# Is home ownership a sound strategy?



## jpldavis (28 March 2009)

Apologies if this question is off point (this is Aussie Stock Forums after all) but I would find any opinions interesting.

Essentially, I am struggling to come up with a sound financial reason to own a home. So far as I can tell:

1. You pay a fortune in interest (for which there is no tax benefit)

2. The 'asset' really isn't one... at least until you've realised the value

3. The risks are high... think 18% interest rates in the early 90s... you can very easily lose everything

4. The growth in value of residential property is, over the long term, pretty modest.

5. It appears that the cleverest way to own residential property is to own a rental property

Am I missing something here? It seems I would be much better off financially, over the long run, by living in rented accommodation, and putting my money, tax effectively of course, into a portfolio of assets of different types.

What am I missing? Or is home ownership simply still the Aussie dream, and a strategy born more from sentiment than financial rigor? 

Cheers for any comments!


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## Julia (28 March 2009)

> .......a strategy born more from sentiment than financial rigor?



Don't underestimate the validity of such a sentiment.   Life isn't just about financial rewards.   Pride of ownership, sense of security and simply really enjoying one's home environment is to some of us more important than flipping over properties purely for financial gain.

And don't neglect the discomfort of being subject to landlord's whims when renting, not feeling it's worth doing stuff to improve the place to add to your enjoyment etc etc.

I think both owning and having IP's are valid strategies.   For completely different reasons.


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## son of baglimit (28 March 2009)

to find some answers, maybe if someone is out there who has seen no financial sense in owning their home, sold it, gone to the market with a fistful of cash and then LOST IT. 

who do they feel ? not is respect of the loss of money, but more loss of somewhere they call home, somewhere they can do as they please, somewhere they can change to their own liking, without having to seek permission. as julia points out, owning a home is not the most financially sound thing to ever do, but is schooling, is relationships, is raising children ? 

something to consider.


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## Gordon Gekko (28 March 2009)

A friend of mine had a good plan back when we were 18.

He was the kid that if you threw pennies at him he would laugh at you and pick them up. I never threw pennies I'm originally a scot, but you always new this guy would be rich. He was a complete miser, if you owed him a dollar he would remind you every 15 minutes.

Anyway when he was 18 he bought a house for 90K and then rented out 2 sometimes 3 other rooms. It was some of the best memories I've had, growing up I guess.

Point is he rarely paid any of his own money to pay the mortgage and he ran it that way for at least 8 years all the while putting his own money safely in the bank.

If you check a mortgage calculator and see what you would pay in interest for a house I don't blame you for being worried. In canada house prices are not as crazy as they are here, mind you wages are lower and beer is more expensive so at the end of the day it's all the same.

Sorry to ramble Ive had a drink or two but to end the story the guy I mentioned who I thought was so smart cheated on his wife and she took him to the cleaner. now she has the house and the kid and he lives in a make shift room over a garage. 

Hope this helps mate.

Best Regards,

G


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## weird (28 March 2009)

I live in Sydney, only 36, and owning a home is just not a priority ... I have chosen to rent, and 'trade'. 

I was speaking with a friend, who told me her long time boyfriend, was heavily invested in shares, and decided to margin lend, just before the crash ... and lost big time, my comment was he was still young, and plenty of time to recover, her comment was he was 39, not young (I disagreeded but anyhow) ... they were thinking of marrying, having kids, and she would like to buy to 'settle down' ... so rebuilding is not want she wanted to do ... I think Sydney is a pretty stressful place , particularly when talking about property .... most capital cities are these days ... Adelaide looks more reasonable, and also outside of capitals, in terms of deposit vs loan amount, except for beach towns.

Problem is for those wanting to do down the old path of couple with kids, and a place with enough rooms (2 or more and abit of land at the back) and perhaps a small study, and living somewhere that takes around 45 mins to get to work .... it's not that easy to find anymore, particularly in Sydney.

Anyhow ... not easy, I have read reports compared to income, Australia has become one of the most expensive countries. If you can afford to own your own home, and as Julia said there are many other benefits, then yes, it is a sound strategy.


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## saiter (28 March 2009)

weird said:


> I live in Sydney, only 36, and owning a home is just not a priority ... I have chosen to rent, and 'trade'.
> 
> I was speaking with a friend, who told me her long time boyfriend, was heavily invested in shares, and decided to margin lend, just before the crash ... and lost big time, my comment was he was still young, and plenty of time to recover, her comment was he was 39, not young (I disagreeded but anyhow) ... they were thinking of marrying, having kids, and she would like to buy to 'settle down' ... *so rebuilding is not want she wanted to do* ... I think Sydney is a pretty stressful place , particularly when talking about property .... most capital cities are these days ... Adelaide looks more reasonable, and also outside of capitals, in terms of deposit vs loan amount, except for beach towns.
> 
> ...




Wow, did she desert him when he needed her most?


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## weird (28 March 2009)

Narh, would not been having the conversation after  She is a top girl too, wouldn't expect anything less.

Although, I wouldn't be surprised to hear of many other similar stories, with all different outcomes too unfortunately


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## theasxgorilla (28 March 2009)

jpldavis said:


> Essentially, I am struggling to come up with a sound financial reason to own a home.




If it's a PPOR, then when you sell it you pay NO tax.  That's one whopping incentive for buying smart, improving smart and selling smart if I even knew one.

And if it's your first home the government will help cover your closing costs...that would be _free money_.

At the end of the day, its about getting as much money as you can as quickly as you can.  I don't mean that in a glutinous sense, simply that the sooner you reach a certain level of financial well-being the sooner you can stop worrying about money, and that's the goal IMO.

Renting is good to save money because it's almost always cheaper than owning, and the breadth of liabilities you are exposed to is much smaller.

And the million dollar question: would I buy now?

Not in Australia.  In the areas I'm interested in there is no sense of desperation or discounting...yet.  With interest rates and unemployment where they are, is it any wonder?

In the long term I think it's a must to own quality property.  The reason why it's as hard as weird describes is because so many people want a piece of the ideal...and that is due to demand outstripping supply.


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## johenmo (29 March 2009)

It's like shares.  If you DYOR and select correctly then it's good.  Having had 5 houses in 3 states and NZ (now in #5), 2 went well and 2 didn't.  If you get the timing right or stay long enough you'll do OK.  And for the majority it's the best investment they will make.  Not necessarily the best overall, but the best they'll make.  

First house doubled in 3 years - pretty good return I reckon. #4 doubled in 4 years.  #2 area would have tripled had we stayed for 9 years - no so good but that's life.

And you can't put $ on the intangible benefits.  So it's a sound strategy for the majority - esp with kids!  Just don't overcommit in the first place (if you can).

Good thing I heard re housing - each generation wants to start where their parents ended up.


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## kincella (29 March 2009)

lets see...rent for 10 years at $20,000 pa = 200,000 theres the house half paid for...with low interest and prices going backwards....as some suggest
or as most cases...the house has doubled in value....
the most likely scenario....you are a renter...no ifs or buts....then you meet the girl...the lifelong partner....
problem...she wants to settle down and make a nest....
now you need to do the sums to buy the house...its double the cost of what it was 10 years ago....
but hopefully your career has taken off and now you can afford to pay the minimum 500,000 loan....but the girlfriend will need to contribute with a part time job...
it sounds flippant ..to disregard the money spent on renting for so long...when you are comparing rent versus buying
sounds like the renters might be increasing rather than decreasing....in the 1950's it was 50/50 renters/homeowners
now its 70 owners 30 renters
I dont mind as I need the renters to pay off my mortgages...
so its comforting to know the rental market is so strong.....
typical question asked by those under 34.....thats the average cut off date...when they stop renting or living with mum and dad
anyway...after that they all start the process of becoming home owners
see you in about 10 years
cheers


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## Glen48 (29 March 2009)

Once the GFC started all the old rules went out the window and what we end up time will tell maybe even a new currency??/
As for kids you don't know how they will turn out until after Puberty  as emotions and character are heredity and you could end up with a Child  with a trait from your partners distant Axe murdering Uncle who has not been caught....every thing is a risk and luck.


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## jpldavis (29 March 2009)

Thanks for your comments everyone. It's an interesting question.

