now…remember…I havent finished the book….but I have come to a brick wall.
Capital gains tax and all that…Steve talks about owning a house and all that….and how if you have owned it longer you make less profit that you think, because of the CPI and inflation and all that.
What I dont get….is..to make a profit in TODAYS market….dont you have to work on TODAYS rates? (taking into consideration the last 12 to 18 mnths) If I have owned a IP for 10 years..rode the housing boom and financial upheavals..happy to let it make a little money…then sold it..wouldnt the price I paid in the market 10 years ago..essentially be a moot point?
I hope that makes sense……[
]~ Heaven doesnt want me and Hell is afraid I will take over! ~ :þ
It’s really an economic principle rather than a question of buy price and sell price. If you allow for inflation and reduced buying power of a dollar over a period of time you can see how relative costs change.
10 years ago a can of coke was around $0.50, but now it is $1.60. Obviously the item you purchased can’t be replaced for the same amount of money today – you can get around a third of a can of coke – not as satisfying to the thirst.
I think I might be straying a bit here – but the point is basically around if you buy something today – in relative dollar terms, you can buy about a third less in 5 years time (buying power reduces around 8-9% per year for the same dollar.) So your profit also can shrink with time in terms of buying power.
God I think I have confused myself now[
]GOOD QUESTION ! [
]I will try explain it as I see it… (it will probably confuse you more thought).. [
]For example:
10 years ago your wage maybe 300pw, a carton of milk $2, property price $100,000.…(room fades to black).. 10 years later. The CPI has increased by 4%, so your wage (hopefully comes up by 4% with the CPI at least.) the cost of milk is up by 4%, and the value of your property is 4% higher….
In all your house has the same value as it did 10 years ago, cos your wage, the milk, and the property have evenly come up to the 4% CPI increase. So with your wage, you can still only buy the same amount of milk, and the property value has come up to the CPI. So its all the same value. If your property increased by 10% when the average house increased by 5%, then your doing good, if you property increased by 4%, then the house is worth less now in comparison to the average house…[xx(][xx(]
I think thats the idea behind working out what your CG is, when you include inflation/CPI.
But im sure you will get a more detailed answer with figures to prove the point.[
]..I need a asprin now..[xx(]
Regards,
Arty.[
]
“Why work to the age where you cant enjoy
what you have worked for !.” (Author: Me)Pinky, you can either take today’s dollars back to 10 years ago to compare, or bring 10 year’s ago dollars forward to today.
Lets say you paid 100k for the property in 1993, and sold it for 300k in 2003. (you chose really wisely!) Ignoring tax etc, to see what you really made after inflation, we have to assume an average inflation figure for the last 10 years, say 4% (probably not exactly right but the maths will be similar)
The future worth of your original 100k will be 1.04^10 multiplied by 100k (where ^ means “to the power of”), ie 148k in todays dollars. So in real terms (measured in how many more cans of coke you can now buy compared to how many you could buy in 1993) you have made 300k – 148k = 152k of today’s dollars. Still a lot of coke []
I’m sure inflation is better than 8 to 9% PB, more like 3.5% at the moment.
JimAgree Doogs that inflation is not at 8-9%. Is the figure used in economics for dollar cost averaging, to compare like with like across time periods. Covers inflation and general devaluation due to increases in costs market place.
Now who said those HECS fees were wasted on me?
Probably true PB if you’re buying houses instead of coke cans [
]That’s going to haunt me now isn’t it? [
]Good thing I didn’t use Tab as an example[
]thanx so much guys!!!!!
Id love to say I get it now…but I would be lying. So far Im left with alot of houses coz I chose wisely and alot of coke…wishing it was Tab? Maybe I should have invested in Pepsi? LOL
I will study more…and see what sinks in
Who had the aspirin??[
]~ Heaven doesnt want me and Hell is afraid I will take over! ~ :þ
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