INVESTING IN HOUSES CAN MAKE YOU MONEY, BUT HOW FAR DO YOU GO?
THE aim of the game Monopoly is to collect as many houses as you can, the more expensive the better, if you want to win.
This game is being played out in real life by hundreds of thousands of Australians who are collecting properties in an effort to build wealth or prestige.
From holiday homes in exotic locations to a rental property or four, investors see real estate as a ticket to riches while other Australians struggle to scrape together a deposit for their first home.
So how many houses do you really need to own to be financially comfortable later in life?
Much depends on the value of the properties and debt levels, but here’s a quick look at the options.
ONE HOUSE Owning your own home is one of the best investments you can make, for security, financial gain and tax benefits. Everybody needs a roof over their head and homeowners don’t worry about paying ever-rising rents. Home values increase over time and unlike other investments their capital gains are tax-free.
A popular new strategy — renting your own home while buying an investment property — helps people keep up with overall rises in property values but doesn’t deliver tax-free gains.
Thousands of real estate investors one more than four rental properties. TWO HOUSES An extra property potentially doubles the potential to increase real estate wealth, although if it’s a holiday home without rental income it also can be a financial drain.
Australian Taxation Office data shows that 72 per cent of the nation’s 2.1 million property investors own one rental property. A couple of decades of capital growth can create a handy retirement bonus but not enough to be a self-funded retiree.
THREE HOUSES A couple of good quality investment properties — in addition to your own home — that double in value over 15-20 years can build an impressive store of wealth much larger than the superannuation balances of most Aussies.
RELATED: House bricks a hit with young buyers
For example, two investment properties worth $450,000 each today could be worth at least $900,000 in a couple of decades, although at least one would have to be sold to release the wealth and repay any debts. The ATO says 19 per cent of property investors have two rental properties.
FOUR OR MORE HOUSES This is where property investment gets more serious. Three properties plus your own home can be worth millions of dollars many years down the track. Six per cent of investors have three rental properties while less than 4 per cent have four or more.
Metropole Property Strategists director Michael Yardney says if you want to earn $100,000 a year from real estate investments after tax and other costs, you’ll need at least $4 million of properties without mortgages.
Metropole Property Strategists founder Michael Yardney says $4 million is the magic number. While that might sound out of reach, remember that Adelaide’s median house price in 2000 was $131,000 and today it’s about $450,000. Every other capital city has trebled too. You don’t need more than a handful of properties to be a successful real estate investor.
ZERO HOUSES This left-field option is probably not attractive for anyone who likes real estate.
Some advisers say people may be better off financially by renting and putting their spare money into non-housing investments ranging from Australian and overseas shares to hedge funds and international commercial property.
This could work for people with the discipline to divert every dollar saved into other investments, but that behaviour is rare.
The author does not appear to have played monopoly.
Interesting game that will teach people a lot about property, but to play monopoly to win a player has to go all in and take a lot of risks. In real life hardly anyone goes all in, or if they do they don't do it for long. It's too stressful.
Take risks - if you win you will become wealthy, if you lose you will become wise
I kinda relates ta the principle of "Enough" meself - Get enough but don't get greedy.
Hmmm - Coz even looking at it from a practical perspective (as opposed to any supposed 'moral' one), managing 'n maintaining 'lots' of houses (with the tenants in them) sounds like hard work ta me; Plus hey Yeah, if ya's totally overloaded in a single asset class (and it 'underperforms' ['n especially in your dotage]), well Yep, that could just be a bit of a pain in tha arse as well.
PS: With 'enough' for me personally being 4 (which is wot I has at this time; Me own hovel plus 3 slightly more salubrious rentals). Tho depending how things go, I've not ruled out 5 all up - Well, for now anyway ... But Nah, I'd not wanta look after 6.
'N govs feel a bit tha same way I reckons; With that explaining why they've been a bit more inclined ta rush outta 'social housing' over the last coupla decades than into it - I suspects.
Interesting game that will teach people a lot about property, but to play monopoly to win a player has to go all in and take a lot of risks. In real life hardly anyone goes all in, or if they do they don't do it for long. It's too stressful.
True, in monopoly if you want to maximize your chance of winning, you buy everything you land on, buy houses as soon as you can, and just pray you don't land on anyone else's property or get a bad chance card etc.
So essentially to maximize your chance of winning in monopoly, you also maximize your chance of losing. Since if you're forced to sell off the houses you own to pay debt, you have to sell them off at half the price you originally paid.
Same can be said in real life, the quicker you buy houses the better off you'll be if all goes to plan, but equally you lower the safety factor in being able to cover any downturn.
