Is the property market about to bust?

[Aaron Sice]

Does this look right or did I miss something?

you didnt miss a thing - except rental return reducing your expenses - which you mentioned. that $17k you mentioned on a $500k investment is a pretty poor return IMO, but then, horses for courses. what about depreciation? any tax reduction vehicles in play? rent rises through the 12 months?

using OPM to make money, is money you would have never had in the first place had you not used OPM.

chicken / egg. your argument is one commonly used by D&Gers and those with a failing mindset to justify their lack of action in a bull market. now i'm not saying you're from the dark side, just making observation.

if someone just said "i've been brought up around a real bad stigma with money and i'm quite afraid of investing - i understand it, but am afraid" i'd still have respect for them, because they're honest. some people are afraid of making money. it's just how it is - but justifying it with stats like those is just insane.

 

[Aaron Sice]

Yes, I guess you're right, if this was the case last year, it must be the same again. And nothing else matters

you'd be shocking in the sharemarket with that mindset.

i love how D&Gers often say "past performance is no guarantee of future performance", yet fail to apply it to their own logic.

 

[MichaelW]

...the opportunity cost that the money invested could be earning dividends elsewhere. (eg, Term deposit).

Reminds me of something else I observed yesterday when going into the local WBC branch to transfer funds to pay my section 94's (grumble grumble but off topic)...

I noticed they had a board out the front offering 8% for amounts over $5K on 60month term deposit terms. 8%!!!

Gees, you can borrow money at less than that on 5 year fixed mortgage rates at present. How about topping up the LOC on a 5 year fixed for 7.5% then pulling it out and putting it in WBC at 8% term deposit over the same period. Crazy days. Wouldn't do it as I can do much better than 8% return on my debt, but still, it does make you think.

Cheers,
Michael

 

[cloudyday]

where Is The Rent That Is Paid To You In These Figures?

as It's Virtually Impossible To Find Cash Flow Positive Homes Now, You'd End Up Paying About 50% Of The Bank Interests. So In This Circumstance If Property Prices Fell Just 10%, You Would Be $64,896 Interest Over 2 Years - 50% Covered By Renter = $32,448 - $50,000 = -$82,448 In The Red. Does This Look Right Or Did I Miss Something?

....... .....

 

[alexlee]

The numbers look about right (except you haven't included tax effects).

But recapping what your example is. 100% LVR, 10% gain over 3 years, 3.2% net yield, sell after 3 years. The rental return is relatively low, the growth is low, and 3 years is short for property.

You're basically saying 'property isn't worth it because look at what will happen if I borrow 100% and buy one that performs badly, and I have to sell.' I agree if that was the property you bought, and you sold after 3 years, the return would be terrible.

Including all the tax effects including depreciation, growth at say 6-7% a year and a longer time frame when rents go up and growth allows refinancing to buy other assets, and the results are very different.
Alex

 

[wylie]

I see that I missed the rent amount, but maybe that is because it so low. I probably should have re-read it before posting .

 

[Sunfish]

Quote:
Originally Posted by Sunfish
If you throw 30% cash into the deal and "just break even" then you have suffered an opportunity cost via not getting any investment return on your $200k (dep +exs).

So are you saying that there would be no capital gain on the $200k deposit, only the borrowed funds? And if so how do you make a capital gain if you own it outright?

battler, I was discussing cash flow.

Welcome back Alex, long time since we have locked horns. Please wear your "contributor" hat or your "moderator" cap but not both.

 

[Piston Broke]

If the case of growing population, housing shortage, not enough land was true Australia would've never had any recessions.
Low rates? They were also low just before the 70's recession.
It's easy to look back and say "but prices went up" but what people dont see on the charts is most went broke.

As for "opportunity cost", it's only a cost when you can't do better elswhere.
And a NG IP with no CG is the biggest "opp cost" and can turn into an anchor around the neck as it will be for 30% of FNB (~60K of them apparently).

=alexlee;632984Owner occupiers don't care about yield.
Alex

But the bank sure care about repayments, and if they cant pay they have to sell other assets, or lose it.

 

[Andell]

Interesting how there are some who are saying we are in for the mother of all property booms and others who say the opposite. Maybe they are both right and the timing is the thing.

An article to argue about from market oracle website... (I hope the link inserts ok -first time doing that)


http://www.marketoracle.co.uk/Article16958.html

Andy