Your home is not an Investment

[MichaelW]

Using less extreme numbers:
Person A: rents and owns $300k in IPs
Person B: full owns $500k PPOR and has no IPS

I would argue that Person A has the better portfolio. Even ignoring cashflow, person A has more diversification, more flexibility, and most importantly Person A shows potential to significantly grow his/her portfolio in the future. Person B just bought their own place and paid it off. Great, but that means their growth is limited to their PPOR. Person A would be more open to new ideas which will make him/her a lot more money in the future.
Alex

Nah,

Definately disagree with that one. That's a sweeping generalisation to suggest the nature of the properties held would indicate a certain investor psychology. In my situation I started out with IPs and shares THEN bought my PPOR by selling the lot. So now all I have is my PPOR so far as properties are concerned but I certainly don't fit in the "just got lucky buying a house" category. I've already pulled out the equity and leveraged it back into shares and am holding $100K in an LOC in reserve as 20% down on my next IP which I'm now scouring the market for. I'm meeting my personal rep at the bank next week to get pre-approval up to $600K for that IP.

They're all good investments whether they're IPs or PPOR. Property is property boys so can we just accept that they're both good and move on? I could even argue that CG from PPORs is likely to be better than IPs as they're in more desirable areas etc etc and above median prices etc etc but that's a whole other debate on the relative merits of certain classes of property...

Cheers,
Michael.

 

[Brenda Irwin]

I think a PPOR is an investment. It is an investment in my sanity and my freedom. I can do what I want, how I want, when I want in or with my own PPOR and no landlord can order me to do otherwise. Hubby's favourite saying is that he can have a cheap wife or a happy wife. He chooses the happy wife.

 

[see_change]

Personally, I don't think of a PPOR (I don't have one, BTW) as an investment. The reason I think it's bad to think of your PPOR as an investment is that you tend to think 'My PPOR is an investment, therefore I don't have to invest in other things'. Most people tend to take the path of least resistence, so in the same way as they think 'My super will be there for me' or 'I'll just get the govt pension' they will think their PPOR will fund their retirement.

My issue with that is you end up with a PPOR which might be worth a lot of money, but you don't have the financial skills and experience to use it. My parents, for example, are sitting on an expensive house with no debt. But the place is getting old, and my parents wouldn't dream of renovating or selling. So all that value just sits there when it could be funding their retirement.

It's almost a mental trick you play on yourself to say your PPOR is not an investment (even though of course it increases in value and it saves you rent). You use it because most people take the lazy way out and you want to pre-empt that.
Alex

You're assuming that owner ship of a PPOR implies a certain mind set. It Aint nessecarily so. I've already pointed out what we've done early in the post.

A friend whom I'm seeing tomorrow , cashed up his IP's and bought a waterfront PPOR on Sydney harbour in early ? 2000, when he came across a distressed sale with a neighbour ( my friends PPOR wasn't Waterfront ). He held that during the main boom period and sold it for a very nice CGT free profit and has subsequently bought waterfront acreage in Airely beach to subdivide.

You seem to be applying a generalisation across all PPOR's when this isn't necessarily the case.

The use of PPOR's can give you very nice profits . If you ignore that you are closing a window of opportunity . Given that the average PPOR is held for around 7 years, then talking about 25- 30 year P&I Loans is really irrelevant.

See Change

 

[Corsa]

Using less extreme numbers:
Person A: rents and owns $300k in IPs
Person B: full owns $500k PPOR and has no IPS

I would argue that Person A has the better portfolio. Even ignoring cashflow, person A has more diversification, more flexibility, and most importantly Person A shows potential to significantly grow his/her portfolio in the future. Person B just bought their own place and paid it off. Great, but that means their growth is limited to their PPOR. Person A would be more open to new ideas which will make him/her a lot more money in the future.
Alex

Hi Alex

Sorry, but I have to disagree with your reasoning here.

Your capital growth is only ever limited to the underlying value of the assets you control. I dont think the example is particularly that relevant, but in any case if you have $500k in assets vs $300k in assets then the one that is higher in value (assuming the same growth rate) should experience greater growth.

In any case, no matter how you look at it, people need a place to live right? So people need to take into account the opportunity cost of making one investment decision vs another.

(1) the cost to rent another place and the differential in income and costs need to support an investment property
or
(2) the cost of supporting a property that you live in and the rent you save by not renting elsewhere.

Horses for courses me thinks No-one group is more likely to invest or not.

No offence, but you are displaying typically SINK (or DINK) opinions by someone who is Generation X or Y (I am just a Gen X). As a group Gen X/Y are more likely to live at home and invest in an IP then we are to break the apron strings and launch out into our own PPOR. There are a number of boomers on this forum who have built up much of there wealth from first investing in there PPOR and then having the foresight to invest out in other areas using a LOC on there homes. We have to appreciate different ways of investing as much as newer different ways of doing things.

A PPOR is definately an investment, and no comments that have been made so far change that opinion.

I bought several IP's before my now PPOR, and when I did the financial analysis for buying my PPOR I definately took into account the opportunity cost of not renting (or the sunk cost of renting the place) and the growth that could now be attributed to the new property to work out which investment choice was more financially viable.

Property is property boys so can we just accept that they're both good and move on?

Hi Michael, even though I am used to working with the big boys in professional services, there still are some chicks around this forum completely support and endorse your points of view though, well explained

Cheers

Corsa

 

[alexlee]

Hi Alex

Sorry, but I have to disagree with your reasoning here.

