Can expensive houses ever work as a profitable investment?

C

china

I would be grateful for your opinions as to whether expensive residences can ever work as a profitable investment in the long term?

I would like to use the house in the following link as a stimulus for discussion.

http://www.realestate.com.au/property-house-nsw-east+gosford-103330951

For it to work as an effective investment:

1. What amount of deposit would you put down to buy it?

2. Is it mandatory to live in it as owner occupier? The rental yield would only be about 1300 dollars per week

3. Should the whole property be purchased outright without a loan?

4. Would it mean holding the property for over ten years? 20 years?
 
Firstly, it is not 'expensive' - expensive is a relative term. The term you mean is 'high price'. And yes - they can be profitable investment. You have less competition of buyers which means potentially better value, less maintenance (because only one property) and other things like potential for value-add.
 
china said:
I would be grateful for your opinions as to whether expensive residences can ever work as a profitable investment in the long term?

I would like to use the house in the following link as a stimulus for discussion.

http://www.realestate.com.au/property-house-nsw-east+gosford-103330951

For it to work as an effective investment:

1. What amount of deposit would you put down to buy it?

2. Is it mandatory to live in it as owner occupier? The rental yield would only be about 1300 dollars per week

3. Should the whole property be purchased outright without a loan?

4. Would it mean holding the property for over ten years? 20 years?
Click to expand...

I dunno............speculative to the max I would think ?


1300 a week for a 4 mill purchase.........rental rtn sub 2 % ..................

So everything would be predicated on CG

I guess if this was a 200 k equivalent investment for a very rich person with a tax problem, then it might be worth a punt.

But a 4 mill investment in a biz or range of businesses would produce at least 5 times the net rent rtn..........


ta
rolf
 
I've seen plenty of people owning houses worth $1m+ and do very well out of it. They're generally not positive geared (if they're residential property), but people often acheive massive capital gains in a short time in the right markets.

Two answer your question, expensive houses often work as profitable investments.
 
If your in the income of $5m+ a year, there good investments, only because paying $3mill for a house in almost half in cash (only if you in the income of where if you drop $200k its like a $20 note), then they are a good investment, I know because I control few of them, with rental returns at the $150k a year with tenants from Asia its never a problem.

But, its alot more hard work then a $500k home to find tenants, but they are out there.
 
Don't see why not.

Friend bought a $3.5m house in 2008 when A$ was around 70c, using foreign currency.

Today the council valuation of the place is $5.0m and the A$ is 1.03. So in short she's nearly doubled her money.

Tax free.
 
better returns

Rolf Latham said:
I dunno............speculative to the max I would think ?


1300 a week for a 4 mill purchase.........rental rtn sub 2 % ..................

So everything would be predicated on CG

I guess if this was a 200 k equivalent investment for a very rich person with a tax problem, then it might be worth a punt.

But a 4 mill investment in a biz or range of businesses would produce at least 5 times the net rent rtn..........


ta
rolf
Click to expand...

I would like to ask you to clarify on two of the above comments.

1. What sort of tax problem would justify investing in a 4 mil purchase where everything was predicated on CG? Lets say you earned 500k after tax per year, i would imagine that this would still not justify the negative gearing.

2. What sort of businesses or range of businesses would be worthy of a 4 mil investment where passive return would come to over 10% p..a.? Most businesses require a lot of hard work and personal input.
 
what features point to massive cap gains in a short period of time?

PT_Bear said:
I've seen plenty of people owning houses worth $1m+ and do very well out of it. They're generally not positive geared (if they're residential property), but people often acheive massive capital gains in a short time in the right markets.

Two answer your question, expensive houses often work as profitable investments.
Click to expand...


What are the features of properties that allow massive CG in a short period of time?

Do investors tend to live in such properties or rent it out, often for a miniscule return?

Do investors tend to borrow 80% to fund such properties or is it better to have a lower LVR?
 
china said:
What are the features of properties that allow massive CG in a short period of time?

Do investors tend to live in such properties or rent it out, often for a miniscule return?

Do investors tend to borrow 80% to fund such properties or is it better to have a lower LVR?
Click to expand...


somewhere to park cash for overseas investors like china?

negative gearing on massive incomes?

telling friends youve got million dollar houses in your portfolio?

Plenty of people make so much money outside of property that buying a few multimillion dollar mcmansions is just a small part of their overall portfolio....every now and then they might rent it out or even use it for commercial purposes like photoshoots, maybe a "retreat" for the family......but youll actually find a lot of these houses are not on mortgages and in many cases empty for most of the year!
 
china said:
i thought water and mountains towards the back is meant to be good along with the wide frontage.
Click to expand...

I'm no expert but my understanding:

- land sloping to back - BAD
- large body of water at back - BAD

Even if you don't believe, some potential future buyer might....


One of the ways I saw this being cicrumvented was to have the house built with the front to the water and the back to the street. A long drive way came in at the back, went down the side of the house to its "front".



The Y-man
 
Last edited:
Hi China - perhaps if you could post up some more information about your situation and investment strategy?

I'd never touch either of those properties as an investment, but that's because I focus on other things.
 
I think that, frankly, they're crap investments and full of risk.

I'm looking at 20% gross in returns in my last few purchases. working on a big deal now. I posted about it in the where to buy section.
 
There's good and bad.

It's suitable to people with holding power. Could walk away in a matter of 2 or so years a couple of million tax-free richer, if your timing is good.
 
Top of the tree (residential):

There was an article in the Sydney Morning Herald yesterday I think about the property developer turned accused murderer.

He owns a mansion in Wosley Rd, Vaucluse ~ Australias most expensive street. Listed on the market originally at $55 Million, now apparently "realistically" according to prestige agents at $40 Million.

History of the property as mentioned in the article.

Bought by current owner for 15 Mill in 2003. So if achieves 40 Mill has more than double and a half in 9 years.

Previous owner purchased for 160K in 1978. Compound 160K out from 1978 - 2012 at a rate of around I think 17.5% annually(you get around 40 Million dollars).

Damn good return over a long period of time.(even taking into account prob expensive renos over that time).

So I think the answer could definetly be yes.
 
Expensive houses are huge risk, its like gambling you either will make money or loose everything. As the market goes up/down it affects milion dollar properties the most.
I have seen many cases where families went bankrupt, and when things start going downwards they really go downwards.

My answer is Yes, you can make money but what is your plan B?
 
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