I disagree, mainly in removing the rent/interest aspects of the "project" I think makes it a fairer like for like.
A person has $240k Deposit and chooses to rent rather than buy at this point in time as they think they can get better returns investing.
Interest payments on a $240k loan would be similiar to the persons rent. Allowing for Council Rates, Water Rates, Building Insurance and a little aside for maintenance issues.
You're not comparing like for like. If the person chooses to invest in shares and rent a home then they need to pay the rent, which is a cost that the property buyer would not incur.
Your first investment is $240K, unleveraged, capital gain plus dividends.
Your second investment is $240K, plus a loan of $240K, capital gain only.
So you have invested a different amount of money in each scenario and you're ignoring the income from the property.
Also remember, you can get 3-year fixed rate home loans at 5.39% at the moment. So your assumption that rent on a $480K property = interest on a $240K loan doesn't seem right. Interest on a $240K loan is less than $250 per week. You wouldn't rent much for $250 per week.
Quote:
The other only 2 alternatives are just leave it as an investment portfolio to be tracked here, or the investor borrows $240k and gears the portfolio up with the applicable tax deductions on the investment loan a buyer of a PPoR does not receive.
I am extremely confident that if the investment portfolio take the 2nd approach it will monster the housing option as far as returns go.
You need to consider capital gains tax for the share portfolio.
1. You're not comparing like for like. If the person chooses to invest in shares and rent a home then they need to pay the rent, which is a cost that the property buyer would not incur.
2. Your first investment is $240K, unleveraged, capital gain plus dividends.
3. Your second investment is $240K, plus a loan of $240K, capital gain only.
4. So you have invested a different amount of money in each scenario and you're ignoring the income from the property.
4a Also remember, you can get 3-year fixed rate home loans at 5.39% at the moment. So your assumption that rent on a $480K property = interest on a $240K loan doesn't seem right. Interest on a $240K loan is less than $250 per week. You wouldn't rent much for $250 per week.
5. You need to consider capital gains tax for the share portfolio.
1. I did compare like for like taking in account the investor paying rent and the buyer paying interest and associated on costs.
2. Correct
3. If the portfolio is expanded to be a $480k portfolio then capital gains (or losses) and dividends (where applicaple) would and should be counted.
4. The PPoR has no income. It has costs and captal gain (or losses)
4a $250pw + 80pw on costs $330. Plenty of places to rent for $330pw in Melbourne
5. Capital Gains (and losses) and taxable amounts on interest earned would be calculated in amounts.
Yes over time the loan amount for the home buyer reduces and the rent for the tenant goes up, over a period of less than 5 years neither of these amounts are significant. (my rent has gone up $10pw each February I have been here, this coming February is my 5th, no notice of rent increase this year (yet) )
There are some people who seem angry and continuously look for conflict. Walk away, the battle they are fighting isn't with you, it's with themselves.
The first lesson of economics is scarcity: There is not enough of anything to satisfy all who want it. The first lesson of politics is to disregard the first lesson of economics. ~ Thomas Sowell.
Who was the fool, who the wise man, who the beggar or the Emperor? Whether rich or poor, all are equal in death.
The $500 is what I considered to be a fair discount a renter would have over a purchaser and so as argued in discussions before the "renter" is saving the difference.
It is a comparison to continue renting and not purchase a house as against purchasing a PPoR not an investment property.
Even then, if we were to comapre against an investment property situation, how do we come to an agreed yeild figure when some would argue their is no yeild as property investors lose money and claim the difference as negative gearing and some positive gear. How could we establish a base line for comparison.
The argument that started this thread was that a person had sufficient funds to purchase a house but decides to rent instead and invest because they think they can outperform the property market.
It does not take into account what the home buyer has paid out in interest either. It does not take account rent paid. My personal position, rent is just under $700per month Some elses might be $2000per month.
Round figures house now $500k in 5 years MIGHT be $535k and the portfolio in 5 years MIGHT $500k earning $30k a year in dividends meaning that even despite the supposed dead rent money the investor will clearly be in front. Counter to this the house might be now $650k and the portfolio still only $240k (or less) clearly putting the home buyer in front.
As I and others have pointed out, you are not comparing like for like. You already have the advantage of being able to fine tune your share investment (picking individual shares instead of the general market movement) And used the general market movement for property. But you further tilt it in favour of your share portfolio by adding an extra $500 per month as well as completely ignore rental yield of the property (or rental savings if its a PPOR) You might as well measure property in real costs and your share in nominal costs since you are so keen to gain an uneven footing.
But it is your thread so you are entitled to compare whatever you want but I see it as a flawed comparison and of little value.