I currently am a home owner, but with approx. 50-60% of monthly monthly net income taken up by the house... AND we're only paying interest at the moment. We have a young child so my wife is only working part time.

So, essentially, I can focus on the house, pay it off maybe in 20 years if I really pile everything into it, but in the meantime we've had no decent holidays, I haven't been able to send my kids to a decent school etc...

So, we'll be 55, kids grown up, but without the start I would like to give them, and one asset which we can only realise by selling up.

While I certainly don't discount the benefits of home ownership as mentioned, and in an ideal world would certainly want to own my home, I would rather have a balanced portfolio of assets (shares, bonds, cash, investment property and owner-occupied property). Therefore, I would rather only have committed, say, 20% of my monthly income, into my owner-occupied home (paying principal and interest) with the rest of the wealth spead according.

Now, where I live in WA, I have absolutely no chance of buying a home for that price.

So, I'm trying to work out the best strategy... essentially focus on the portfolio of wealth and include owner-occupied housing if and when it requires a 'reasonable' amount of my available income, and hence be able to travel, put the kids through private school etc, or keep the home, focus on paying it off as quickly as I can (est. 20 years) and then start trying to amass wealth from there (but with probably 80-90% of my assets tied up in a single property). But bearing in mind, 20 years of hard graft and potentially no decent school for the kids in the meantime...

Can you see my dilemma?


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## kincella (29 March 2009)

wow 50-60% taken up with the house...why is that ? it should be about 30% of household income...
have you accounted for growth in your wages and income for the future...and the loan should be reducing as the years go by...
you cannot sell up and buy a cheaper home further out ???


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## Sean K (29 March 2009)

Julia said:


> Don't underestimate the validity of such a sentiment.   Life isn't just about financial rewards.



110% behind this. Maybe 120%! How do you put a value on owning your own nest? It's not just a marketing ploy imo, but pure human psychology.


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## prana (29 March 2009)

balance mate. Owning a house isn't a financial decision. Unless you make it a financial interest, it's your home. Some people can live in a tent, some people need to have a bedroom with a view. I guess the word is *excessive*. Buy and live within your means, don't over do it.


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## jpldavis (29 March 2009)

kincella said:


> wow 50-60% taken up with the house...why is that ? it should be about 30% of household income...
> have you accounted for growth in your wages and income for the future...and the loan should be reducing as the years go by...
> you cannot sell up and buy a cheaper home further out ???




It was about 30% of combined income until we started the family and dropped one income! And unfortunately we're pretty far out as it is!

I appreciate the point though!


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## jpldavis (29 March 2009)

prana said:


> balance mate. Owning a house isn't a financial decision. Unless you make it a financial interest, it's your home. Some people can live in a tent, some people need to have a bedroom with a view. I guess the word is *excessive*. Buy and live within your means, don't over do it.




This is the crux of my question... balance.

Is paying 50-60% of my net income, without reducing any principle may I add (that would take approx. 80%), for an asset than in 20 years will comprise over, say, 80% of my total weath, a good decision even when you factor in the completely valid points about it being a home, not a pure asset etc...

I have absolutely not problem with home ownership, and in an ideal world I would certainly like to have my cake and eat it (ie. a family home that costs and comprises approx. 20-30% of my total income/wealth). But nowadays, particularly in the capital cities, this is very hard to achieve.

I would love to own and live in a family home... I'm just not sure that the balance is right given current house prices in Oz, and my current level of income.


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## pilots (29 March 2009)

jpldavis said:


> This is the crux of my question... balance.
> 
> Is paying 50-60% of my net income, without reducing any principle may I add (that would take approx. 80%), for an asset than in 20 years will comprise over, say, 80% of my total weath, a good decision even when you factor in the completely valid points about it being a home, not a pure asset etc...
> 
> ...




Jpldavis, it is all in the long term when it comes to houses, we bought ten years ago in brown way Karrinyup $91,100. six months ago was worth 800kto900K to day only$750,000, the second place is in in Shepherd st  Beaconsfield, this cost $146,000, six months ago 900K, to day it is back to800K. With real estate look long term and you will be a winner.


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## metric (29 March 2009)

first of all you gotta be healthy. that means happiness and lifestyle. you must love where you live geographically, and whom you live with domestically. 

all other stuff is preasure. bank loans, work, etc. you must decide how much preasure you want, and think to the best way forward, remembering happiness.

think of the geographical things that make you happy. what environment do you want to live before you commit to a mortgage. no use getting a mortgage in the city you work in if you really love the country. and vice versa. find the best value for money geographical area that suits your desires.

if you like cities, live and work in sydney, but cant afford to buy a home there, look to a regional city that you can afford.

BUT i wouldnt borrow a lot of money when interest rates are at historical lows. theyve only got one way to go. now is the time to pay off debt, and save some money for opportunities that may arise down the track.


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## jpldavis (29 March 2009)

pilots said:


> Jpldavis, it is all in the long term when it comes to houses, we bought ten years ago in brown way Karrinyup $91,100. six months ago was worth 800kto900K to day only$750,000, the second place is in in Shepherd st  Beaconsfield, this cost $146,000, six months ago 900K, to day it is back to800K. With real estate look long term and you will be a winner.




Point taken, but my belief is that the property market has had its run of significant growth for the foreseeable future, and hence, while I think it won't come down too much, I can't see growth much above inflation for the next 10 years or so. I'm assuming most of the growth you saw in Karrinyup was in the past 5 years, am I right?


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## jpldavis (29 March 2009)

prana said:


> balance mate. Owning a house isn't a financial decision. Unless you make it a financial interest, it's your home. Some people can live in a tent, some people need to have a bedroom with a view. I guess the word is *excessive*. Buy and live within your means, don't over do it.




Another comment I thought of regarding this... while I agree that owning a home (note home not house) is not a financial decision, I still have an obligation to my family to, where possible, make sound financial decisions.

If we choose to disregard a sound financial decision in favour of emotional need, that's fine... it's a conscious decision.

So the question is, before I factor in the emotional considerations as mentioned by you all, as a purely financial decision as part of a robust wealth generation strategy, is home ownership at the percentages I mentioned earlier - 80% of income to service debt and household, for potentially an asset comprising 80% of total wealth in 20 years - a sound financial decision.

Once I know that, I can then factor in the 'intangibles', and choose to make a poor decision (if that is what it is) safe in the knowledge that, as a family, it was the choice we made.


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## Happy (29 March 2009)

jpldavis said:


> I currently am a home owner, but with approx. 50-60% of monthly monthly net income taken up by the house... AND we're only paying interest at the moment. We have a young child so my wife is only working part time.






jpldavis said:


> Therefore, I would rather only have committed, say, 20% of my monthly income, into my owner-occupied home (paying principal and interest) with the rest of the wealth spead according.




Looks that you are overcomitted




jpldavis said:


> Can you see my dilemma?




I can, but it did not have to be that way.

You mentioned that there are no houses in a price bracket to pay 20% of your monthly income, I dare to suggest that there are no houses for that price that you would consider buying and living in.


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## jpldavis (29 March 2009)

Happy said:


> Looks that you are overcomitted
> 
> 
> 
> ...




Absolutely valid point. Yes, if I were able to buy somewhere in that 20% bracket, it would be very unlikely that it would meet the emotional requirements you would want from a home.


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## kincella (29 March 2009)

jlpdavis....I suggest if you are paying 60 or 80% of your income on an interest only loan...that somewhere you have either made a massive error...had a big salary cut.....or you are trying to pull our legs...which is it..
sorry but it all sounds just too hyperthetical to me...
oh and the banks would never have loaned you the money in the first instance....
the banks expect you can afford to pay only 30% of your income to service a loan...
so how come you are paying over double that amount ???
sorry, but this story is just stretched too far....way above what is normal...
it s over to you now....
lets unstretch it shall we


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## jpldavis (29 March 2009)

kincella said:


> jlpdavis....I suggest if you are paying 60 or 80% of your income on an interest only loan...that somewhere you have either made a massive error...had a big salary cut.....or you are trying to pull our legs...which is it..
> sorry but it all sounds just too hyperthetical to me...
> oh and the banks would never have loaned you the money in the first instance....
> the banks expect you can afford to pay only 30% of your income to service a loan...
> ...




