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  1. #111
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    Quote Originally Posted by witherwings View Post
    We bought before having kids too. It's definitely harder if only one of you is working. Harder to save, harder to cover expenses etc.

    For those who want to get into the market but can't afford a house, you could buy a small investment property that will pay for itself and use the growth in equity as a future deposit on your home. This is a good way to get into the property market and still get a house in the future. Once you're "in" the market, you immediately start benefiting from the capital growth, and that's a significant amount of savings, considering you get growth on the amount you borrowed, not just the amount you invested yourself.

    Eg you buy a $500k property, using $100k savings. Ignoring all other costs for now, let's assume your investment is $100k but the property grows by 10% each year, that's $50k growth per annum. You've just made $50k on a $100k investment. Bare in mind, you are getting rental income of around $380 a week, and it's only costing you around $340 a week on an interest only loan. It doesn't have to be a $500k property, it could be $300k or whatever, anywhere in Australia. Just something that will give you capital growth and cover your running costs. You don't need to kill yourself saving up for years and trying to catch up with the market, it's not going to work unless you come into money.

    Just some food for thought. This isn't an investment strategy that is only accessible to rich people. Anyone can do this.
    This is really interesting, but I'm confused by the numbers. Ok so assuming house prices rise by 10% per annum. 500k would be about 800k after 5 years? Rough estimate assuming interest only loan and covered by tenants. So that's what profit of 300k in 5 years?
    So presuming the long term plan was to buy an 800k house that might now be 1.3m or higher based on same 10% assumption? Wouldn't that mean a mortgage of more than 900k vs 700 if could've bought 5 years ago with 100k deposit? I genuinely can't figure out how it works that people use equity to buy bigger houses when all the house prices are going up? Is it the presumption that the higher mortgage is serviceable but only attainable with a larger deposit?
    Maybe I'm completely thick but these numbers never add up to me...

  2. #112
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    Default Housing / negative gearing / politicians

    Quote Originally Posted by Freyamum View Post
    This is really interesting, but I'm confused by the numbers. Ok so assuming house prices rise by 10% per annum. 500k would be about 800k after 5 years? Rough estimate assuming interest only loan and covered by tenants. So that's what profit of 300k in 5 years?
    So presuming the long term plan was to buy an 800k house that might now be 1.3m or higher based on same 10% assumption? Wouldn't that mean a mortgage of more than 900k vs 700 if could've bought 5 years ago with 100k deposit? I genuinely can't figure out how it works that people use equity to buy bigger houses when all the house prices are going up? Is it the presumption that the higher mortgage is serviceable but only attainable with a larger deposit?
    Maybe I'm completely thick but these numbers never add up to me...
    House prices go up, yes. But you invest $100k in year 0 and at the end of year 5 (in your example) you now have $400k equity. The alternative house you really want which is $800k in year 0 is now worth $1.2m and you need a deposit of $260k, which Lo and behold, you have, because you now have equity of $400k instead of $100k.

    I hope this makes sense now? Yes your loan might be bigger but I assume that after 5 years you also earn a higher income. This is obviously a very simplified investment strategy but it works if you have some money saved up to start (but not enough to buy your dream house). Since under current market conditions, the property will pay for itself, as long as you don't make a bad investment up front, it's a good way to achieve your goals.

    ETA - even after accounting for CGT on the sale, you're still left with around $325k in your hand. Not many people can increase their savings by $225k in 5 years.
    Last edited by witherwings; 11-05-2016 at 14:45.

  3. #113
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    Quote Originally Posted by Freyamum View Post
    This is really interesting, but I'm confused by the numbers. Ok so assuming house prices rise by 10% per annum. 500k would be about 800k after 5 years? Rough estimate assuming interest only loan and covered by tenants. So that's what profit of 300k in 5 years?
    So presuming the long term plan was to buy an 800k house that might now be 1.3m or higher based on same 10% assumption? Wouldn't that mean a mortgage of more than 900k vs 700 if could've bought 5 years ago with 100k deposit? I genuinely can't figure out how it works that people use equity to buy bigger houses when all the house prices are going up? Is it the presumption that the higher mortgage is serviceable but only attainable with a larger deposit?
    Maybe I'm completely thick but these numbers never add up to me...
    The bank will do a valuation on any assets owned. If you own a house and have $450k left on the mortgage but it's valued at $650k (bank valuation) you have an equity of $200k.

