Hey guys this just popped up in the news today. I can see the logic considering todays housing prices, what about you?
Renting’s a super choice
From: By Caroline Adam
October 09, 2005RENTING a home and investing the rest of your money in superannuation makes better financial sense than pursuing the great Australian dream, an industry analyst says.
IBISWorld chairman Phillip Ruthven said that over time, people had been “hoodwinked” into believing that buying a home was the best investment they could make, when this was not true.
“In buying a home, you can expect over a long, long period of time an average capital gain of about eight per cent,” Mr Ruthven said.“However you have to take off at least four per cent each year to allow for the costs involved in buying and selling the home.”
Costs such as real estate agents’ fees, stamp duties, legal fees and maintenance of the dwelling reduced the capital gain from owning a home to about four per cent a year, he said.
“If you invest in super you’re going to earn about 11 per cent a year, in which case you are better to invest in super and then lease your home,” Mr Ruthven said.
“Because by leasing a home, you can lease for about 3.5 to four per cent of its value.
Paying rent was not sending money down the drain; paying interest on a mortgage WAS sending money down the drain, Mr Ruthven said.Home ownership appealed to people because of the emotional security it offered and because it was a form of forced saving, but it had never been a good investment, he said. It was not a bad investment but there were far better things to put one’s money in, such as super, he said.
Mr Ruthven said he was impressed by the number of young people who were choosing to rent a home rather than buy one, because they did not want to spend the next 10 years struggling to enjoy life.
renting your home and investing the your money instead of paying off a mortgage makes alot of sense.
putting your money in superanuation however, is a poor choice! There are far better investments out there!
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phone 0412 437 582I agree with Dr X
What about buying your home, lving in it for a while, then renting it out. that way you have the property, claim the deductions, and still have it CGT free for up to 6 years.
Terryw
Discover Home Loans
Parramatta
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This comparison of course assumes that one has a mortgage.
Buying some dodgy little hovel for 70 or 80K as your first PPoR and paying cash on the nose may affect things a tad.
There’s so many assumptions to that article it makes it almost impossible to take it seriously.
I’m of the opinion 20 yr olds just starting out in their financial life, trying to eke out an existence, and being advised to pour most of their hard earned into an investment which effectively locks it up for the next 45 years may not be the best plan. Look how much the ‘rules’ governing super have changed since 1980…that’s only 25 yrs….I think it would fill a book 5″ thick. What’s going to happen over the next 45 yrs ??
I’d rather have control over a 4% return, then be locked out for 45 yrs and have no control over a 11% return. Oh, and where’d this 11% come from ??
Getting 100% on red over 2 minutes on the roulette wheel is also a cracking good return…plus fees during that 2 minutes are relatively low…but this doesn’t mean it’s better than buying a house either.
Cheers,
Darryl Moore
“No point having a cake if you can’t eat it.”
“I’d rather have control over a 4% return, then be locked out for 45 yrs and have no control over a 11% return. Oh, and where’d this 11% come from ??”
Exactly what I was thinking. Who wants to lock away every cent into super, which you can’t touch for years.
At least, when you put the money into your own home, whether you have a mortgage or not, you can still use the equity for further investments, which also accumulate equity to use, and so on.
Super does not offer any flexibility.True about the changes into super, too.
Weren’t they talking about making new changes again, something about making part of the super accessable so that people wouldn’t be too afraid to put more into super?
You never know what new changes ‘the gov gang’ will come up with next that will affect our super, like it or not.Anyway, I wouldn’t complain if people decided to rent and put their money into super instead of buying their own home
Celivia
Yes I can see why many would be nervous about putting all that extra money into super that they cant touch and is left exposed to the Governments pilfering. Imagine a stock market crash of 1929 magnitude the year you’re planning to start drawing your super…
I wouldn’t put my spare cash into super. If the stock market crashes, then your captial in super is lost.