I think massive error is the culprit. And, approx. 60% on interest only (80% if I were paying principal and interest). Plus, massive salary cut was the reduction in income we had when my wife finished work to have our first child.

To run the numbers if you wish, mortgage 580K, net income monthly approx 7K. Factor in insurance, maintenance etc on the household, and use 'normal' interest rates (not the unsustainably low levels they are now)

Wish I were pulling your leg mate...


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## kincella (29 March 2009)

what is plan B ???....you have one don't you ?


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## moXJO (29 March 2009)

kincella said:


> or you are trying to pull our legs...which is it..
> sorry but it all sounds just too hyperthetical to me...
> oh and the banks would never have loaned you the money in the first instance....
> the banks expect you can afford to pay only 30% of your income to service a loan...
> ...




What planet are you living on Half the people I know are in a similar situation. You are thinking from an experienced investor’s point of view, which does not apply to most of the home owner population's mindset.


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## Beej (29 March 2009)

jpldavis said:


> I think massive error is the culprit. And, approx. 60% on interest only (80% if I were paying principal and interest). Plus, massive salary cut was the reduction in income we had when my wife finished work to have our first child.
> 
> To run the numbers if you wish, mortgage 580K, net income monthly approx 7K. Factor in insurance, maintenance etc on the household, and use 'normal' interest rates (not the unsustainably low levels they are now)
> 
> Wish I were pulling your leg mate...




I currently pay 5.1% interest rate - same rate easily available to majority of people. Monthly interest on $580k @ 5.1% = $2465. That's 35% of your stated net monthly income.

Even at interest rates of say 7.5%, the sums are $3625 interest/month = 51% of net income. Even at this level that leaves you about $3.5k/month = $42k/year income to live off, with housing costs covered. That should be *plenty* of dosh for a typical couple - I spend less than that (including wife + 1 kid) and I indulge in a lot of extra discretionary expenditure (Foxtel, decent car, skiing holidays and some exe hobbies and so on). So you don't exactly have to sacrifice even to live on that 

So I too am a little confused about what the dilemma is? At current interest rates, even with your single income, use this time as the opportunity to pay off as much principle as you can - put every spare cent into it. Then in the future when/if interest rates increase, your interest bill will still remain a low proportion of your income. 

In addition, your wife will probably go back to work at some point, giving you a second income again, plus over time your income will increase as well - use any future extra $$$ that come in to pay off principle as fast as you can as well. Soon you will have no mortgage and no interest bill (do the sums). You can then put everything into other asset classes, but in the meantime have still been building up your super etc giving you exposure to cash and equities etc while you paid your house off as well!

PS: If you are concerned about future rising interest rates look into locking in a long term low fixed rate for a portion of your loan for the next 5 years - the next few months should see some great opportunities for this.

Cheers,

Beej


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## kincella (29 March 2009)

mxjo....what on earth...the kids are going to the banks..borrowing 600k...need 60-80% of their income to service the debt...and the banks are allowing that....no...no way....another pulling the leg trick

lets see then...what planet do you live on...that  fhb pay 600k for the first home ??? or is that just Perth ????
with 2 incomes after tax...probably bringing in 70 -80k pa....30% is 21k for principal and interest....stretched  it would get a 400k loan at 5% interest only....or the normal fhb range of about 300k...

and the 300k range is usually in the outer suburbs....it is affordable....
unless of course...there is the latest cars, all the games, dvd's, mobile phone calls..take aways etc...drinking etc

I know exactly what is affordable....its just a roof over your heads for gods sake...with a place to nest....its not supposed to be a 5 star resort style home...full of marble with an entertainment room with pools


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## johenmo (29 March 2009)

pilots said:


> we bought ten years ago in brown way Karrinyup $91,100. six months ago was worth 800kto900K to day only$750,000, the second place is in in Shepherd st  Beaconsfield, this cost $146,000, six months ago 900K, to day it is back to800K. With real estate look long term and you will be a winner.




Perth has been a shocker for those who weren't in the market.  We left WA 1990 but the price has skyrocketed and we woudldbe downgrading if we moved back.  Our first house was 37K in 1986 (2br ASb/Tile).  4 years ago it had a 3 third bedroom and sold for 249K.  We owed 25K on it.  Should have kept it but we couldn't afford to when we moved away.

Housing is long term and location, location, location.


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## robots (29 March 2009)

hello,

just relax jpldavis,

the years will roll-on and yes before you know it 55 will be upon you and with say another 30yrs of living the 5-10yrs of doing things a little tough will be all worthwhile

put the $ into paying down the mortgage, it is still the case where the home is one's greatest asset and downsizing will still apply in the many years to come

easy man, almost half way through 09 already

thankyou
robots


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## theasxgorilla (29 March 2009)

kincella said:


> lets see...rent for 10 years at $20,000 pa = 200,000 theres the house half paid for...




What kind of calculation is this?  Seems more than a little oversimplified to me.


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## Fleeta (29 March 2009)

theasxgorilla said:


> What kind of calculation is this?  Seems more than a little oversimplified to me.




Kincella - you are implying that an average house is only worth $400k in twenty years time! If you think this, I don't see why you are such a property bull...

Both Kincella and Beej are way too one-eyed about property investment. Personally, I think the only reason you would be happy to own a property at the moment is because your principal residence is tax free. If you could enter and exit houses easily (i.e. cut out RE agent BS, no stamp duty), not many people would be in the housing market at the moment - I'm 29 with enough of a deposit to put down 50% of an above average house, but holding off because I think that REAL house prices will be eroded over the next couple of years and you all seem to forget about OPPORTUNITY COST in this debate.


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## tech/a (29 March 2009)

The alternative is No home ownership.

So look back 60 yrs at when your parents/grandparents were coming out of  of a depression.
Given the choice do you REALLY think their answer would be a resounding---dont do it!

The only thing that ever holds back first time home buyers is *FEAR.*

*Wont ever change.*

Thats why 90% of the population didnt buy 5 IP's in the late 90s---FEAR.


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## Fleeta (29 March 2009)

tech/a said:


> The alternative is No home ownership.
> 
> So look back 60 yrs at when your parents/grandparents were coming out of  of a depression.
> Given the choice do you REALLY think their answer would be a resounding---dont do it!
> ...




I agree....my parents/grandparents had minimal opportunities to invest in other things - I think that is where my generation differs. It's people like you who want us to keep up the love affair with owning our own home - cos if we don't - what's going to keep the market up???


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## roofa (29 March 2009)

jpldavis said:


> I think massive error is the culprit. And, approx. 60% on interest only (80% if I were paying principal and interest). Plus, massive salary cut was the reduction in income we had when my wife finished work to have our first child.
> 
> To run the numbers if you wish, mortgage 580K, net income monthly approx 7K. Factor in insurance, maintenance etc on the household, and use 'normal' interest rates (not the unsustainably low levels they are now)
> 
> Wish I were pulling your leg mate...




I would sell if the wife agreed, but only if I had a strategy and plan in place to achieve my goals.
Quality of life is number 1.


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## pj2105 (29 March 2009)

Regarding home ownership, I've bought and sold houses for a while and this is the best set up I've ever seen

Figures and numbers are made up for the example only, but you will get the point.

I buy 7 Smith St in South Yarra
my sister buys 9 Smith St in South Yarra

I move into and live in 9 Smith St
My sister moves in and lives in 7 Smith St South Yarra

We both pay minimum rent to each other which is tax payable for us
We both can claim our bank interest repayments, and other expenses fully on our tax returns.
In short the net effect is negative gearing

When we want to add or renovate we both do it to our properties at the the same time, both houses are mirror images.

So buy a house
Live next door and pay minimal rent
The negative gearing means the government goes someways to pay it off for you.

You and your sister(cousin, mum, dad, brother or it can even be done with your wife) both come out the better.

pj


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## tech/a (29 March 2009)

> cos if we don't - what's going to keep the market up???




People like me.


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## So_Cynical (29 March 2009)

pj2105 said:


> Regarding home ownership, I've bought and sold houses for a while and this is the best set up I've ever seen
> 
> Figures and numbers are made up for the example only, but you will get the point.
> 
> ...




Yep i came to the same conclusion many years ago.

Would it be legal?...also the down side to above is the CGT implications.


