hi people
just new here and to finance in general… got a very newbish question and im just wondering what you ppl with more expeirence have to say.
Just been looking at loan repayments, say for example a $300,000 home loan, which is barely enough to buy anything pretty nice in a good inner city suburb, the repayments are approx $1200 a fortnight. Now a house of that value would be lucky to fetch around $300 a week in rent so maybe just HALF of the loan repayments are covered. MY question, how on earth do home buyers or property investors benefit at all from this ??? to own a home the weekly repayments are absurd, to invest you are making a huge loss, i cant see how even negative gearing makes up for the huge defecit… am i missing something here?? cant imagine how much the repayments are for $500,000 or more [crying]Well, what you have stated above is really all about negative gearing.
You’re 100% right about the huge shortfall between interest and repayments. The tax benefits will lessen the pain somewhat, maybe even up to 40%+.
But the real gain is when there is an improvement of capital value. There are countless cases in the last boom cycle where the property values has doubled.
So let’s say you bought a house for $300K and 3 years later, let’s say its now worth $500K. Would the gain offset the interest+costs(less tax benefits) that you have paid ? Most likely.
But at the same time, prices could remain stagnant (or even drop).
I agree with bennido, the best thing about negative gearing is delaying gratification, so to speak. You may have a short fall now, but you will receive it back in capital gains sooner than than you would with positive cashflow properties. Of course this is not always the case, you just need to pick a suburb that is in demard i.e. inner city. We purchased our PPOR in 2001 for $250k & it was just revalued at $515k. I know this doesn’t happen all the time, but it is much more likely to occur (and faster) with negative gearing. Plus do some reseach on the tax advantages, if you have a $5,000 short fall and claim 30% back, it only becomes $3,500. This may not seem impressive but it does soften the burden of the out of pocket expenses…
P.S. I am not pro negative or positive, I am just highlighting some advantages for negative. I understand that positive cashflow has many advantages too…[thumbsupanim]
good info guys… another question that worries me
i understand properpty generally inflates but isnt it all bound to run out or slow down??? its like property is rising 5-10% every year but our wages certainly arent going up that much so eventually there must be a point wheres property will just keep going up and up so much that most people wont even be able to buy a bungalow in an outta suburban town.. the mediam melbourne house price for example is something like $320k!Originally posted by UnknownSoldier:good info guys… another question that worries me
i understand properpty generally inflates but isnt it all bound to run out or slow down??? its like property is rising 5-10% every year but our wages certainly arent going up that much so eventually there must be a point wheres property will just keep going up and up so much that most people wont even be able to buy a bungalow in an outta suburban town.. the mediam melbourne house price for example is something like $320k!Good point. Funny thing is that I remember people saying just that when the Sydney median house price hit $200K. How can the average family buy a home they said?
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.
I m paying of block of land. about $100 per week on top of my home mortgage. To build a house on it would cost in vicinity of $180,000 to $200,000. The rental would only fetch about $240 per week. You guys reckon if I absorb losses for 3 years or so I might just still make money if house prices go up? Very Interesting thought I have never sen it like that. By the way land value is about $75000 now from $67000 a year ago.
Cheers
Cyclist
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