Follow along with the video below to see how to install our site as a web app on your home screen.
Note: This feature may not be available in some browsers.
I'd say it's still a good investment. 7% growth with (say) 4% nett yield. Most of the return is growth and so not taxed. Adjusted for risk (volatility) the return looks more attractive. Liquidity & entry/exit costs are a relatively big downside, but for long term investors irrelevent. Look at all those older OOs who've paid off their mortgage - they're done v. well out of unleveraged property.Quick question, would you all agree that if you take the leverage completely out of residential property, it becomes a DUD investment??
If you had $1MM cash, and used it to purchase $1MM in un-leveraged residential property at the end of a boom phase in the property cycle, and the net yield was say 3% (rent - PM fees - rates - water - insurance), that means a net income of just $30k pa, and from a handful of nice +/- whinging tenants.
Sure you've still got all that 'equity' and you are likely to get continued capital growth in the long-term, but if, for the purposes of this thread, no further leverage or borrowings were involved, then apart from providing some hedge against inflation, this 'equity' or capital growth (that is 'unrealised') doesn't make much of a difference does it?
You're really just left with a lot of money in a very, very poor yielding investment.
You could alternatively take $1MM and invest it in the bank and get say 7.25% pa interest, or, $72500 pa, with no fees and no hassles.
Much, much better than 30k pa, but no inflation hedge of course.
Still sounds like a DUD to me...
this 'equity' or capital growth (that is 'unrealised') doesn't make much of a difference does it?
If you had $1MM cash, and used it to purchase $1MM in un-leveraged residential property at the end of a boom phase in the property cycle, and the net yield was say 3% (rent - PM fees - rates - water - insurance), that means a net income of just $30k pa, and from a handful of nice +/- whinging tenants.
Sure you've still got all that 'equity' and you are likely to get continued capital growth in the long-term, but if, for the purposes of this thread, no further leverage or borrowings were involved, then apart from providing some hedge against inflation, this 'equity' or capital growth (that is 'unrealised') doesn't make much of a difference does it?
You're really just left with a lot of money in a very, very poor yielding investment.
You could alternatively take $1MM and invest it in the bank and get say 7.25% pa interest, or, $72500 pa, with no fees and no hassles.
Much, much better than 30k pa, but no inflation hedge of course.
Still sounds like a DUD to me...
Even more of a DUD with debt. Totally dependant on future pie in the sky.
this 'equity' or capital growth (that is 'unrealised') doesn't make much of a difference does it? ...
You forgot the tax on the 7.25% interest, plus the fact that the capital is not growing in value. It is actually being eaten away by inflation...
NB:
I'm no good with these calculations.
30k is $26400 after tax
$72500 is $56150 after tax
Thanks.
Hi there,
Quick question, would you all agree that if you take the leverage completely out of residential property, it becomes a DUD investment??
Thanks.
Using these figures above...
If the rental income of $26400 increases by 3% pa, after 10 years compounded it would be worth $35479.
If the bank interest of $56150 effectively decreases by an inflation rate of 3% pa, after 10 years it would be worth $41780 (using a reverse compound interest calculator on google).
Is that correct?!
If you had $1MM cash, and used it to purchase $1MM in un-leveraged residential property at the end of a boom phase in the property cycle, and the net yield was say 3% (rent - PM fees - rates - water - insurance), that means a net income of just $30k pa, and from a handful of nice +/- whinging tenants.
Sure you've still got all that 'equity' and you are likely to get continued capital growth in the long-term, but if, for the purposes of this thread, no further leverage or borrowings were involved, then apart from providing some hedge against inflation, this 'equity' or capital growth (that is 'unrealised') doesn't make much of a difference does it?
You're really just left with a lot of money in a very, very poor yielding investment.
You could alternatively take $1MM and invest it in the bank and get say 7.25% pa interest, or, $72500 pa, with no fees and no hassles.
Much, much better than 30k pa, but no inflation hedge of course.
Still sounds like a DUD to me...
Hi there,
Quick question, would you all agree that if you take the leverage completely out of residential property, it becomes a DUD investment??
Thanks.
Even if the net worth increases, you can't take advantage of this without selling. And, for the purposes of this thread, I'm saying leveraging off this equity is not an option, ie. just talking about un-leveraged residential property.