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## nunthewiser (29 March 2009)

So_Cynical said:


> Yep i came to the same conclusion many years ago.
> 
> Would it be legal?...also the down side to above is the CGT implications.




one lives in own house 4 for first year before swapping


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## Fleeta (29 March 2009)

tech/a said:


> People like me.




Yep, but people like you are old and will die soon, i'm talking about in 30+ years time.

The future may be very different to the past...


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## Temjin (29 March 2009)

jpldavis said:


> I think massive error is the culprit. And, approx. 60% on interest only (80% if I were paying principal and interest). Plus, massive salary cut was the reduction in income we had when my wife finished work to have our first child.
> 
> To run the numbers if you wish, mortgage 580K, net income monthly approx 7K. Factor in insurance, maintenance etc on the household, and use 'normal' interest rates (not the unsustainably low levels they are now)
> 
> Wish I were pulling your leg mate...




You are certainly in a difficult situation jpldavis. 

I think the point on home ownership is more of an emotional need than a financial need is very well covered in this thread. (I hope so) A home cannot simply be seen as an asset since it is not really generating an income for you except for putting a roof over your head. (and let's put investment properties aside for now!) 

You are already aware of the mistakes you have made back then, that is, over-committing your family income into it. 50-60% of your income on an interest only loan is a serious expense in maintaining financial security for your family.  

I'm not trying to be gloom and doom or permisstic here, but how well are you prepared when one of these situations occur?

- You lose your job.
- Your wife lose her job.
- Interest rate goes up to fight inflation. 
- You are injured and unable to work for 6 months
- You are permanently disabled and unable to work full time ever again. 
- You are dead. 

Ok, I sincerely hope the latter 3 scenarios wouldn't happen to you, but the fact remains that ALOT of people don't think about these especially on the part about losing your job or being unable to work for a significant period of time.

Do you have enough saving to live for 6 months without your job? Do you have any other debt such as car loan / credit card debt? 

Personally, I value financial security over anything else. And having to stress about not producing enough income to feed your family (debt servicing and food on the table) is something you should try to avoid or minimise. 

So here are two options you could do. 

If you wish to keep your home, then reduce your expenses immediately. Cut all your credit cards, pay off all your non-mortgage debt and start a saving budget to build a buffer. Tell your wife to find a full time job whenever possible and make sure you get appropriate insurances covering especially INCOME PROTECTION. Forget about putting your children to private school because it's too expensive and not necessary give them a better education. It's better to teach them to be street smart than academic start. 

Yes, you are making a lot of sacrifice, but this is the reality. You are already in this and if you want to keep your home, then you better start building up your financial strength to better position your family in case your nightmare happens. You may say the chance of losing your job or getting injured is ridiciously low, but that's what everybody say as well and anything can happen. Why put yourself and your family at such a risk?  

The second option would be to simply sell your house right now (certainly at a reduced price and hope you aren't in negative equity already), eliminate all your debt and either rent for a while or move to a less expensive area that is more "affordable". If you and your wife is logical, then this may be the best thing to do. If you are still bound by the emotional aspect of home ownership, then this may not be the best option for you. If so, go back to my first list of recommendations. 

And you certainly can't have your cake and eat it too. There is no free lunch in this world despite what people tells you. 

Whatever happens, be realistic about this. Think about it logically and don't just "hope" things will be fine and no further actions are needed. But after all these permisstic talking, maintain a positive attitude and you will be ok.  Good luck.


----------



## robots (30 March 2009)

hello,

i hope those things dont happen if you rent either

rent=mortgage, sure early days (first 6-7yrs) it favors renting but after that it typically evens out and finally gets to a position whereby you pay no "rent"

how many renters have 6mths of payments in reserve? none

but hey, just not as much hysteria or doom & gloom associated when you talk about rent payments 

jpldavis, just put in for a few years, go hard man and before you know it you and family in paradise man

have a great day

thankyou
robots


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## Tysonboss1 (30 March 2009)

jpldavis said:


> 1. You pay a fortune in interest (for which there is no tax benefit)




Put it in context, yes over a 30 year loan you do pay a fortune in interest, But you will pay a fortune in rent over 30 years as well, many people seemed shocked when they find out they will pay $250,000 in interest on a loan, but they fail to see that they will probally pay closer to $1,000,000 in rent over 30 years once they yearly increases are factored in, 

do a test now, find out how much your current rent is X 52 weeks X 30 years, and thats without rent increases, and your going to pay all that money without even owning the house in the end, and probally have to move every 2 years,

You see Interest payments start high but get smaller every week as you pay of the loan till eventually you have no interest payments.

Rent on the other hand may start 40% cheaper than interest, but will increase with inflation forever,till the day you die.


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## kincella (30 March 2009)

Robots, another good post with sound advice,,as usual from you

now add my 2 cents worth

lets consider ...I started my home ownership before 21st birthday....and expected to live to age 90...so theres 70 odd years of owning a home...thats a long time to be in the market....pay off the loan...keep the bank manager in a job for awhile....and eventually live free in the home.....

now on the other hand...I have an elderly neighbour...95 now...he has rented all his life...had an aversion to buying...he has lived in the unit since it was built in the 60's...probable cost to buy then about $5000....today its only about $500,000....but instead of having years of living here free....he is still subjected to the yearly rent hikes... I figure its cost him at least 700,000 in rent.........
baby boomers like self have another 30-40 years to go....so keeping the home, and investing for the rest of our lives is a high priority.....pretty certain the majority of the boomers are avid fans of property as an investment.....hence our positive approach to same....
of course home ownership is a sound strategy....but it must be affordable, and it does require some self restraint....at least in the early years


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## Glen48 (30 March 2009)

Then a 2009 style depression comes along and we have massive deflation so house prices go down and the market is flooded with vacant houses or owners who want to hold on to their house so move in with others and rent their own home out forcing rents down, RV's here in Brisbane are $150K off exotic Sports cars are being auctioned off at 15 per day instead of 15 per week some with out keys, Boats 20% off after a boat yard had to close down  a good time to have cash.


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## Junior (30 March 2009)

Tysonboss1 said:


> Put it in context, yes over a 30 year loan you do pay a fortune in interest, But you will pay a fortune in rent over 30 years as well, many people seemed shocked when they find out they will pay $250,000 in interest on a loan, but they fail to see that they will probally pay closer to $1,000,000 in rent over 30 years once they yearly increases are factored in,
> 
> do a test now, find out how much your current rent is X 52 weeks X 30 years, and thats without rent increases, and your going to pay all that money without even owning the house in the end, and probally have to move every 2 years,
> 
> ...





You need to factor in the costs of owning a home other than interest, which are impacted by inflation.


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## fodder-oz (30 March 2009)

Yes house ownership has many benefits I believe.

Its hard to tell whether properties will double in value in the typical 10 year range I suspect it will be 20 years or so to see it with the way the economy is and people struggling to pay for a house. It really depends on whether salaries keep going up if inflation is at say 3% for example.

The best advantages of having a house is you don;t have to waste money on dead money i.e rent. A good idea if your young to get ahead is to get an investment property rent it out for several years, live at home as long as your folks will let you and pay the place off as quickly as possible. 

That way when you want to move out you can either live in the place you have bought or sell it and buy a house or something more suited to your lifes needs. 

I was 24 when i first bought my place as an investment in a sydney surburb and was only earning 32k when i firt bought it 10 years ago for a mere 209k, borrowing 167k. As I got older and my salary increased and the rent increased I managed to completely pay it off in 9 years. Now the value of the place has more then doubled probably worth close to 500k now. 

I now live in it, and have no debts, which is very good in these uncertain times where my job is likely to be made redundant in the next few monthes :-(

Now I doubt the stock market would have given me such returns without alot of stress.

The key to buying property is don;t over extend yourself (Start with a unit or something in your price range), have a decent deposit saved like 20% and if you can rent it out for a few years so you can pay the damn thing off. The good thing about investment property is all the tax perks you get.

Don't try and buy a McMansion. 

Have a strict budget is needed. Check out sites like simplybudgets.com.au to give you an idea and simplesavings.com.au. 


Good luck!


