So ... $636,822 * 0.6 = 382,093.2 and the last time Sydney median house prices were 382,093.2 was 2001, which is 11 years ago, give or take. So if you saved 10,000 a year for 11 years and invested it at an average interest rate of 6.7%, you would have a warchest of $165,910.41. And that's pretty conservative.
genX
Probably, at the top marginal rate, but then again, I have other deductions. I'll take the top marginal rate for you. $131,578.27 which is around 34% of 385K, making the leverage 66%.
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So you are telling me a person saving $10k per year (after rent) will have $131k (after tax) after those 11 years. But you watched house prices $382k to $636k in the same 11 years i.e. $254k increase
Sounds like the person who put $10k per year on top of rental costs to buy a house 11 years ago would be financially ahead now (assuming they had the deposit and could get the loan)
Note: Purely looking from a historical point of view and not implying property prices will rise the same amount in the next 11 years.
So you are telling me a person saving $10k per year (after rent) will have $131k (after tax) after those 11 years. But you watched house prices $382k to $636k in the same 11 years i.e. $254k increase
Sounds like the person who put $10k per year on top of rental costs to buy a house 11 years ago would be financially ahead now (assuming they had the deposit and could get the loan)
Note: Purely looking from a historical point of view and not implying property prices will rise the same amount in the next 11 years.
I've done the calcs, and the answer is: it depends.
Using the most generous assumptions I could for the property owner, after 11 years, the property owner ends up $3357 ahead of the saver. This is assuming that the saver only invests the difference between their rent and what the owner would pay for their mortgage.
Using the least generous assumptions, the property owner ends up $17,412 behind the saver.
The calculations were extremely sensitive to both the interest rate and the rental yield. The interest rate I used is an annual approximation of the monthly figures from here: http://www.loansense.com.au/historical-rates.html
The rental yield is much harder to calculate. In Sydney I have seen rental yields swing from 2% to 5%, which is a huge volatility. The problem with rental yields is that rental prices are relatively inelastic compared with asset prices. Asset prices can turn over every quarter, but rents can often lag for a year behind the change in price. The other thing about rental yields for Sydney at least is that the variance is rent is greater than the variance in price for an area that is close to a train station (different markets, different demands) or an express bus stop.
My own experience is that you can get very good rental deals and very bad purchase deals from that one factor alone.
I've attached my spreadsheet. It's VERY rough, so take it how you will. I would spend more time on it, but PC Nexuiz was released today.
I've done the calcs, and the answer is: it depends.
Using the most generous assumptions I could for the property owner, after 11 years, the property owner ends up $3357 ahead of the saver. This is assuming that the saver only invests the difference between their rent and what the owner would pay for their mortgage.
Using the least generous assumptions, the property owner ends up $17,412 behind the saver.
Thanks. I took a quick look and I can see where you invested the 20% deposit for the renter. But I can't see where you took tax into consideration like your earlier example. But no rush, I know how important games are
I put trolls and time wasters on my ignore list so if I don't respond to you, you are probably on it ....
Thanks. I took a quick look and I can see where you invested the 20% deposit for the renter. But I can't see where you took tax into consideration like your earlier example. But no rush, I know how important games are
Hehe, I got 6 hours sleep the night before, but was still keen to play.
I've updated my calcs. I took the April rate as the annualised rate, and adjusted the principal repayment to be consistent with the rate. I also added tax to the interest. The tax still doesn't make as much a difference as the gross rental return though.
I assumed you meant owner occupier? I was planning to calculate capital gains tax, but then realised I would need to calculate the negative gearing deduction for each year and cbf.
Also assumed a house and not an apartment. Body corporate fees have been nearly twice the outgoings of rates/water in the last 10 years in Sydney. (Using body corporate changes the equation significantly).
Last, I also assumed that a house costs nothing to maintain. It's not true, but it's hard to get a median maintenance cost.
I added a cash flow impairment calculation, and the risk/liquidity premium you get paid for that impairment. Although, it really should just be a liquidity premium right? Because property is risk free
So the answer for ME, at least, is that if I had been willing to spend 3-4 hours on a train per day 5 days per week[1], and have no discretionary income for 11 years,and had purchased property in 2001, I would be ahead (relatively) by $23,458 for 11 years of cruel and unusual punishment.
I can see the appeal now.
On the other hand, if prices drop by 15-35%, and rents continue to rise (which I think they may do given the investor market will be stressed), then sure, why wouldn't I buy? - I get the house for the cost of rent. - Investors get positively geared assets. - Australia gets to be a Banana Republic with rising income disparity.
The fact is Mr Castle would have made more if he had of just put his 20% deposit in the bank . He would have at least gone forwards rather than backwards
Thanks. I took a quick look and I can see where you invested the 20% deposit for the renter. But I can't see where you took tax into consideration like your earlier example. But no rush, I know how important games are
Hehe, I got 6 hours sleep the night before, but was still keen to play.
I've updated my calcs. I took the April rate as the annualised rate, and adjusted the principal repayment to be consistent with the rate. I also added tax to the interest. The tax still doesn't make as much a difference as the gross rental return though.