Or you might try to compare a person who spends $100pw on groceries versus someone who eats nothing but puts $100pw into shares That should make the share investment look good ... well until the person starves to death at least
1. As I and others have pointed out, you are not comparing like for like. 2. You already have the advantage of being able to fine tune your share investment (picking individual shares instead of the general market movement) 3. And used the general market movement for property. 4. But you further tilt it in favour of your share portfolio by adding an extra $500 per month as well as completely ignore rental yield of the property (or rental savings if its a PPOR) 5. You might as well measure property in real costs and your share in nominal costs since you are so keen to gain an uneven footing.
6. But it is your thread so you are entitled to compare whatever you want but I see it as a flawed comparison and of little value.
7. Or you might try to compare a person who spends $100pw on groceries versus someone who eats nothing but puts $100pw into shares That should make the share investment look good ... well until the person starves to death at least
1. I disagree I think it as fair a comparison as you can make.
2. Of course I can pick and choose my investments, that is a given as what a person whom chooses to invest rather than buy property would do.
3. Choose a specific Melbourne suburb with an average price of $480k to compare against. You want direct comparison, I live in Melbourne, rent in Melbourne. Would only be fitting to choose a suburb of Melbourne to put against the investment portfolio.
4. I agreed to remove the $500 month. A PPoR has no yeild. There are no rental savings. Do I go next door and ask my neighbour if his $80000 a year income includes $15000 a year in "rent" he is not paying because he is buying, if not can you please direct me to a place I can tell him he can collect this supposed extra $15000 he should be getting because he is buying a place and not renting.
5 Whatever the house price goes up or down by and what ever the invesment value goes up or down by will be posted. I can't understand how it could not be any fairer.
6. At the very least it will prove that investing outside of property can make for a good return, or it will show I am useless at picking investments if it crashes like a stone.
7. Pointless red herring statement.
There are some people who seem angry and continuously look for conflict. Walk away, the battle they are fighting isn't with you, it's with themselves.
The first lesson of economics is scarcity: There is not enough of anything to satisfy all who want it. The first lesson of politics is to disregard the first lesson of economics. ~ Thomas Sowell.
Who was the fool, who the wise man, who the beggar or the Emperor? Whether rich or poor, all are equal in death.
It was interesting just as a look at a share portfolio over time.
Well, I did did not want it to become too technical an issue. Simply because the more technical it becomes the more work I will have to do. I am not trying to sell a share investing newsletter..
Even at its most basic showing, a clear case will present itself over time as to how the portfolio is doing and there are plenty of reports on how property does.
Like I said, a $500k or so property in 3 years is now $650k and the portfolio is less than current value that would be a definitive result.
As would the $500k property still being $500k in 3 years and the portfolio being $500k earning $30k a year. (even allowing for increased rent payments and decreased loan payments)
A figure in between would be a closer result and would maybe warrant a more technical look to break down the advantages disadvantages of the respective positions.
There are some people who seem angry and continuously look for conflict. Walk away, the battle they are fighting isn't with you, it's with themselves.
The first lesson of economics is scarcity: There is not enough of anything to satisfy all who want it. The first lesson of politics is to disregard the first lesson of economics. ~ Thomas Sowell.
Who was the fool, who the wise man, who the beggar or the Emperor? Whether rich or poor, all are equal in death.
2. Of course I can pick and choose my investments, that is a given as what a person whom chooses to invest rather than buy property would do.
And the person can't choose a particular property which they think will perform better than the market but you can choose a share which you think will perform better than the market? Personally, my house has done a lot better than the market index.
Poontang
10 Jan 2013, 11:31 PM
4. I agreed to remove the $500 month. A PPoR has no yeild. There are no rental savings. Do I go next door and ask my neighbour if his $80000 a year income includes $15000 a year in "rent" he is not paying because he is buying, if not can you please direct me to a place I can tell him he can collect this supposed extra $15000 he should be getting because he is buying a place and not renting.
He can collect that $15k per year by renting out the house ... then he will have to pay rent to live somewhere else - just like the share investor!
Poontang
10 Jan 2013, 11:31 PM
5 Whatever the house price goes up or down by and what ever the invesment value goes up or down by will be posted. I can't understand how it could not be any fairer.
You aren't doing that. You are adding the dividends from the shares.
Poontang
10 Jan 2013, 11:31 PM
7. Pointless red herring statement.
No its not. You pretended the person who consumed the rent-free housing to have benefited the same amount from it as the person who didn't consume the rent-free housing. Likewise with food. In the same way the person who didn't eat wouldn't be just as well off as the person who ate .... You completely ignored the main purpose a person buys a house to live in is so they don't have to pay rent anymore!