Your capital growth is only ever limited to the underlying value of the assets you control. I dont think the example is particularly that relevant, but in any case if you have $500k in assets vs $300k in assets then the one that is higher in value (assuming the same growth rate) should experience greater growth.

No offence, but you are displaying typically SINK (or DINK) opinions by someone who is Generation X or Y (I am just a Gen X). As a group Gen X/Y are more likely to live at home and invest in an IP then we are to break the apron strings and launch out into our own PPOR. There are a number of boomers on this forum who have built up much of there wealth from first investing in there PPOR and then having the foresight to invest out in other areas using a LOC on there homes. We have to appreciate different ways of investing as much as newer different ways of doing things.

I don't disagree with you, Corsa, in that I'm of course limited by my own experiences. I lived at home until I was 23 and after that moved overseas resulting in a jump in income, so I'm of the opinion that a PPOR can wait. As you say future capital growth is about the value of assets you control. My observation (of my own friends, all gen x'ers born in the mid to late 70's) is that once you buy a PPOR, you tend to get very emotionally attached to it. So you end up wanting to pay off the PPOR (not necessarily a bad thing) and neglect other investment opportunities. It's easier (warning: generalisation) to just concentrate on your PPOR and end up with just your PPOR, while if you start off with an investor's mindset, you're more likely to accumulate more properties.

I have to pay rent, but that's a fixed amount. I can then think about what to do with the rest of my pay.
Alex

 

[young_gun]

Hi all,

I'm new to this forum and hence I apologise if this topic has been discussed before. I know people's opinion differs greatly on this subject and so I thought I would seek your learned opinions.

I DO NOT believe the home that you live in to be an investment in the long term. This is a popular myth. I'm fully aware that people regularly make good capital gains on their home and then cash this equity in to buy another property to repeat the process. I don't believe these gains to be of significance upon retirement. (My argument does depend somewhat on your personal situation.)

I make the assumption that for most Australians, their first property is not their ideal home and that through their life they continually upgrade their home, and the area they live in, to a standard with which they are happy. Fair assumption of typical Australian behaviour?

I argue that your home is not an investment because when you retire, do you want to sell your home and go and live in a much smaller house in a much less desirable area???? I don't care where you live or what you live in but I don't believe most people will WANT to downgrade their lifestyle at retirement.

Thoughts???

Jimmy

Mixed bag here , Yes despite popular authors like kiyasoki and the rest saying that owning your own property is not an investment, I BELIVE IT IS . Even thou your not gaining an income stream from rent that you otherwise may have had , the property is still apreciating and if the value goes up you will have a capital gain. Just because you live in the house doesnt mean you havent made money through the appreication of land values. Your money is still invested in an asset and the asset has appreciated. If you say buying your own home isnt an investmente , then your pretty much saying renting and buying a house are the exact same thing , fundamentally.

However , I do not belive that buying a house is all that couples should rely on for their retirment , mainly because house prices across the board will apreciate and buying and selling in the same market , ie selling one property to another still means your capital gains are eaten away and it is all relative.

But I do belive that many couples do downgrade the size of their houses and subsiquently spend less money . Are you telling me that all those people who have bought 5 bedroom houses in the hills area are going to move into a same size house ? You may say they will move into a more exspensive smaller house but many do not like moving into the city. The other thing you have to take into consideration is the land value of peoples properties. Often someone who lives in an older house will sell their house which is made up of primarily land value and move into something smaller that is new , ie a town house , retirment village , villa . The land they are buying is smaller , the house is newer but often they are spending less than the sale of their house because their land they are selling is worth more than the smaller land and newer house they are buying . Dont think this is true , look at retirment villages , although some can be very exspensive.

 

[Corsa]

I don't disagree with you, Corsa, in that I'm of course limited by my own experiences. I lived at home until I was 23 and after that moved overseas resulting in a jump in income, so I'm of the opinion that a PPOR can wait. As you say future capital growth is about the value of assets you control. My observation (of my own friends, all gen x'ers born in the mid to late 70's) is that once you buy a PPOR, you tend to get very emotionally attached to it. So you end up wanting to pay off the PPOR (not necessarily a bad thing) and neglect other investment opportunities. It's easier (warning: generalisation) to just concentrate on your PPOR and end up with just your PPOR, while if you start off with an investor's mindset, you're more likely to accumulate more properties.

I have to pay rent, but that's a fixed amount. I can then think about what to do with the rest of my pay.
Alex

Hi Alex,

Understand what you mean, we are all speaking from our own values and experiences in tabling our opinions on this forum. The main point of view I was trying to convey is that peoples investing attitude is not mutually exclusive with that of buying a PPOR. I waited till I was 29 before I bought a PPOR (like you are now doing) and I consider this an investment amongst the rest of my portfolio.

I think we are still waiting on the % of people that own IP's from Rixters post, but ultimately I think it will be around 5-10% of the population have multiple IP's. Then on top of that you have a university degree right, and you are a medium to high income earner and you travel the world with your skills and experience. We are in such a small minority, I think it would be unrealistic for me to expect that other people will think like me with the investing mindset - ie treat investing like a business that you build up and nuture and not just get attached to one PPOR. I appreciate the fact that different people see the world differently to me and if they want to pay off there PPOR and stop at that then so be it.

I think you have the right attitude and truly believe that you will be a success with whatever you put your mind to! I cant remember how many properties you have, what does your portfolio look like?

Cheers

Corsa