When I did not have a job for two years my meagre super of $50.00 was eaten by all fees because in small print it said that they were allowed to charge administrative fee of $10-15 per year or something even though the government said that super of less than $5000 is protected. Super is not allowed to charge management fees for super less than $5000 but they are still allowed to charge adminsitrative fees.
If I have the money I will invest in anything but super where I have control.
In that respect I agree with Dazzling & Dr X
This article compares RENTING a home and investing the rest of your money in superannuation vs pursuing the great Australian dream of buying your own principle place of residence. I would like to see an article of Renting a home and investing in Super VS buying IP’s. How does that compare in the long run??
Imagine if you owned a managed fuunds that had invested in such leading compaines as AMP, NAB or in a high growth company called oneTel (which was backed by the 2 richest Australians).
In fact I had a friend that had invested in AMP and NAB.He probably hasn’t lost money (Oas he had other shares), but rather he hasn’t made any money and when you look at the last couple of weeks (I remember reading in the last few days about how the stock market has some serious falls (or losses).
Also here is an article about the declining share market:
http://www.smh.com.au/news/business/that-sinking-feeling/2005/10/07/1128562999557.htmlSo I wouldn’t want to lock away my wealth while watching! And having almost no control over my money (try asking the manager of your super fund to sell a company in the portfolio because you thinks it’s overvalued!).
In the end I would rather have a house and no super (and live off the equity in the house) rather than invest it in super and potentially wind up with nothing.
In fact I might do a small analysis (just for fun!).
Hellman
Renting’s a super choice
From: By Caroline Adam
October 09, 2005RENTING a home and investing the rest of your money in superannuation makes better financial sense than pursuing the great Australian dream, an industry analyst says.
IBISWorld chairman Phillip Ruthven said that over time, people had been “hoodwinked” into believing that buying a home was the best investment they could make, when this was not true.
“In buying a home, you can expect over a long, long period of time an average capital gain of about eight per cent,” Mr Ruthven said.>It depends on where you buy. Also that average dosen’t include properties that create a rental return (which if it did would increase the average massively). Also it dosn’t inc. the benefits of negative gearing nor the ability to leverage up to 90%+.
“However you have to take off at least four per cent each year to allow for the costs involved in buying and selling the home.”
>If you dont sell I don’t think you would be paying 4% in selling costs… And why would you pay 4% every year in selling costs, when I have seen agents commissions as low 1.5%…..
Costs such as real estate agents’ fees, stamp duties, legal fees and maintenance of the dwelling reduced the capital gain from owning a home to about four per cent a year, he said.
>Okay say I owned a property that costed $1 Million, now I would make say $80K in CGT, but I would have to spend $40K in maintainance… Are u kidding me??? Per Year???? Now you’ve got to be joking! A place that costds $40K per yr in maintainace every single year??? Give me a break!!!!!
“If you invest in super you’re going to earn about 11 per cent a year, in which case you are better to invest in super and then lease your home,” Mr Ruthven said.
>11% – is that before or after fees??? What about insurance to cover if the companies go bankrupt? Wbat no insurance to cover real loss?
“Because by leasing a home, you can lease for about 3.5 to four per cent of its value.
Paying rent was not sending money down the drain; paying interest on a mortgage WAS sending money down the drain, Mr Ruthven said.>Paying interest on a mortgage can mean money off your tax bill if you rented the property out…
If you are the highest marginal tax rate, you could save $,000’s! Of course the only way to claim money off your tax with shares for most uneducated investors (i.e. investors who dont use insurance, margin, etc) is to actually lose money…Home ownership appealed to people because of the emotional security it offered and because it was a form of forced saving, but it had never been a good investment, he said. It was not a bad investment but there were far better things to put one’s money in, such as super, he said.
>Which apparently makes all this money and never loses…. Unlike say a house which has massive swings in price like the stock market and can go bankrupt too (and be woRth nothing!). I guess thats why banks lend so much on real estate.