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## kincella (30 March 2009)

glen..with all govts printing money by the trillions 24/7...they are trying to head off deflation....but what about hyperinflation....which wipes out the debt on the homes...and makes housing even more unaffordable

and love the young ones hopes and dreams....but maybe you are forgetting about us oldies....another 30-40 years to fund my income in retirement...so there will be competition for you in buying those deflated houses.....

and news today banks dropping the deposit rates to 1.5%.....expect the guarantee to be wiped on anything above 100k's....
where are the best returns coming from not dividends they are being scrapped...its rentals...
all those kids going home to live with mum and dad....maybe not...mum and dad took off for the tree/ sea change ages ago....too far to work for the kids now...(and its just one way of getting rid of them)
and the former fhb...now into upgrading to a larger prop inner city side....
so dont expect hundreds of cheap rentals available in the inner suburbs...


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## Sir Osisofliver (30 March 2009)

jpldavis said:


> Apologies if this question is off point (this is Aussie Stock Forums after all) but I would find any opinions interesting.
> 
> Essentially, I am struggling to come up with a sound financial reason to own a home. So far as I can tell:
> 
> ...





jpldavis

Yadda Yadda insert large disclaimer about not providing advice specific to your circumstances here. 

1) Your mortgage is too large for your stated income level. a) increase your income b) reduce your expenses.  BUDGETING is your friend.

2) Now is a pretty good time to renegotiate your mortgage. SHOP AROUND. If you read my newbie thread (see link at the bottom of this post) you should negotiate a 30 year mortgage and pay your mortgage fortnightly (NOT AMORTISED) - you'll take *7 years *off your mortgage. You should also consider an Offset Account which can further reduce your principle payments. By doing *both* of these things it's possible to reduce the term of a 30 year mortgage by 12 years, simply because you are paying larger amounts off the principle earlier than would normally occur.

3) If you are having these difficulties now, what happens when interest rates rise in the future? Perhaps you should look to lock in an interest rate that you are comfortable with in the near term for as long a period as possible.



Cheers
Sir O


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## kincella (30 March 2009)

Beej summed it up correctly here....and believe in the original or following post...the poster was using the old 10% rates...in his 50-60% cost example...when in reality the rates are  5%

going  forward....I would be more concerned about the stress he is placing on his family, if that really is the scenario.....I would deem it a crisis if I was in that position....I would probably assume the house may not sell to recover the cost, so I would probably get childcare and send the spouse back to work...at least until he recovers sufficient income to support them both....



Beej said:


> I currently pay 5.1% interest rate - same rate easily available to majority of people. Monthly interest on $580k @ 5.1% = $2465. That's 35% of your stated net monthly income.
> 
> Even at interest rates of say 7.5%, the sums are $3625 interest/month = 51% of net income. Even at this level that leaves you about $3.5k/month = $42k/year income to live off, with housing costs covered. That should be *plenty* of dosh for a typical couple - I spend less than that (including wife + 1 kid) and I indulge in a lot of extra discretionary expenditure (Foxtel, decent car, skiing holidays and some exe hobbies and so on). So you don't exactly have to sacrifice even to live on that
> 
> ...


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## Tysonboss1 (30 March 2009)

Junior said:


> You need to factor in the costs of owning a home other than interest, which are impacted by inflation.




the other costs are very small compared to weekly rent and interest. once loan is paid of it would cost less than $75 a week to own a home.


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## Tysonboss1 (30 March 2009)

fodder-oz said:


> The key to buying property is don;t over extend yourself (Start with a unit or something in your price range), have a decent deposit saved like 20% and if you can rent it out for a few years so you can pay the damn thing off. The good thing about investment property is all the tax perks you get.




Good Advice, To many people try and start from where there parents have finished.

There are still studio apartments located within 10km of sydney for under $200,000 that rent for $225/week.

Now if your are just starting out, you could easily buy one of these and rent it out, the rent is combined with extra repayments from your wage would probally have the loan paid off in 5 - 8 years, 

then you can either sell it to fund your own home, or rent it out and use the rent to pay of your own home quicker.


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## matt1987 (30 March 2009)

another good strategy for young people may be to move into the property which they buy for 6 months within the first 12 months of ownership. this means that you will be eligible for the first home owners grant, which currently is 14k (or 21k if a new property). 

once you have satisfied the conditions of the grant, then look to move back home, or rent somewhere else with a few friends. there are quite a few 3-4 bedroom apartments which are pretty close to the cbd where you can rent for approx 150-180 per bedroom.

the end result would be an upfront 14k being taken off your loan balance, and then you would get the tax advantages of an investment property once you move out late down the track.


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## Julia (30 March 2009)

kincella said:


> and news today banks dropping the deposit rates to 1.5%.....expect the guarantee to be wiped on anything above 100k's....



kincella, could you please provide a link to this assertion?


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## kincella (30 March 2009)

Banks slashing deposit rates :sheep::sheep:in anticipation of the big rate cut due next week...

***so much for holding cash....then you have to pay tax on the miserable earnings......pity the poor pensioner trying to live on his interest......

extract.........

THE MAJOR banks are aggressively repricing their deposit books ahead of next week's expected rate cut by the Reserve Bank.

With the political pressure mounting on all banks to pass on the full benefit of further easings of monetary policy, two of the major banks have taken drastic steps to protect their funding margins by slashing deposit rates. 

From this morning, National Australia Bank will slash the rate it pays on three month fixed term deposits from 4.2 per cent to 2.1 per cent. 

The NAB move comes after more aggressive repricing by Commonwealth Bank in recent weeks in which it slashed its three month fixed term deposit rate from 4.2 per cent to 1.5 per cent.
 :sheep:
:sheep:

http://www.news.com.au/heraldsun/story/0,21985,25259667-664,00.html


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## jet328 (30 March 2009)

Tysonboss1 said:


> You see Interest payments start high but get smaller every week as you pay of the loan till eventually you have no interest payments.
> 
> Rent on the other hand may start 40% cheaper than interest, but will increase with inflation forever,till the day you die.




You are making one MASSIVE assumption about the future from the past. Just like all those people who thought property only went up because that's what it has done since they've been alive.

To all the property bulls, at what percentage of debt to GDP do we max out? Are we just going to keep going up forever? Do you know what fractional reserve banking is?


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## Tysonboss1 (30 March 2009)

jet328 said:


> You are making one MASSIVE assumption about the future from the past. Just like all those people who thought property only went up because that's what it has done since they've been alive.
> 
> To all the property bulls, at what percentage of debt to GDP do we max out? Are we just going to keep going up forever? Do you know what fractional reserve banking is?




The only assumptions I am making is that the amount of interest you pay each month is reduced over the years as you clear the loan, which is a fact.

And that weekly rents will increase over the next 30years at least with inflation.

If you believe that inflation will freeze over the next 30 years, and weekly rents will not rise over the years, then by all means continue to rent.

However I believe that property prices ( although may stagnate for years at a time) will rise atleast with inflation,


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## kincella (30 March 2009)

property bull responding....no I dont know what (add fancy name here) means,
but I do know what happened for the last 40 odd years...and all the crisis they had manufactured in between.....
even Buffett says..look in your rear vision as a guide to the future...
its worked well for me in the past.....
and that chinese proverb....if its not broke...dont fix it.
:sheep::sheep::sheep::sheep:
ps ; you might like to read up about 'manufactured crisis' and Obama's role in it....years before he became president...


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## Beej (30 March 2009)

jet328 said:


> To all the property bulls, at what percentage of debt to GDP do we max out? Are we just going to keep going up forever? Do you know what fractional reserve banking is?




Well I'm considered a property bull, although I actually think my views are fairly bearish compared to many (except in this forum! LOL).

To your first question, you are presuming that debt to GDP ratio must grow to support future house price growth. For a start you need to break out private household vs all private sector + public sector debt from the number. Then you need to consider that a decent proportion of that is purely discretionary non housing related borrowing (cars, credit cards etc). Then you need to consider that household debt could quite happily increase forever in line with inflation and population growth and the ratio would remain constant..... Of course if Australia's economy did well in other area's (exports grow relative to imports etc etc), then the ratio could fall still even in this scenario. Additionally it could fall significantly while housing borrowing went up because the discretionary component falls back, or simply because national savings start to crank up (as they are right now!). So it's not all as simple as you are trying to make out...

