Forum Replies Created
- dreamerQLD wrote:Ok, this may be a dumb question but…
say i was to buy a house and get a 400K loan at 7%
If you were renting out this property then the costs are tax deductible
and the tenant is helping you cover some of the massive interest costs and other expenses with the rent they pay
However you could get the property trashed by a tenant or get a non paying tenant (there is risk)
Property is less volatile compared with shares.
Property capital value grows as well as you getting rent.
Property has State stamp duty tax (GST was suppose to cover this tax ), Property can incur land tax when you own quite a few.
Property ties up a large portion of your money into one investment.
You can renovate a property and possibly add value try doing this with a share !dreamerQLD wrote:After all the costs etc – how would this be better than saving up my own money (say at a rate of 60K / year) and investing in shares – thus not paying 7% interest and all the other property holding costs?You have to keep your eye on shares as they are more volitile
You need to know what you are doing like as an example would you own a share that started out at >$9 and is now down to $3.33 (TLS)?
OR you may have owned HIH or ONE TEL now worth zero. (So risk is higher) (however a well spread portfolio of shares can reduce the risk from an individual share)
Shares can be good due to not having to borrow large quantities of money to buy them.
But banks do not lend a large leverage against shares (margin loan) and if the shares fall in value (risky part) the bank will ask you to cover the short fall in equity or sell shares at a loss (margin call)
If you can borrow money against another asset source like property to buy small parcels of shares then you can achieve a smaller leverage on the shares (without getting margin called) and then pay off the loan over the year and if the shares pay a dividend you can claim the interest as an expense against the income being (share dividend).
Shares do not have land tax
Shares do not have tenants
Shares do not have Council rates
Shares do not have stamp dutyAre you aware that some banks are paying 8% p/a interest on term deposits.
You may need to diversify the banks as some banks during the financial crisis put freezes on money withdrawals.
And banks can fall over like pyramid in Vic.Property is a long term lower risk investment where as shares are a higher risk and usually a shorter term investment unless you are waiting for shares to return to their previous pre-financial crisis values.
What is the dividend return on the shares ? You will not know the capital growth of the shares in the future.
Property rents can be 2% to 4% yield and the capital growth depends on where the property is it can be on a ten year average about 7% p/a growth but it can be lower. As time goes by the property value increases and the loan remains the same is is lower but the rent will increase as the property value grows over time.
dreamerQLD wrote:i was trying to have this discussion with my partner but couldn't really explain with figures and tax considerations how the first scenario would be better… if it even is better.
any help would be much appreciated
Are you looking at positive geared or negative geared property.
Negative gearing is not as good as it use to be due to lower tax scales.
So lets say you borrow 300,000
and each year you pay 7% interest of $21,000 p/a
and each year the property value grew at 7% p/a
and the rent was 3% of the property value
and the extra expenses are 2000 a year
after year 20 what do you reckon the property has compounded its value to ?1084958 and how much did you pay out in expenses after rent
-91040.6 You are about $600,000 ahead.
This is without paying off the loan in twenty years
what if you had paid the loan off.Now if you are smart you would pay off say 27,910 each year as a P & I loan then at year 12 you will find the property is now not costing you out of your pocket when rented.
The less you borrow the faster you can get to this cash flow positive position !You can't compare the two as you do not know what the likely capital growth of shares is going to be each year.
Now you might say I can't possible think property would grow in value by this much
I purchased a house in 1995 for $73,000 it is worth $280,000 now.
At 7% p/a the value should calculate at $189,000 so the growth was in this real life case at 10% compounding p/aAt the start it was hard to knock down my loan but my extra repayments eventually made large principal loan reductions rather than interest payments as time went by and I paid the loan off but I have re borrowed for a capital improvement and to purchase shares.
Capital gain tax is payable on capital gains however a small parcel of shares say a gain of $2000 will incur less tax as opposed to a 400,000 property that say made a $100,000 capital gain.
dreamerQLD wrote:Ok, this may be a dumb question but…say i was to buy a house and get a 400K loan at 7%
If you were renting out this property then the costs are tax deductible
and the tenant is helping you cover some of the massive interest costs and other expenses with the rent they pay
However you could get the property trashed by a tenant or get a non paying tenant (there is risk)
Property is less volatile compared with shares.
Property capital value grows as well as you getting rent.
Property has State stamp duty tax (GST was suppose to cover this tax ), Property can incur land tax when you own quite a few.
Property ties up a large portion of your money into one investment.
You can renovate a property and possibly add value try doing this with a share !dreamerQLD wrote:After all the costs etc – how would this be better than saving up my own money (say at a rate of 60K / year) and investing in shares – thus not paying 7% interest and all the other property holding costs?You have to keep your eye on shares as they are more volitile
You need to know what you are doing like as an example would you own a share that started out at >$9 and is now down to $3.33 (TLS)?
OR you may have owned HIH or ONE TEL now worth zero. (So risk is higher) (however a well spread portfolio of shares can reduce the risk from an individual share)
Shares can be good due to not having to borrow large quantities of money to buy them.
But banks do not lend a large leverage against shares (margin loan) and if the shares fall in value (risky part) the bank will ask you to cover the short fall in equity or sell shares at a loss (margin call)
If you can borrow money against another asset source like property to buy small parcels of shares then you can achieve a smaller leverage on the shares (without getting margin called) and then pay off the loan over the year and if the shares pay a dividend you can claim the interest as an expense against the income being (share dividend).
Shares do not have land tax
Shares do not have tenants
Shares do not have Council rates
Shares do not have stamp dutyAre you aware that some banks are paying 8% p/a interest on term deposits.
You may need to diversify the banks as some banks during the financial crisis put freezes on money withdrawals.
And banks can fall over like pyramid in Vic.Property is a long term low risk investment where as shares are a higher risk and usually a shorter term investment.
What is the dividend return on the shares ? You will not know the capital growth of the shares in the future.Property rents can be 2% to 4% yield and the capital growth depends on where the property is it can be on a ten year average about 7% p/a growth but it can be lower. As time goes by the property value increases and the loan remains the same is is lower but the rent will increase as the property value grows over time.
dreamerQLD wrote:i was trying to have this discussion with my partner but couldn't really explain with figures and tax considerations how the first scenario would be better… if it even is better.
any help would be much appreciated
Are you looking at positive geared or negative geared property.
Negative gearing is not as good as it use to be due to lower tax scales.
So lets say you borrow 300,000
and each year you pay 7% interest of $21,000 p/a
and each year the property value grew at 7% p/a
and the rent was 3% of the property value
and the extra expenses are 2000 a year
after year 20 what do you reckon the property has compounded its value to ?1084958 and how much did you pay out in expenses after rent
-91040.6 You are about $600,000 ahead.
This is without paying off the loan in twenty years
what if you had paid the loan off.Now if you are smart you would pay off say 27,910 each year as a P & I loan then at year 12 you will find the property is now not costing you out of your pocket when rented.
The less you borrow the faster you can get to this cash flow positive position !You can't compare the two as you do not know what the likely capital growth of shares is going to be each year.
Now you might say I can't possible think property would grow in value by this much
I purchased a house in 1995 for $73,000 it is worth $280,000 now.
At 7% p/a the value should calculate at $189,000 so the growth was in this real life case at 10% compounding p/aAt the start it was hard to knock down my loan but my extra repayments eventually made large principal loan reductions rather than interest payments as time went by and I paid the loan off but I have re borrowed for a capital improvement and to purchase shares.