12 months later, your share portfolio is worth $241k and the Melbourne property priced index remained exactly the same. Somehow this will show the person who invested in the share portfolio is financially better off - even though it completely ignored the fact the home owner lived in their own home rent-free for a year!
Don't get me wrong, I believe the Melbourne property market is not going to perform very well in the near future due to the large increases in the preceding years. I certainly believe a well chosen share portfolio can outperform the Melbourne market right now. But to insist on comparing apples to oranges undermines this whole experiment.
He can collect that $15k per year by renting out the house ... then he will have to pay rent to live somewhere else - just like the share investor! You aren't doing that. You are adding the dividends from the shares.
1st Different example, I have suggested on other threads it is better to rent and buy an investment property, especially first up rather than a PPoR. That was not what the discussion was, it was about buying your own place or renting and investing in shares.
I have to include dividends on shares that pay dividends as that is real and tangible, the money is received, not an "opportunity cost" but real money, with real franking credits where applicable.
If the example was about renting and buying another house as an investment was the example then yes the benefits of that situation would be included as they are real and tangible.
Simple fact is (some) shares pay dividends, your PPoR does not. Dividends will be, as they should be, included. If you do not like it or think it is not right, that's your perogative. I care not a drot. Ignore me and/or the thread if it irks you so.
As for the argument that was raised about picking individual shares and investment products against the average is not fair... I can not pick a suburb either or I will without a doubt get a response from a whiney bull (or 3) that... "You knew Melbourne and chose a suburb you felt strongly would under perform" if it indeed drops in value more than the average or other similiar priced suburbs.
There are some people who seem angry and continuously look for conflict. Walk away, the battle they are fighting isn't with you, it's with themselves.
The first lesson of economics is scarcity: There is not enough of anything to satisfy all who want it. The first lesson of politics is to disregard the first lesson of economics. ~ Thomas Sowell.
Who was the fool, who the wise man, who the beggar or the Emperor? Whether rich or poor, all are equal in death.
1st Different example, I have suggested on other threads it is better to rent and buy an investment property, especially first up rather than a PPoR. That was not what the discussion was, it was about buying your own place or renting and investing in shares
I have to include dividends on shares that pay dividends as that is real and tangible, the money is received, not an "opportunity cost" but real money, with real franking credits where applicable.
If the example was about renting and buying another house as an investment was the example then yes the benefits of that situation would be included as they are real and tangible.
Bolded the section which mattered. The share investor chose to rent and invest in shares. And the rent paid is real and tangible money. Yet you don't add it to the equation. How about subtract the rent money from your portfolio weekly? How much rent you previously asked? ... well the amount it would cost to rent the same type of house the home owner lives in rent-free. That would be fair.
Poontang
11 Jan 2013, 01:43 AM
Simple fact is (some) shares pay dividends, your PPoR does not. Dividends will be, as they should be, included. If you do not like it or think it is not right, that's your perogative. I care not a drot. Ignore me and/or the thread if it irks you so.
Simple fact is buying your own home allow you to live there rent free. Investing an renting does not. If you do not like it or think it is not right, that's your perogative[sic]. Likewise ignore me and/or these posts if it irks you so.
Yet you don't add it to the equation. How about subtract the rent money from your portfolio weekly?
It is added by the starting figure against the property buyers interest and on costs basically cancelling itself out.
The home buyer is paying interest on a loan that is slowly reducing, the tenant is paying rent that is slowly rising, in the early years even the most staunch of bulls admit there is not much difference and in fact most cases the renter is in front for the first 7 or so years. (this example buyer has a larger deposit)
If the home buyer is paying about $1530 a month and the renter is paying a similiar amount the difference in the first few years is negligible. Very little of the principal is paid down in the first 3 years. Rent increases for long term good tenants are usually much smaller than average increases and sometimes even foregone.
The exercise was just a general example of how an investor can fair against property.
Going down a more technical path, then I should gear the investor portfolio to a 50% geared ratio (same as the home buyer) Include the deductibility of the investment loan added with the far more franked and unfranked dividends that will be received against the non deductible mortgage of the home buyer and any gains his Melbourne home may or may not get in the coming years.
Pick a Melbourne suburb with an average price of $480k
There are some people who seem angry and continuously look for conflict. Walk away, the battle they are fighting isn't with you, it's with themselves.
The first lesson of economics is scarcity: There is not enough of anything to satisfy all who want it. The first lesson of politics is to disregard the first lesson of economics. ~ Thomas Sowell.
Who was the fool, who the wise man, who the beggar or the Emperor? Whether rich or poor, all are equal in death.
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