I assumed you meant owner occupier? I was planning to calculate capital gains tax, but then realised I would need to calculate the negative gearing deduction for each year and cbf.
Also assumed a house and not an apartment. Body corporate fees have been nearly twice the outgoings of rates/water in the last 10 years in Sydney. (Using body corporate changes the equation significantly).
Last, I also assumed that a house costs nothing to maintain. It's not true, but it's hard to get a median maintenance cost.
I added a cash flow impairment calculation, and the risk/liquidity premium you get paid for that impairment. Although, it really should just be a liquidity premium right? Because property is risk free
So the answer for ME, at least, is that if I had been willing to spend 3-4 hours on a train per day 5 days per week[1], and have no discretionary income for 11 years,and had purchased property in 2001, I would be ahead (relatively) by $23,458 for 11 years of cruel and unusual punishment.
I can see the appeal now.
On the other hand, if prices drop by 15-35%, and rents continue to rise (which I think they may do given the investor market will be stressed), then sure, why wouldn't I buy? - I get the house for the cost of rent. - Investors get positively geared assets. - Australia gets to be a Banana Republic with rising income disparity.
[1] Because of the variance in rental yield
I won't check your spreadsheet. It's not yet 11:00 pm so I'll assume that you are wide awake.
My thoughts on property if you look at them as an investment, is that it's up to the rental and the tax deductions to get them close to a breakeven point. A lot of small investors don't mind having to subsidise the property for a while, and if they pay them down as hard as they can the property becomes positively geared fairly quickly, especially if rents move upward.
It might sound archaic to many here that some people like a form of forced savings, especially if they have already paid their own home off. The reality is that many people will rent for years waiting for the right time to buy, and find that when that moment arrives they really didn't accumulate the savings that they expected to - other opportunities presented themselves - a holiday, a new car - it's easy to spend when it's there.
The payoff is the capital gains. If they are large then you win, if they are quite small or flatline then it's debatable and it will depend on rental growth and how well you bought.
If the value falls - then in all probability you will lose regardless of rental growth. But the gains or losses are over the term that you hold property, be that 2 years or 20 years.
It's difficult to come up with a formulae that suits everyones financial situation, needs and wants, patience, and individual investment profile.
Any expressed market opinion is my own and is not to be taken as financial advice
I won't check your spreadsheet. It's not yet 11:00 pm so I'll assume that you are wide awake.
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It might sound archaic to many here that some people like a form of forced savings, especially if they have already paid their own home off.
It sounds like the nanny state to me, but then Australia is the only country in the world where Communism was successfully implemented.
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It's difficult to come up with a formulae that suits everyones financial situation, needs and wants, patience, and individual investment profile.
While I was moving numbers around on the spreadsheet, it became obvious that the gains are highly biased towards to rich and against the poor, especially the tax concessions.
Given that property is basically a liability, this makes perfect sense. When your economy has efficient capital markets, capital will not flow towards liabilities like property, but towards productive economic activity (manufacturing,retail,services). Therefore it makes sense for the government to provide tax concessions to the rich (who have capital) to invest in property so the poor have somewhere to live.
In that sense, if you are in the top 20% of income earners, buying and investing in property is subsidised by the government's tax collection, so it is probably tax effective for me to buy now, except that I think we are due a correction of at least 15%, and I can always save more of the deposit while I wait for a bargain. (I could be wrong of course, but then I will still have the cash)
Who pays the tax to provide those subsidies is a lot more complex, but the argument could be made that the poor are paying taxes to incentivate the rich to build houses for them to live in.
The fact is Mr Castle would have made more if he had of just put his 20% deposit in the bank . He would have at least gone forwards rather than backwards
Really? Cash in bank would have me at a few hundred K, paying rent weekly and working for a living. Instead because I bought wisely and developed I am at several mill and we are both retired.
These wise investments paid off my PPOR These wise investments have provided us with unencumbered IP's These wise investments now pay for us to live, so neither have to work.
Explain to us all here again how a couple of hundred K in the bank earning 5% - tax would do better?
Cant do it? Thought so. Ted, you are an A Grade wanker, admit it.
Ignore posts by The Whole Truth · View Post · End Ignoring The forum fuckwit goes RRRAAARRRGGHHhhh - But not a fuck was given..................by anyone.
Cash in bank would have me at a few hundred K, paying rent weekly and working for a living. Instead because I bought wisely and developed I am at several mill and we are both retired.
Tell me when, where and what you purchased and the tax bracket you were in for that period, and I will check your assertions.
By 'several mill', I assume you mean equity rather than cash?
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These wise investments paid off my PPOR These wise investments have provided us with unencumbered IP's These wise investments now pay for us to live, so neither have to work.
My taxes probably paid for all that, but well done on leaching of the public treasury. On the flip side, everything the government once provided like education, health, roads etc it can no longer afford because they spent all their money on your investments, so look forward to rising costs and falling levels of service in the future.
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Explain to us all here again how a couple of hundred K in the bank earning 5% - tax would do better?
Anything can happen in a fantasy. Give me your real world numbers and I will help you see where you went wrong.
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