As for fractional reserve banking, yes I know exactly what that is, and while far from perfect, it's a good system that over the past half century or so has worked better as a money supply/capital allocation system than what came before it in terms of driving global economic growth, innovation, productivity improvements and the resultant increases in living standards for all - so what's your point? Are you going drag out a bunch of fringe economic theories from the Austrian school now?? *yawn*....

Cheers,

Beej


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## kincella (30 March 2009)

to answer the question..posed....is home ownership a sound strategy....
a simple answer is....
say you are finally leaving home at 30....then you can look forward to another 60 years of needing a roof over your head....
or if you were like myself..I started nesting at 20...so in my case 70 years
now even if you left the loan for 30 years...you then still have another 30 years of free housing costs.

as for the sheep....I happen to like sheep...
:sheep::sheep::sheep::sheep::sheep:


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## Judd (30 March 2009)

jpldavis said:


> .........
> So, essentially, I can focus on the house, pay it off maybe in 20 years if I really pile everything into it, but in the meantime we've had no decent holidays, I haven't been able to send my kids to a decent school etc...
> 
> ....................
> ...




Yes, I can.  Seems that you have a cash flow problem and a conflict between wants and needs, ie want a holiday but need a home.

Forget about holidays, forget about a new car or even a second car, trash the Foxtel and any other item which you may want but is not actually necessary.  Cancel the credit card, if you have one, and pay off the balance over time.

Sit down, take 20 deep breaths use Excel or Open office or one of the budget planners readily available on the ASIC site or other places and start planning.  You don't seem to have done so to date, so now is a good time to do so.

It is a pity about holidays but a lot of home owners (in the purchasing phase) had to do without them for many years - in our case it was 8 years.  As for the decent school, place them in public school until year 6 and beforehand think about whether the private school is worthwhile - depends on what your view of "decent" actually is.

Reduce your expectations if you wish to retain the house in which you currently live.  Otherwise, sell up - even at a loss - and get something you and your wife can afford.

Above all, nothing, I repeat, NOTHING comes before family.  So keep that at the forefront when you discuss all things with your wife, who is, or at least should be, your most valued partner in life.


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## weird (30 March 2009)

Have found this thread incredibly thought provoking, while originally directed at an individuals circumstances, and hope he has found some helpful information for future direction. 

In terms of any financial discussion, individual circumstances certainly need to be considered, now and in the future (which could also be affected by ones actions starting now). 

Personally while 100% focused towards trading (and only renting), I don't wish to rule out future investments in property. 

I believe the Jan Somers's books have been helpful to others. 

Anyhow look forward to future discussion.


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## son of baglimit (30 March 2009)

tech/a said:


> The alternative is No home ownership.
> 
> So look back 60 yrs at when your parents/grandparents were coming out of  of a depression.
> Given the choice do you REALLY think their answer would be a resounding---dont do it!
> ...




yeah - fear of tenants !!!!!!!!!!!!


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## Julia (30 March 2009)

kincella said:


> THE MAJOR banks are aggressively repricing their deposit books ahead of next week's expected rate cut by the Reserve Bank.
> 
> With the political pressure mounting on all banks to pass on the full benefit of further easings of monetary policy, two of the major banks have taken drastic steps to protect their funding margins by slashing deposit rates.
> 
> From this morning, National Australia Bank will slash the rate it pays on three month fixed term deposits from 4.2 per cent to 2.1 per cent.



But what you don't say in your alarmist statement is that NAB is offering 3.4% for four months.



> The NAB move comes after more aggressive repricing by Commonwealth Bank in recent weeks in which it slashed its three month fixed term deposit rate from 4.2 per cent to 1.5 per cent.



I was this afternoon quoted 3.7% for four months.

Suncorp still offering 6% for three years.


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## nomore4s (30 March 2009)

Julia said:


> But what you don't say in your alarmist statement is that NAB is offering 3.4% for four months.
> 
> I was this afternoon quoted 3.7% for four months.
> 
> Suncorp still offering 6% for three years.




I was also offered 3.7% for 4 months today as my term deposit rolls over next week. But I think my Netbank saver account is still paying 3% with full access and interest paid monthly - this could change at anytime though.

TIO up here are also offering 4.5% for 25-36 months.


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## singlefished (31 March 2009)

kincella said:


> ....but what about hyperinflation....which wipes out the debt on the homes...and makes housing even more unaffordable...




Assuming that household income rises at the same rate as inflation that is... and if current interest rates remained unchanged, well, sign me up right now before the :fan

That won't happen though, interest rates will have to rise somewhat to combat the scenario and not many companies would be able to provide their employees with a counter inflationary pay rise on the first Wednesday of every month (except January).

The debt would grow considerably if your income wasn't keeping up ofcourse, remember the masses crying poor when mortgage rates crept up to about 9% only a few short months ago? and that was with inflation running at about only 5%.

Can't say I'm looking forward to $5 for a loaf of bread and $12 for a stubbie 

Iceland central banks just cut their rates to 17% from 18% last week now their currency has somewhat stabilised. I don't think that the hyperinflation route is a path anybody wants to take.

Here's a good link that shows how fast things went bad (from the Central Bank of Iceland) and how fast they predict it will take to get back to their target rate of 2.5%
http://www.sedlabanki.is/?PageID=202

Here's another link showing what their house prices have been doing through this same volatile inflationary environment. Doesn't look like they've dropped much according to the index (inflation adjusted I assume?)
http://www.globalpropertyguide.com/real-estate-house-prices/I

Edit: sorry - inflation adjusted down 16.24% (from the same site - different page)
http://www.globalpropertyguide.com/house-prices-indices/House-price-changes-year-to-end-Q4-2008


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## kincella (31 March 2009)

singlefished....in all fairness....Iceland has a population of about 300,000 or about 1/10th of the city of Melbourne...or equivalent to a couple of outer suburbs...with very different culture, and needs...heavily reliant on the UK banks that pulled the plug on them....
I just refuse to even consider anything is comparable between the two...let alone Australia versus Iceland...
:sheep:


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## kincella (31 March 2009)

Julia....believe my alarmist statement came direct from the news article....
extract
'According to market research firm, Infochoice, CBA has also crunched its one year fixed rate offer to 1.5 per cent from 3.5 per cent. '


and you can all provide different examples of better rates...but I note in the comparison table that the big 4...have very similar pricing..they are the ones that have the lowest cost of the govt guarantee....
anyway believe its just a hint of things to come....
you may be surprised how many people use the 3 month terms, rather than a 4 month or longer
friend who lives off term deposit only...last year I advised her to lock into the big rates for the best price for the longest term....she had been living on 3 month terms....she actually took my advice and locked in for a year at 8.5...within 2 weeks those rates dropped to below 6...its a difference of 25,000 pa to her
:sheep: see comparisons below
http://www.canstar.com.au/interest-rate-comparison/compare-100k-term-deposit-rates.html


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## Julia (31 March 2009)

kincella said:


> Julia....believe my alarmist statement came direct from the news article....
> extract
> 'According to market research firm, Infochoice, CBA has also crunched its one year fixed rate offer to 1.5 per cent from 3.5 per cent. '



Following is copied from the CBA's website this morning.  1 Year rate is not even quoted at all:'


> Interest rates
> 
> Rates vary depending on the term of your deposit. You can also find competitive rates for other terms of investment at any branch or by phoning 13 2221, 24 hours a day, 7 days a week. For interest rates on a Term Deposit balance of $500,000 and over, please visit any branch.
> Term Deposit Headline Rates.
> ...




No mention of 1.5% anywhere.


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## ryang57 (31 March 2009)

jpldavis said:


> Apologies if this question is off point (this is Aussie Stock Forums after all) but I would find any opinions interesting.
> 
> Essentially, I am struggling to come up with a sound financial reason to own a home. So far as I can tell:
> 
> ...






yes yes home ownership is basically just a dream thing and a convenience of being in charge of what you do to the house blah blah

other than that it simply inflates because people have a dumb idea that they are also good investments due to the previous inflation haha - so it becomes a vicious circle until credit deflates.


