterns. This is an average of $35k per year if you use the 10 year model, while you are out of pocket $10k per year. A 250% return per year. This is without factoring in the rent and the tax deductions. Not a silly investment.
This will only be the case in year 1, as the rents will steadily increase. So, by year 10 your return on your 10k per year will a lot better than the measly 250% per year you were getting in year 1, and your out of pocket will be a lot less than $10k.
Of course, the big factor is whether you can fund the $10k shortfall while the property goes up in value. If you can't then the scenario you mentioned above won't work as an investment for you and it may be better to either stay in the house and keep paying it off or sell it.
The other scenario worth considering is; sell your house and put the money into 2 properties worth the same value ($350k) or maybe go a bit more; say; 2 properties worth $200k each. The returns are usually a lot better on properties in this price range ($250 p/w rent is not uncommon and even higher).
If selected carefully in the right areas, there is no reason why you couldn't expect the same doubling in value in 10 years, and the hit to your pocket will be substantially less. By the time you factor in depreciation and other tax deductions, your out of pocket may be almost zero. A return of near on infinity.
If that's still a silly investment, then I give up.
I don't know if it is that simple. But my views have already been discussed so won't go over them again except to say that debt growing faster than incomes WILL stop one day (everybody sighs ... thank god ... we thought another rant was coming).
I might add that Alex has been the only one close to explaining why property is a logical investment vehicle (the population growth, well located area thing I went over earlier in this thread).
I was just pointing out that nobody should 'seek out' negative gearing or think they are clever because they are negative gearing. It's a loss - plain and simple. In the past people have made up for that loss with capital gain but that has everything to do with capital gain and nothing to do with negative gearing.