I'm personally contemplating whether I play this game. I could buy 2 - 3 more houses over the next 2 years, and I'll then be tested over the next 5 years after that I imagine. If I don't lose my money in the next 5 years afterwards I should have a significant safety factor to get me through any downturn and have a good chance of 'winning' that game to a degree. If it all fails, and I lose money, I can declare bankruptcy and start from the start. I'm young, have no family so no one other than myself would be affected in the process, the money I'll earn in the future will allow me to quickly save back what I've lost taking a gamble. Also I have been making good money on the stock market lately so being locked out of the housing market for a few years wouldn't prevent me from making money. However that's the exact same thing that's stopping me - I'm making good money in shares so should I even bother risking money in housing?
I disagree with Chris saying people are always wanting more. Yes there will be the few people that will always gamble beyond there means to hopefully earn more. But for most people, the more you own the more cautious you become. No one likes to lose what they've spent blood, sweat and tears to build up. If someone has dodged enough bullets with a large property portfolio, they will start adjusting their risk factor. I imagine that's why that Nathan Birch guy is selling off some of his property. Maybe he has realized that just as easily as the game worked in his favor, it can also work against him. If he adjusts his investment strategy he can prevent potentially losing everything he owns.
So essentially to maximize your chance of winning in monopoly, you also maximize your chance of losing. Since if you're forced to sell off the houses you own to pay debt, you have to sell them off at half the price you originally paid.
Same can be said in real life, the quicker you buy houses the better off you'll be if all goes to plan, but equally you lower the safety factor in being able to cover any downturn.
I'm personally contemplating whether I play this game. I could buy 2 - 3 more houses over the next 2 years, and I'll then be tested over the next 5 years after that I imagine. If I don't lose my money in the next 5 years afterwards I should have a significant safety factor to get me through any downturn and have a good chance of 'winning' that game to a degree. If it all fails, and I lose money, I can declare bankruptcy and start from the start. I'm young, have no family so no one other than myself would be affected in the process, the money I'll earn in the future will allow me to quickly save back what I've lost taking a gamble. Also I have been making good money on the stock market lately so being locked out of the housing market for a few years wouldn't prevent me from making money. However that's the exact same thing that's stopping me - I'm making good money in shares so should I even bother risking money in housing?
The other thing you can do to win at Monopoly is always make sure that you are the banker.
As for your plan, I think it is a fairly safe one for you and I also think you have overstated the downside. In all likelihood the worst that can happen is that you sell the houses and cop the transaction fees, I don't think this would put you into bankruptcy.
How many depends on many things, your appetite for risk, what the market is doing, what age you are, other investment, your financial targets and lifestyle choices.
But as the article says at least buy one, its such a no brainer.
No one likes to lose what they've spent blood, sweat and tears to build up. If someone has dodged enough bullets with a large property portfolio, they will start adjusting their risk factor. I imagine that's why that Nathan Birch guy is selling off some of his property. Maybe he has realized that just as easily as the game worked in his favor, it can also work against him. If he adjusts his investment strategy he can prevent potentially losing everything he owns.
Past behaviour is a significant predictor of future behaviour, if you have become wealthy from taking on significant risk then you will no doubt continue to behave in the same way because it's rewarded you in the past. This is basic psychology, to suggest otherwise is ridiculous and deceptive.
And what blood sweat and tears has ever been involved in signing a mortgage contract?
The other thing you can do to win at Monopoly is always make sure that you are the banker.
As for your plan, I think it is a fairly safe one for you and I also think you have overstated the downside. In all likelihood the worst that can happen is that you sell the houses and cop the transaction fees, I don't think this would put you into bankruptcy.
How many depends on many things, your appetite for risk, what the market is doing, what age you are, other investment, your financial targets and lifestyle choices.
But as the article says at least buy one, its such a no brainer.
That's true, i probably won't be bankrupt per say. I'm just stating a worst case scenario if the world falls apart like what Simon thinks it will.
I do have 1 investment property and it's positively geared so it doesn't affect my lifestyle at all. The next 2 - 3 I'd be looking at probably wouldn't be positively geared to begin with, so they'll affect my lifestyle slightly.
Chris
15 Sep 2017, 10:55 AM
Past behaviour is a significant predictor of future behaviour, if you have become wealthy from taking on significant risk then you will no doubt continue to behave in the same way because it's rewarded you in the past. This is basic psychology, to suggest otherwise is ridiculous and deceptive.
And what blood sweat and tears has ever been involved in signing a mortgage contract?
You are a ridiculous sock Tyson.
Wealth would be more of a roller coaster if that were true, you'd have more people losing money than there currently are.
Spoken from the guy who is struggling to put together a deposit and complains that houses are too expensive to buy. If they are so easy to buy why don't you quit your whinging and sign a mortgage contract?
For those that don't take 20 years to save a deposit, there is a little bit of blood, sweat and tears involved. Save a 20% deposit in 2 years and you might get a better understanding of that.
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