Hello I am new to these forums. As you are probably aware I am 18 years old and I have been considering some long-term investments to aid me in retiring between the ages 45-50 years old.
I'v been looking at the impressive statistics with property over the last 35 years (I think your all crazy not to have bought property under $100k), and I cannot see how this percentage increase on property will continue to rise.
My reasons for these are as follows:
1. People just cannot afford to borrow money for houses if they start hitting 600K per average home
2. Paying back on interest is increasing far more than the income from rent
3. After 25 years your paying back over double on what you have borrowedI looked on http://www.nab.com.au and found it interesting on one of the calculators the repayments per year, over 25 years for a house are close to 1/10th annually. So if you were to borrow $400K your paying about 40K per year. Now I know renting can help with this, but if your buying a house at $450K and your borrowing 400K, and paying back 40K a year. You might get lucky and earn 15k a year through renting. BUT your still paying 25K per year from your own wallet, PLUS the 50K to begin with. (this is not mentioning all the taxes, stamp duties, etc.)
Now the big question. Say in 25 years, your've payed off your house, its worth 1.5M after (remember you have payed about 1M after repayments to the bank), but 500K sounds good? I think there is a better way.
Ok lets then simplise this: Forget about the house, forget about the repayments.
Instead of buying a house, put that inital 50K in the bank, add 25K a year into your account. (the same amount your paying to the bank each year if you were to be buying a house)
Compound interest at 7% for 25 years= $1.963M
Why go to the hassel of buying a property?
Am I missing something?Every constructive comment is greatly apprechiated
Hi Alex
I am starting to think the same thing. why bother with property – there are so many taxes such as stamp duty, land tax etc and so much hassle with constant repairs. And I also agree that things can not continue as they have been as property and rents will become too much for people to afford. Where I live it costs about $600 pw to rent a 2 bedroom place, that is a full wage to many people.
But, there are still plenty of cheaper more affordable areas, even in Sydney – still possible to buy a 3 bedroom house for around $200,000. I think these areas may experience some growth in years to come as demand hots up due to people being priced out of the other areas. But then again, there are the hassles and costs of property ownership.
And don't forget with putting money in the bank you will have to pay a lot of tax on the interest too.
Maybe shares are the way to go.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
your approach is quite valid, but as Terry says you need to take out tax at your marginal rate along the way (unless you are putting it into super , in which case just 15%…….but locks your money away which is probably not great at your age). Some other thoughts…….will you have the discipline to save at that rate for 25 years?…..so many temptations to do other things (which by the way can be a good thing….having a life is important as well) …..mortgages have a way of enforcing discipline. A friend of mine always rents where she wants to live and invests in growth corridors and well placed apartments near transport. This way all her property related investment expenses gain tax benefits and minimise carrying cost.
congratulations on thinking some of this stuff through at your age.
Finaly someone with half a brain!!!! I commend you Alex for actually doing some sums instead of blindly jumping on the 'property will make me a millionaire' bandwagon as soooooo many idiots have!!! I still cant but help laughing in people faces when they brag to me that the house they just sold for $700k that they bought for $350k-I ask them how much did they spend on mortgage repayments and realestate fees/stamps and for some strange they go all quiet and stop bragging lol. Sure there is money to be made in property-you just have to be smart and not a blinded fool with blunkers on
You may also want to have a look at add-value project – renos, splitter blocks etc. Again, you should do you sums and make sure the $20K you put into the property will bring about a $60K or more in added value. Another way is to buy at below market value. With the interest rates hitting the highs of recent years, people are starting to hurt a bit and it may make it possible to do this.
remember: you make your money when you buy, not when you sell.
ummm if you save all your money and not spend it on property where are you going to live??
Unless you are living at home with your family and not paying a sent, you will have to pay for property one day.
1. People just cannot afford to borrow money for houses if they start hitting 600K per average home
50K from Melbourne . Cranbourne price is http://www.realestate.com.au/cgi-bin/rsearch?a=s&cu=fn-rea&s=vic&ss=&ag=&t=res&snf=rbs&chk=0&lead=&ty=&tb=+CRANBOURNE%2C+&u=CRANBOURNE&is=1&pm=150000&px=200000&pme=150000&pxe=200000&cat=&o=def
$170k to 250k
you are investing so you do not have to live in the house.
Rental on average house $220 to $240 a week2. Paying back on interest is increasing far more than the income from rent
Short term yes . Long term no . Rent goes up over time where as principle can go down over long period of time. Thus interest goes down.You can borrow against property most important fact !!
Start small so you can pay down the loan to make property positively geared and it will cost you nothing to hold property.
Start big at $600,000 and yes it will be hard to pay off the loan.I suggest you get to a library and research leverage, depreciation and negative gearing. This will shed some light on your questions, Noel Whittaker has some excellent books written for people your age. My only regret with property investment is that I did not start younger. Basically, property has doubled in value on average every ten tears since they started recording property values around 1000 years ago. I don't see any reason why it will stop now. Everyone has to live somewhere. Small regional towns with good infrastructure, especially ones near the coast have very low vacancy rates, high yield and low entry price. After rises in the big cities, the small ones nearby often follow. By using the equity in property to expand a portfolio and purchase further properties, eventually some can be sold to pay out own home. this can benefit paying off a large mortgage early in life.
Good luck
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