"Better than bank interest"

[FrugalOne]

Rant mode on...

It's a pretty common statement used in the advertising blurb for property. For example..."8% return. Better than your money in the bank". Really?! I don't think that comparing to bank interest is that simple!

I would love to ask the blurb writers to justify their statement!

Am I the only one that laughs at these kind of statements when they read them?

Rant over

 

[Joe D]

..."8% return. Better than your money in the bank".

Quoting the 8% is a marketing ploy.

However, given the financial leverage available with property (eg 80-90% LVR) who could argue that it is not better than money in the bank?

 

[FrugalOne]

Quoting the 8% is a marketing ploy.

However, given the financial leverage available with property (eg 80-90% LVR) who could argue that it is not better than money in the bank?

I agree real estate returns are (much more likely) better than your $ in the bank. My point is that the statement...(while yes I understand it is a marketing ploy) is laughable! I interpret the statement to mean that "8% is better than 5%, therefore there is a greater return than your money in the bank. So you win". The calculations needed to work out which one is "better" is not that simple!

 

[VYBerlinaV8]

I always find these discussions a little silly. When you accidentally flick you tv to the home shopping network and see a super fit model on an ab-roller, do you really think "hey, if I bought one of those I'd look like that person".

I sure don't!

It's advertising trying to get your attention. It has only the power YOU give it.

 

[marg4000]

It's simply an advertising ploy.

Bank interest is lowers, but is far more secure and up to a limit your capital is guaranteed by Government.
Marg

 

[FrugalOne]

When you accidentally flick you tv to the home shopping network

I don't watch TV

 

[BayView]

Rant mode on...

It's a pretty common statement used in the advertising blurb for property. For example..."8% return. Better than your money in the bank". Really?! I don't think that comparing to bank interest is that simple!

I would love to ask the blurb writers to justify their statement!

Am I the only one that laughs at these kind of statements when they read them?

Rant over

Are you saying you don't like the flippant statement they trot out, or that you don't believe the statement to be true?

If it's the latter, I can say from experience that it is true.

Certainly not as easy as setting up a direct debit out of each pay to your ING or Bankwest online account, but still a better return dollar for dollar invested in the longer term.

In my personal case there is no way we could have ever saved our way to a nett worth that we now enjoy through weekly bank deposits - even with compound interest, over the time I have been investing....and we have made some decent mistakes along the way as well.

The tax returns dollars alone we have received since 2000 would be close to a six figure amount.

If all we did was save from each pay in the Bank, all my bank deposits would have been from PAYE after tax income, with no return from any of the tax we have paid.

Combined with out strategy of re-investing the tax returns to reduce debt and increase equity, the actual return percentage is quite amazing - not including the cap gain aspect.

 

[joeExpat]

Yes the statement is rubbish because it ignores risk. Money in the bank is usually not going to disappear (unless you've over 100k & live in Cyprus). Equity in leveraged property can disappear quite quickly and take a very long time to come back.

 

[BayView]

Yes the statement is rubbish because it ignores risk. Money in the bank is usually not going to disappear (unless you've over 100k & live in Cyprus). Equity in leveraged property can disappear quite quickly and take a very long time to come back.

I don't agree.

I think risk is mostly relative.

An established property in a good location, in good condition and compatible with the demographic of the area is pretty safe in terms of cap growth in the longer term and rent returns.

The risk comes into it with such things as 100% or more borrowings, buying at the top of the market, low rent returns - people combine all 3 and I think that is risky.

In these scenarios; it's not the property that was the risk; it was the buyer's circumstances.

We have had to sell a few properties due to financial issues over the years, but we have never actually lost money on any sale...this was because the purchase circumstances were reasonably safe for us at the time.

I think this is the key; you need to buy properties with the mindset of what will happen if life gets in your way and you need to sell...because it can, and does.

 

[joeExpat]

An established property in a good location, in good condition and compatible with the demographic of the area is pretty safe in terms of cap growth in the longer term and rent returns.

The prices of even quality properties get sucked down in a property bust, just as the share prices of good companies get sucked down in a stock market crash. It only takes a 20% drop to completely wipe out most peoples deposit.

Australians can be a bit complacent when it comes to expecting property values to never decline much, since most people haven't seen a downturn for so long, if at all. The same sort of expectations existed in all those countries that have had a boom and bust recently.

 

[Deltaberry]

It's just marketing get over it.

Hungry Jacks often says "The burgers are better at Hungry Jacks". Better than what? As Carl Baron once quipped, the onion rings?