    When you buy a new property as an investment the bank will typically value your purchased property at the purchase price. If the overall mortgage to asset ratio is under 80% you don't pay mortgage insurance and the bank bases you eligibility on your ability to make the repayments.

  4. #114
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    Quote Originally Posted by Freyamum View Post
    This is really interesting, but I'm confused by the numbers. Ok so assuming house prices rise by 10% per annum. 500k would be about 800k after 5 years? Rough estimate assuming interest only loan and covered by tenants. So that's what profit of 300k in 5 years?
    So presuming the long term plan was to buy an 800k house that might now be 1.3m or higher based on same 10% assumption? Wouldn't that mean a mortgage of more than 900k vs 700 if could've bought 5 years ago with 100k deposit? I genuinely can't figure out how it works that people use equity to buy bigger houses when all the house prices are going up? Is it the presumption that the higher mortgage is serviceable but only attainable with a larger deposit?
    Maybe I'm completely thick but these numbers never add up to me...
    However, house prices are unlikely to continually rise by 10% per annum.

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  6. #115
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    Yes - and the last 2 years is not normal and no one can predict the market - I had a lot of investors when they bought in 2003 lose money when they sold in 2007, some lost hundreds of thousands of dollars or sold at what they paid for it and wasted all the interest payments and stamp duty for nothing - short term is risky

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  8. #116
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    Quote Originally Posted by Elijahs Mum View Post
    Yes - and the last 2 years is not normal and no one can predict the market - I had a lot of investors when they bought in 2003 lose money when they sold in 2007, some lost hundreds of thousands of dollars or sold at what they paid for it and wasted all the interest payments and stamp duty for nothing - short term is risky
    I totally agree - property investment is not a short term investment. But generally, unless you overpaid for a property, based on historical trends, values double every 10 years. Which is an average growth of just under 10% p.a .. The last few years have been extraordinary (houses in my suburb currently have a growth rate of 25%), I'm not expecting this to continue.

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    Default Housing / negative gearing / politicians

    Quote Originally Posted by witherwings View Post
    I totally agree - property investment is not a short term investment. But generally, unless you overpaid for a property, based on historical trends, values double every 10 years. Which is an average growth of just under 10% p.a .. The last few years have been extraordinary (houses in my suburb currently have a growth rate of 25%), I'm not expecting this to continue.
    Think about it. Can house prices really rise 10% for the next 50 years? No way in hell can they. This generation, Baby boomers and x and possibly some y will be the only ones that milked this lucky growth.,

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    Quote Originally Posted by witherwings View Post
    I totally agree - property investment is not a short term investment. But generally, unless you overpaid for a property, based on historical trends, values double every 10 years. Which is an average growth of just under 10% p.a .. The last few years have been extraordinary (houses in my suburb currently have a growth rate of 25%), I'm not expecting this to continue.
    Whereas house prices in my area have barely changed in the past 8 years.

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  12. #119
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    Quote Originally Posted by SSecret Squirrel View Post
    Whereas house prices in my area have barely changed in the past 8 years.
    I guess it depends on where you buy and what you buy. Different areas have different rates of growth and then it varies depending on whether it's an apartment or a house, a new dwelling or existing etc.

    You need to do a lot of research before making any sort of property investment whether it's to live in or to rent.

    We have apartments in Bondi beach. The average unit price change is 10.21%. Houses in the same suburb only go up by 1.78%. Where we live in the north shore, units in our suburb have an annual growth of 12.17% but houses increase by 22.7%.

    Property prices might not grow by 10% p.a indefinitely, but in the long run, they will grow. This is a fact. If you're trying to time the market, this is pointless. If you're holding on to your investments until retirement, as we plan to do, you don't have to worry about temporary troughs. Over time, the market always adjusts.

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    RBA publication about long term trends in housing price growth

    http://www.rba.gov.au/publications/b.../bu-0915-3.pdf


 

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