Mr Ruthven said he was impressed by the number of young people who were choosing to rent a home rather than buy one, because they did not want to spend the next 10 years struggling to enjoy life.
> No, most young people have not invested in property because they couldn’t afford it, not because they thought super was a better choice. In fact many young people who are actualy buying property and renting it out… And if you ask SiS or other young guns the pay off from the hard yards more than makes up for the hard yards – Hay just ask Peter Span (his pay off inc. the latest Ferraris – can I buy a ferrari with my super? O’h only in 35yrs+ When I’m actually allowed to touch it).
Hellman
Hi all,
Interesting topic.I can pay interest on, and thereby control – an investment of say $2 m.
Hopefully, if the investment rises in value at the stated 4 % pa; then overtime I am earning $80,000 per annum before CGT etc.
If I can do this CF neutral then I reckon I am ahead.
Any one contest or comment on this??
I don’t think many people borrow a heap to invest in super?Giddo
http://www.standrewsplace.com.auKNOWLEDGE IS POWER
Hi all,
I love that article! How can we increase its circulation – just untill I have my twenty or thirty IPs, promise!I guess we who are privi to the info on this, and other such sites, could laugh at the expense of others. the more they rent the easier it will be for us! Not very charitable, though. Is it?!
I can’t change every-ones ideas and can’t help every-one out of their troubles, but I’ll do what I can to help those that I get in contact with – if THEY want to. Our baby sitter asked me what she should do – I tolde her about the 70/30% principle (from The Richest Man in Babylon) and after 6 months she has nearly enough to buy a new car outright! I mentioned that that wasn’t a good investment, but blablabla. It is her choice. But she knows how to do it now, and I think she will continue with it as she is excited about her success.
In the mean time, I hope (and will work towards) more investments – yes houses and maybe some shares in the future too. We see.
“You can’t teach an old dog new tricks – because he isn’t interested enought to work for them”
Cheers
C@34Our greatest weakness lies in giving up. The most certain way to succeed is to always try something one more time.
– Thomas EdisonThis is my favourite bit:
Mr Ruthven said he was impressed by the number of young people who were choosing to rent a home rather than buy one, because they did not want to spend the next 10 years struggling to enjoy life.I know plenty of young people who choose to rent rather than buy – some rent from me. I have news for Mr Ruthven, though, they are not investing their surplus cash. They’re spending it on cars, holidays, clothes etc.
Scott
Tax Depreciation Schedules
Australia wide service
1300 660033
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http://www.depreciator.com.auYes depreciator of course they are. Perhaps the wilful expenditure of surplus cash is impressive sometimes… I’ve seen wads of cash put to some pretty fantastic uses. (*drifts into hazy reverie…*)
ANYHOO, the points made about super are very, very true. But this rent v buy argument has been raging for ages, and economists and experts will continue to offer different perspectives on it. Here’s one now… our property finance lecturer once said to us, “How would you like to get a practically guaranteed 6.5% return on your money? Easy, make extra repayments on your home loan.” Ok it’s not as black and white as that, but an interesting point.
I like our PPR. It’s a wonderful opportunity to show various government organisations how generous we are.
Bob
our property finance lecturer once said to us, “How would you like to get a practically guaranteed 6.5% return on your money? Easy, make extra repayments on your home loan.”Tax Free return too!!
But I would counsel people to choose an offset account for the same effect but with far better flexibility for reason outlined in other posts.
Cheers,
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
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0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Hi g7 and all.
That theory of Phil’s has been his thinking for quite some time now. It’s ironic because I went to Emmaus College in Forest Hill and in year 9 I was a close mate of Justin Ruthven, Phil’s son. That was a looooooooooong time ago. The argument against Phil (yeeeeeeeeeeeeeaars later!) was that people by nature are poor savers and would only come out ahead if they literally put every cent after rent, bills, etc into investing over the life span.
A bit too tight,…even for me.
Cheers,
Gatsby!“Sometimes the hardest thing to do in life is often the best thing to do.”
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