A pretty big assumption there. On what do you base this claim?

I see you’ve answered my question. You’re expecting the past to mirror the future…
Fair enough, so we can expect interest rates over the coming 30 years to mirror interest rates over the past 30 years then? An average of around 10.4%?

If you still owed that much, you would have paid out ~$100,000 in interest on the loan. Subtract 30% from the $300,000 because we are still floating near the top of a 30% overvaluation bubble, leaves $200,000 worth of house with $152k in debt and interest, maybe $8 grand in rates & insurance. Now subtract sales costs…

The picture isn’t as rosy as often painted.

$35k in profit for $160k invested over 18 years is exceedingly poor. Term deposits would yield a far higher return.

Remember, over the long term, interest costs EXCEED capital gains.

Of the two options, choose investment. An average IP only needs to appreciate by ~2%pa to pull a profit, a PPOR needs ~5%.

Cheers, F. [cowboy2]

Another popular PI myth I’m afraid. Yes, there is a connection between higher (general goods) inflation and higher interest rates, but the link between high inflation and rising house prices is dependant on wages rising in line with goods. A couple of very significant dampeners on wages are the globalisation of labour, work-choices… but there are many more. Furthermore, you’ve linked higher interest rates with rising house prices… [blink]

F.[cowboy2]

Hi again Drac,

Good luck with the looming HSC / end of school – one of the defining moments in life, though not usually for the reasons indoctrinated by the schooling system. I hope it goes well, and if it doesn’t it really isn’t the end of the world. Trust me, I know what I’m talking about. [blink]

As for your money-making plans, don’t forget that one of the easiest, most reliable ways to make money is by working 9-to-5. This should be, at this point in your life, your goal. Financial stability. While you won’t get mega-rich overnight, it will pay the bills, give you independence, allow you to save, and hopefully leave some spare cash for toys, trinkets and holidays. The savings that you tuck away will grow to provide you with a good base to jump off into other investments.

Working for somebody else is always a good way to start, be it a trade or in business. You get to work regular hours, you get a regular income and you get to know the ropes on somebody else’s time / money. It’s less stressful than trying to make it on your own, and the limited hours will leave plenty of free time for studying or making investments. And you get to take more risks with your investments, knowing you’ll still get a fortnightly cheque.

So what is your plan? Where are you going from here? Work-force or TAFE/uni (IMO this could easily be described as ‘money or debt’)? What general field or stream do you intend to pursue? Do you have a solid plan to get into that field?

These are the sort of things you should really be concentrating on right now not worrying about whether somebody else is making a good or bad investment decision. It’s not too early to be networking, researching or chasing employment prospects if you’re headed for the workforce. Even if you’ve decided to hit the books for another few years, consider whether short-term or summer employment exists in your field. If you can get a job over the holidays summer, it could lead to employment next year, study can be delayed or completed part-time.

So again, what is your plan? Who knows, somebody here might be able to advise or help… perhaps somebody needs a young chap with heaps of enthusiasm and the rare ability to read books [biggrin]

F. [cowboy2]

Ahhh, the infinite wisdom of youth! [biggrin]

Hey, remember back in 1990 when… oh, I guess not. Did you consider that his investment strategy might in fact be the best, wisest, most informed and ultimately rewarding financial decision that he ever makes? Or do you seriously believe there is only one path to riches?

I’m selling my house later this year (actively ‘shorting’ the market), because I believe my capital gains could be better invested elsewhere, and that I will be able to purchase a better house in the same beachside town for a cheaper price in the not-so-distant future. Am I an “uneducated (in property) onlooker”?

F. [cowboy2]

…riiight, that may be how it works in the real world, but we’re in property investing land now! You now have 4 identical houses, 2 ‘worth’ $250k and 2 ‘worth’ $500k…

How would the investors (ctaing and myself) look at it? Surely we’d say “if that one’s worth $500k, this one must be worth $500k.”

How would the bank look at it? Now that rental equivalence is ignored, they simply use comparable sales. “Congratulations,” they’d say, “you have $500k in equity! Fancy a LOC against that?”

How would the REA appraise the properties? The same way – comparisons. “We should be able to get $500k each for them, but buyers always like to negotiate down, to feel that they’re squeezing us for a bargain. We’ll advertise them at $550k each.”

And the other folk who own houses on the road – they’d be expecting to sell their identical houses for $500k too.

I guess I’m making a couple of points here, neither of which relate directly to the original post topic.
– Investors aren’t simply ‘in the market’, they ‘make the market’. They should keep this in mind.
– The market is very easy to manipulate. I assure you, all kind of monkey business goes on during a boom, from money laundering to houses sold $100k over-value (with $100k of ‘powder’ in the ceiling), to exactly the kind of deliberate resales I’ve described – mostly property in new estates to stir up buyer interest and irrational expectations.
– Bank valuations are worthless. The fact that they’ll lend against a particular value does not guarantee that somebody will be prepared to pay that price next week, let alone next year. Tens, perhaps hundreds of thousands of Victorians and NSW’ers found this out (or are yet to) the hard way.

Cheers, F. [cowboy2]

What’s that old saying again? “…chickens… hatch… something?”

A debt is debt is a debt. What is bad debt? Unsecured? Non-deductible? What is good debt? Tax-deductible? Positively geared? What if the debt is tax-deductible but holding costs (interest costs plus income minus management minus insurance minus rates minus land tax) consistently exceed capital gains? Good debt or bad debt? What if the property is positively-geared but incurs a capital loss? Good or bad?

In the end, the only certainty with debt is that it must be repaid…. With interest.

It’s important to note that in times of stable, non-inflationary monetary policy, capital gains are not consistently higher than borrowing costs. To assume that whatever you term ‘good debt’ must over the long-term result in capital gains in excess of costs may be an error of judgement. Otherwise surely there is no incentive for any person to work?

Regardless, I’ve shown that capital gains are the product of debt, so even ‘good debt’, resulting in net capital gains would require somebody else to take on even more debt. Good for you perhaps, but bad for our collective economy. And ultimately, unsustainable.

F.[cowboy2]

So… population growth (including net natural growth and net migration) is currently running at 240,000 per year, meanwhile we’re building what, 150,000 new homes per year?

So back to economics 101, when supply exceeds demand… [ohno2]

F. [cowboy2]