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## kincella (31 March 2009)

Julia...there is usually a notice in the main papers..where all the banks show their new rates and date they are affective from...so I am not surprised its not on their website...maybe the new rate will be affective from 2.4.09...or a weeks notice 9.4.09
another poster  may know...used to be in Thursdays AGE and AFR

when I was looking for confirmation of CBA mortgage rates....they do not change the website until the new rate becomes affective...
so in the news it may say cba cutting rates by 1%....but it may be in 2 weeks time...for mortgage rates...they delay the cut...but deposit rate  

the cba rates you quote are at 30.3.09...but the cannex chart shows 2.5%


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## singlefished (31 March 2009)

kincella said:


> singlefished....in all fairness....Iceland has a population of about 300,000 or about 1/10th of the city of Melbourne...or equivalent to a couple of outer suburbs...with very different culture, and needs...heavily reliant on the UK banks that pulled the plug on them....
> I just refuse to even consider anything is comparable between the two...let alone Australia versus Iceland...
> :sheep:




Well, I wasn't really comparing anything between the two countries, rather putting some beef on the hyperinflation scenario that you initially brought up.

So I can assume that you believe that in a short term hyperinflationary environment, house prices and wages are simply just going to rocket up whenever the central bank tries to stimulate the economy by adjusting interest rates?

I could have also quoted statistics from the Zimbabwe environment but the prospect of selling ones property to buy a loaf of bread is not likely to happen in Australia and somewhat unrealistic.


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## kincella (31 March 2009)

well I would never use  zimbabwe as an example of what can happen either...
but there have been cases in history where hyperinflation has occurred..if only briefly...
now back to the current window of opportunity...the low interest rates....
with at least another .05% cut due next week..and I intend to lock in those low rates for 5 years


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## Farencue (31 March 2009)

Hello jlpdavis
Would you mind sharing how you came to be the owner of a $580k mortgage?
I am very interested in what made you take on such a large amount?  eg: were you persuaded by someone, did you decide you "had to have" that particular house, did you think you could double your money or....?  Also is it the first house you have bought?
I am not here to bash you or point out your mistakes if any, just very curious at how you ended up with such a large debt.  I know every time I have bought a house (as my PPOR) I have been very conservative with how much debt I will take on.  Admittedly this approach does not see me living in a palace
Cheers
farencue


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## Tysonboss1 (31 March 2009)

weird said:


> I have chosen to rent, and 'trade'.




It puzzels me when people make coments like this, owning a property does not detract anything from other investments investments you choose to make.

If anything owning a property adds a massive about of value to the other areas of investment, whether they be shares or business.

By owning a property 

-you have an ever growing amount of your wage to put towards other investments as you pay off the loan, where as you get pay raises year by year the rent will probally all so go up.

-you can access loans to invest at cheaper interest rates without the threat of margin call

-you have a greater stability in your net worth



I believe that when you have a good business producing excess cashflow, combined with owning a property (or two) and also a good share investment stratergy you will have fantastic growth.


Mcdonalds would not be the company they are today without property, If Mr Sonneborn who was CFO of mcdonalds from the 50's and 60's had not turned Mcdonalds into a Real estate business instead of a burger business, they would not have been able to grow like they did.

Mcdonalds is the Largest property owner in the world buy land value, and generates a massive amount of revenue buy charging franchises rent, owning this land in the early days is what allowed them to finance at affordable rates without threating loan agreement terms.


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## moXJO (31 March 2009)

Tysonboss1 said:


> By owning a property
> 
> -you have an ever growing amount of your wage to put towards other investments as you pay off the loan, where as you get pay raises year by year the rent will probally all so go up.
> 
> ...




Do not agree with some of your points. My rent was the same for 7 years and has only just increased by $10. 

Being lucky enough to get in near the ground floor of the bull market, I took a small amount of capital and turned it into a much larger sum. This combined with business and other assets; I could now buy a house outright.

Business cash flow imo is the cash cow if you time it right. And as someone else mentioned before, timing can make the difference between a good and bad investment. 

However agree with your points regarding loans and greater stability in your net worth. And these can make the difference between making a little and leveraging out to make a lot. I have no problem with buying property in the future.


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## jpldavis (31 March 2009)

Farencue said:


> Hello jlpdavis
> Would you mind sharing how you came to be the owner of a $580k mortgage?
> I am very interested in what made you take on such a large amount?  eg: were you persuaded by someone, did you decide you "had to have" that particular house, did you think you could double your money or....?  Also is it the first house you have bought?
> I am not here to bash you or point out your mistakes if any, just very curious at how you ended up with such a large debt.  I know every time I have bought a house (as my PPOR) I have been very conservative with how much debt I will take on.  Admittedly this approach does not see me living in a palace
> ...




A combination of circumstance and stupidity mate. Our house is beautiful... basically got hooked as soon as we saw it, and ended up paying $125K over our budget... then factor in fees, stamp duty etc, and we ended up $180K over budget. Then my wife became pregnant, and ultimately finished work... learnt my lesson... now just trying to solve the problem.

Current solution we are considering, pending advise from accountants, is to rent our house out, and rent somewhere to live, then take the tax benefits we would receive to maximise our money, and concentrate on paying off over 10 years at a fixed rate.

Has anyone got any opinions on the above?


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## spaceman666 (31 March 2009)

If you have ever had a Realestate agent Humiliate you because your renting 
you would never rent a home again. They have total power over you 
I would rather live in a slum I owned than to rent a mantion that I had to 
pay rent to a moron nasty realestate agent ! I had the worst experiance of my life renting a house from a rude nasty woman that went out of her way to make my life a misery. long story but a true one I am one of the easyest guys to get along with and my wife has Muscular Distrophy . This woman was so bad it was unberable ! It all started when the gas heater broke down and it took 4 months to get it fixed up. It was a very cold winter . I tried to be easy to get along with when they said it would be fixed next week then the week after ect ect In the end I got angry and she got even a renter has no power at all !
This woman was a liyer and a disgrace what more can I say but get a house you can afford and hang on to it ! ;-] thats my story mate and this is my first post.  GOOD LUCK AND DO LOTS OF RESEARCH ! ASK EVERYONE YOU CAN ABOUT EVERYTHING YOU CAN ! Research Research Research and have fun Theres allways a bargan when you look at a hundred houses you onley need one of them allso just keep making cash offers you onley need one person to take your offer ! sometimes people will take anything on the day.


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## Tysonboss1 (31 March 2009)

moXJO said:


> Do not agree with some of your points. My rent was the same for 7 years and has only just increased by $10.




I would think that not having an increase in 7 years would be the exception rather than the rule, and it's somthing you shouldn't count on.

I am glad to hear you have been putting money aside while you have been renting, But the main point I was trying to get to is that you don't have to choose one or the other,

I think that developing a portfoilio of Property, Paper assets ( shares etc.) and bussiness is the key, I am not saying you have to get it all at once but having a goal to aquire all three over say 15 years is a good plan, that way you can pick the best times to enter each one and dedicate time to understanding each class as you go,

I myself having been investing since I was 14 I am now 27, I have put together a portfoilio of assets that all compliment each other.

Property - I have a positively geared portfoilio worth over a $1M, It's paying itself off slowly and allows better borrowing for other areas.

Business - I have built a business that provides excess cash flow because I can live of less than 20% of it's earnings, Not to mention other benefits such as controling the tax I pay, having control over the business cashflow that allows me to recycle debt on my credit cards through stock purchases so I basically have a rolling $30,000 Interest free credit that I can earn interest on, or offset against other loans + many other benfits that help increase my investments.

Shares - And now I am in the share investment phase, Having sold most of my shares in 2006 to grow my business and clear debt against property all my excess cashflow is being pumped into the market as I believe it is a good time as I am a long term investor.


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## weird (31 March 2009)

Tysonboss1 said:


> It puzzels me when people make coments like this, owning a property does not detract anything from other investments investments you choose to make.
> 
> If anything owning a property adds a massive about of value to the other areas of investment, whether they be shares or business.
> 
> ...




Don't disagree. I know absolutely nothing about property, and interested in learning more. Hence following this thread with interest.

Getting a home loan is just not priority for me, and my wife atm. 

Probably for the average battler, their own home was their best investment, with forced savings etc. There is also IP such as those recommended by people like Jan Somers.

As they say, it's my opinion at the moment, and have the right to change it at anytime ... just learning like every other mug.


