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Investments (pg. 4)
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| pkcRAISTLIN |
| quote: | Originally posted by Beat Blog
there are still lots of properties that make money on rent almost immediately.
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not in this country champ! |
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| pkcRAISTLIN |
no worries chief! |
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| Beat Blog |
Regarding negative gearing, another (most obvious!) thing I didn't think of:
Why buy a property with a 3% rental return and 10% interest repayments when you could simply put the money in the bank at 7 or 8%?
You'll be missing out on capital growth, but your interest will be compounding in a risk and management free environment, leaving you to pursue other things, and if you ever need the money it's available instantly.
Simply put: I wouldn't buy an investment property if it was going to give me a negative return.
It's funny; people treat property differently to a business or shares. Would you ever buy a business (a cafe or bar for example) that you knew was going to be losing money weekly, in the hope that your tax would be reduced and that you may be able to sell the business for more later on? |
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| pkcRAISTLIN |
| quote: | Originally posted by Beat Blog
Regarding negative gearing, another (most obvious!) thing I didn't think of:
Why buy a property with a 3% rental return and 10% interest repayments when you could simply put the money in the bank at 7 or 8%?
You'll be missing out on capital growth, but your interest will be compounding in a risk and management free environment, leaving you to pursue other things, and if you ever need the money it's available instantly.
Simply put: I wouldn't buy an investment property if it was going to give me a negative return.
It's funny; people treat property differently to a business or shares. Would you ever buy a business (a cafe or bar for example) that you knew was going to be losing money weekly, in the hope that your tax would be reduced and that you may be able to sell the business for more later on? |
because in 10 years or so that house i paid $150,000 for is now worth $300,000 even though its probably only cost me a few hundred dollars/year to own.
like ive already said- putting $10,000 in a term deposit @ 8% interest is going to give you all when compared to a house worth 20 times that appreciating over the years.
there is no "hope" about it. if youre smart with your purchases, you WILL make money on property. look at the latest boom in house prices. how much do you think people in before the boom are now worth? ing heaps.
when interest rates come down again, be it 1, 5 or 10 years- the property market in this country is going to go absolulely spastic. be there before then or miss out ;) |
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| Beat Blog |
:stongue:
pkc, if you start with $10,000, contribute a modest $1200 per month at 7% compound interest, in 10 years you will have $229,000 less tax.
This opposed to a property which costs you far more than $1200 per month in interest repayments, and might double in value if you are lucky.
I agree with you that property is the way to go, but not if it's losing money. |
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| Krypton |
| What savings account gives you 7%? That can't be a saving account.. |
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| Beat Blog |
| quote: | Originally posted by Krypton
What savings account gives you 7%? That can't be a saving account.. |
huh?
Even average Joe in Australia can get 8%. |
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| pkcRAISTLIN |
| quote: | Originally posted by Beat Blog
:stongue:
pkc, if you start with $10,000, contribute a modest $1200 per month at 7% compound interest, in 10 years you will have $229,000 less tax.
This opposed to a property which costs you far more than $1200 per month in interest repayments, and might double in value if you are lucky.
I agree with you that property is the way to go, but not if it's losing money. |
haha, good luck sticking to that plan! The reason I like property is because its forced savings. with things like life getting in the way, i dont know a single person who saves $1200 a month into their savings account.
and lets not forget that your 7% rate can turn into 2% very quickly.
here's my case study and how my experience has worked.
i paid $162,000 for a unit, borrowing about $155,000 in 2006.
my payments are $513/fortnight and my rental return is $420.
after tax rebates and various other "costs" i can claim against this property, it costs me roughly $35/week to own (not including things like insurance etc).
got an appraisal from the bank and its now worth roughly $200,000 and i only owe $149,000.
now, find me a bank account that i could've started with $7,000 (though where do i get that money if not from the home owner's grant ;) ) and with only a contribution of $35/week, have it worth $58,000 in 2008. |
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| pkcRAISTLIN |
| quote: | Originally posted by Beat Blog
This opposed to a property which costs you far more than $1200 per month in interest repayments, and might double in value if you are lucky. |
ill also add that my expensive property only costs me $700/month after rent is factored into it, of which i get roughly $250/month rebated at tax time, so its less than $500/month. |
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| Beat Blog |
| quote: | Originally posted by pkcRAISTLIN
haha, good luck sticking to that plan! The reason I like property is because its forced savings. with things like life getting in the way, i dont know a single person who saves $1200 a month into their savings account. |
I do, but I don't have a wife and kids to support, which makes it hard for some people.
| quote: | Originally posted by pkcRAISTLIN
and lets not forget that your 7% rate can turn into 2% very quickly. |
I'm pretty sure you can get fixed interest accounts like loans? The converse is also true though, if an interest account can go down to 2%, a loan can go to 15% if you're not on a fixed rate, like it was in the 80's.
| quote: | Originally posted by pkcRAISTLIN
here's my case study and how my experience has worked.
i paid $162,000 for a unit, borrowing about $155,000 in 2006.
my payments are $513/fortnight and my rental return is $420.
after tax rebates and various other "costs" i can claim against this property, it costs me roughly $35/week to own (not including things like insurance etc).
got an appraisal from the bank and its now worth roughly $200,000 and i only owe $149,000.
now, find me a bank account that i could've started with $7,000 (though where do i get that money if not from the home owner's grant ;) ) and with only a contribution of $35/week, have it worth $58,000 in 2008. |
That's admirable, but it's only one example.
The first home owner's grant is AWESOME, I can't wait to take advantage of it, but it doesn't apply to everyone.
We've totally ing hijacked this thread anyway. I think we can both agree on the fact that echo should just plonk his money into an interest account at 7 or 8% and in 2 years he will be laughing. |
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| Krypton |
| quote: | Originally posted by Beat Blog
huh?
Even average Joe in Australia can get 8%. |
That is insane. I simply don't believe it. At Bank of America, the interest rate on the basic savings account is .20% (http://www.bankofamerica.com/deposi...te=save_regular)
Getting an 8% would involve either buying junk bonds, ultra-high yield dividend stocks, etc. No money market, no treasury bond, no certificate of deposit goes higher than 5%. That's why it's so hard for me to believe a basic savings account in Australia can get 8%. How do the banks make money?? They must charge very high interest rates on loans if they want a profit. |
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