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## Sir Osisofliver (31 March 2009)

jpldavis said:


> A combination of circumstance and stupidity mate. Our house is beautiful... basically got hooked as soon as we saw it, and ended up paying $125K over our budget... then factor in fees, stamp duty etc, and we ended up $180K over budget. Then my wife became pregnant, and ultimately finished work... learnt my lesson... now just trying to solve the problem.
> 
> Current solution we are considering, pending advise from accountants, is to rent our house out, and rent somewhere to live, then take the tax benefits we would receive to maximise our money, and concentrate on paying off over 10 years at a fixed rate.
> 
> Has anyone got any opinions on the above?




1) Go stand in the naughty corner - you know what you've done wrong
2) By renting your house how close do you get towards positive gearing of the asset? How much negative gearing can you handle on a single income now that you are paying rent? Learn that Budgeting is your friend.
3) How long have you lived in the McMansion and did you receive FHOG? (you need to live in the place for a year for tax benefits).
4) Try buying an Investment Property or two before you purchase your next PPOR
5) Get a nickname like Davis the Destroyer and learn to gouge real estate agents. Say things like "I'm wise to your tricks." and "Never try and sell to a salesman buddy." and "Yeah, Yeah location location is that all you guys can say? Lets see a QVAS report on the sales demographics on the area for the last ten years and *work* for your commission!!" and "No I'm not paying for that - you're gonna take a huge commission from this why should I pay your business expenses?" and "I don't care that it's $40k below the asking price - it's a free market and if I want to try and gouge the seller I will." 



Cheers

Sir O


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## spaceman666 (31 March 2009)

Allso buy a cheap comfortable humble house that you can easily afford, 
dont over extend yourself, its not the last house you will ever own, I have had 11 homes and im about to buy one again in about 9 months time when things settle down, all of our money is in small mining stocks and when the market turns we will sell some pay our 25 % capital gains tax and settle in to an un mortgaged home.  We are living with my 94 year old dad and we are having the time of our lives hes a lot of fun. We sold our old home 2 years ago and invested in the stockmarket at last we are breaking even after the highs and lows we rented a mantion for 18 months and we had a miserable time of it
Try to cool and heat a mantion lol not cheap !  a humble paid for home is the answer to all of your problems just keep to yourself and pray your neighbours will leave you alone lol A HUMBLE HOME WITH A SMALL MORTGAGE IS THE ULTIMATE ANSWER TO ALL OF YOUR PROBLEMS . BE HUMBLE ITS LESS STRESSFULL !  ;-] BEEN THERE DONE THAT SO MANY TIMES IM FINALY LEARNING !


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## Beej (31 March 2009)

jpldavis said:


> A combination of circumstance and stupidity mate. Our house is beautiful... basically got hooked as soon as we saw it, and ended up paying $125K over our budget... then factor in fees, stamp duty etc, and we ended up $180K over budget. Then my wife became pregnant, and ultimately finished work... learnt my lesson... now just trying to solve the problem.
> 
> Current solution we are considering, pending advise from accountants, is to rent our house out, and rent somewhere to live, then take the tax benefits we would receive to maximise our money, and concentrate on paying off over 10 years at a fixed rate.
> 
> Has anyone got any opinions on the above?




Yes - did you read this post earlier in the thread??? https://www.aussiestockforums.com/forums/showthread.php?p=414643#post414643

It shows how your situation, based on the info you provided, is not anywhere near as bad as you are making out. The fact that you did not respond to that post makes me a little suspicious about the veracity of your original story and the motivation for posting your story here..... Happy to have these suspicions allayed!

Cheers,

Beej


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## jpldavis (1 April 2009)

Sir Osisofliver said:


> 1) Go stand in the naughty corner - you know what you've done wrong
> 2) By renting your house how close do you get towards positive gearing of the asset? How much negative gearing can you handle on a single income now that you are paying rent? Learn that Budgeting is your friend.
> 3) How long have you lived in the McMansion and did you receive FHOG? (you need to live in the place for a year for tax benefits).
> 4) Try buying an Investment Property or two before you purchase your next PPOR
> ...




Getting the local agent to give us an estimate of rental income... then I can assess the gap. Also, amusingly, I work in real estate (although not as a real estate agent)... so really should know how to deal with 'em!


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## jpldavis (1 April 2009)

Beej said:


> Yes - did you read this post earlier in the thread??? https://www.aussiestockforums.com/forums/showthread.php?p=414643#post414643
> 
> It shows how your situation, based on the info you provided, is not anywhere near as bad as you are making out. The fact that you did not respond to that post makes me a little suspicious about the veracity of your original story and the motivation for posting your story here..... Happy to have these suspicions allayed!
> 
> ...




What other motivation might I have??? 

I was factoring into the costs all the associated ones as well... rates, bills, insurance and misc. expenses based on the total from last year (new cooker, new washing machine, repairs to aircon etc).

I'm sorry but your post confuses me.


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## Beej (1 April 2009)

jpldavis said:


> What other motivation might I have???
> 
> I was factoring into the costs all the associated ones as well... rates, bills, insurance and misc. expenses based on the total from last year (new cooker, new washing machine, repairs to aircon etc).
> 
> I'm sorry but your post confuses me.




OK let me spell it out: Your numbers don't add up.

1) You claimed that your are burning 60-70% of your net income of $7k on the interest only payments of a $580k mortgage, yet at current interest rates you should only be paying ~$2500/month = 35% of your single net income? Adding rates and insurance, and even a new cooker (lol!) only effects that calc by a small amount, rates say $1.2k, insurance $500, a new cooker - $1k? (PS may as well have done a full kitchen reno and added some value!). So that's a total of about 1 months interest extra over the past year. You can't count utility bills, washing machine etc as they are expenses that you would incur whether you were a renter or an owner.

2) You claim that when you originally bought your house, you went $125k over budget, but then when you add fees/stamp duty etc it was $180k over. $55k in stamp duty and fees?? Geez - that's the sort of money that you pay when you buy a $1.5M house, not a $600k-$700k one.

3) I also pointed out (as did others) how strict budgeting and getting your wife back to work etc would enable you to rapidly reduce the interest payable on your mortgage such that things would become much easier, plus you would build a buffer against possible future interest rate rises etc.

PS: re motivation for stirring up things on ASF with this sort of scenario, I would have thought that was obvious given the predominance of vocal bearish views on property ownership on this forum!  But I will give you the benefit of the doubt! If what you have told us is correct then it seems that your situation might actually be as dire as you think, and a bit of simple budgeting could get you well under control and onto the path of future financial freedom!

PPS: I can see little point in renting your house out and paying rent elsewhere, unless you have free (family) alternative accommodation available. The rent on your house will only cover your mortgage interest most likely (if you are lucky re area and rental returns!), and then you have to pay rent on top of that, in after tax dollars, which would be close to the same amount, possibly more, depending on what/where you rent? Plus you will still have to maintain your house.

Cheers,

Beej


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## johenmo (1 April 2009)

Sir Osisofliver said:


> 5) Get a nickname like Davis the Destroyer and learn to gouge real estate agents. Say things like "I'm wise to your tricks." and "Never try and sell to a salesman buddy." and "Yeah, Yeah location location is that all you guys can say? Lets see a QVAS report on the sales demographics on the area for the last ten years and *work* for your commission!!" and "No I'm not paying for that - you're gonna take a huge commission from this why should I pay your business expenses?" and "I don't care that it's $40k below the asking price - it's a free market and if I want to try and gouge the seller I will."




Excellent advice.  WIll use that next time.



spaceman666 said:


> Allso buy a cheap comfortable humble house that you can easily afford,A HUMBLE HOME WITH A SMALL MORTGAGE IS THE ULTIMATE ANSWER TO ALL OF YOUR PROBLEMS . BE HUMBLE ITS LESS STRESSFULL !  ;-] BEEN THERE DONE THAT SO MANY TIMES IM FINALY LEARNING !




That's what we did.

We're about to wipe out our mortgage, so that will free up heaps of $ per month.  Having said that, it's only about 15% of nett income.  Didn't buy too large & we have always been 1 income.  

So now we can starting channelling $ to shares, property & other investments.  Oh, and have a holiday without the kids.


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## Glen48 (1 April 2009)

Look at _Patrick.net _and see what is about to happen to house prices here.


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