# If I Had $300k Should I Buy a House Outright With Cash?



## Spanning Tree (8 September 2008)

Suppose hypothetically I had $300,000 in cash sitting in a savings account in my bank. The savings account produces interest, which is taxable.

Suppose I wanted to buy a $300,000 house in Craigieburn. Would it be a good idea to buy this house outright with the cash and not worry about any home loan or would it be better to take out another loan and use the interest from the bank savings account to pay the mortgage?

By taking out another loan I can claim the interest repayment as a deduction to reduce my taxable income. One of the problems with borrowing to reduce taxes is the debt obligation is produces. However, in this example I have $300k in a bank account produce the income needed to easily fulfill this debt obligation.


----------



## Temjin (8 September 2008)

Hypothetically, the interest rate in which you borrow to purchase the $300k loan would always exceed the after-tax interest return from your saving account. 

So in theory, if your opportunity cost is equal to the cash rate (i.e. you do not expect to produce more cash rate return on your $300k), then you would usually be better off to buy the house outright as it would save you a HUGE amount of interest over the long run.



> By taking out another loan I can claim the interest repayment as a deduction to reduce my taxable income. One of the problems with borrowing to reduce taxes is the debt obligation is produces. However, in this example I have $300k in a bank account produce the income needed to easily fulfill this debt obligation.




You can only claim interest repayment as a deduction only if it is used to create an income for investment purposes. The situation would change slightly if that $300k house is being treated as an investment property, and not as a principal home. Whether the interest generated from the $300k in the bank would fully cover the net debt obligation on a $300k investment loan depends on a lot of other factors. Like the rental and personal income you received from both the property and your employment, and which income bracket you are on.

You should consult with a qualified financial adviser if you are seriously looking into this.


----------



## DB008 (8 September 2008)

Go to the casino and put it all on black....only kidding.

Check out this nut job though.

http://www.youtube.com/watch?v=zGCdBsOIKYA

Put his lfe savings on a spin.


----------



## dalek (8 September 2008)

Spanning Tree said:


> Suppose hypothetically I had $300,000 in cash sitting in a savings account in my bank. The savings account produces interest, which is taxable.
> 
> Suppose I wanted to buy a $300,000 house in Craigieburn. Would it be a good idea to buy this house outright with the cash and not worry about any home loan or would it be better to take out another loan and use the interest from the bank savings account to pay the mortgage?
> 
> By taking out another loan I can claim the interest repayment as a deduction to reduce my taxable income. One of the problems with borrowing to reduce taxes is the debt obligation is produces. However, in this example I have $300k in a bank account produce the income needed to easily fulfill this debt obligation.




What you should have is a plan. 
Your post suggests tax minimisation to be your main aim.
If weath creation became your objective then a $800k house in Brighton using the $300k as deposit might be an alternative.
This view of course will see me mauled by all the real estate bears.


----------



## nioka (8 September 2008)

YES.


----------



## pepperoni (8 September 2008)

You should be looking with a view to buying when you find the right place at the right price.

Id look at borrowing $200k on a variable rate loan with a negotiated discount (.5% - 1%).


----------



## CAB SAV (8 September 2008)

You buy the house and I'll buy a cash business like a sandwich bar t/o $9,000 a week, declaring $7,000 a week & we can compare notes in 5 years time.


----------



## Mofra (8 September 2008)

If you are happy with the residential property asset class as an investment right now, would you consider buying two, using the rental to cover the majority of repayments, leaving you with a tax deductable loan?


----------



## tech/a (8 September 2008)

dalek said:


> What you should have is a plan.
> Your post suggests tax minimisation to be your main aim.
> If weath creation became your objective then a $800k house in Brighton using the $300k as deposit might be an alternative.
> This view of course will see me mauled by all the real estate bears.




Getting closer to my view.
Its all about the numbers.
Low gearing is essential.
With 300K you could possibly buy 2 and an apartment.(You could in Adelaide--perhaps something to consider--one there one here--you could buy 3 here!).
Renting them out with positive cash flow and great tax advantages.

The key is in the numbers---the best deal you'll make is at the time of purchase so take your time---buyers market.
Rents will increase and likely to see interest rates drop.


----------



## singlefished (8 September 2008)

Assuming this is for your PPOR you could put down 20% as a deposit and place the remaining $240k in a linked offset account. This won't reduce your taxable income and you won't receive any interest payments from the bank for the $240k you stll hold. But what this does effectively mean is that you are receiving interest without paying tax as you're being paid interest on the $240k at the same rate as what the mortgage is running at - 9% or whatever it is these days.... hence the term "offset"

For the life of the loan your repayments will all count towards reducing the principal and you wouldn't need to pay anything out your own pocket to cover the monthly repayments - these can be deducted monthly from the $240k until the balance reaches zero.

You could even up the minimum payments as much as you wanted and clear the loan in no time, but this serves no purpose. Paying the regular monthly payments based on 30 year mortgage would mean you always had funds available incase of emergency but you'd end up paying interest on the difference of what remains on the principal and what remains in your account to offset the interest if you did dip into it.

Of course, you'd obviously be saving funds out your regular day-to-day income and that could then be used to pump into the stock market or new car or deposit on the next property....

Cheers,
Scotty....


----------



## Sir Osisofliver (9 September 2008)

Spanning Tree,

OK This is a hypothetical....so long as it's hypothetical I'll pass on some hypothetical advice...BUT you should speak to a financial adviser about this.

OK I'll make an assumption that you will hold the house for several years, and that it is NOT your PPR. I'll also assume that you are borrowing at 10% interest-only rate (Yes I know you can do a lot better, it's just for ease of calc),

Lets say you borrow 80% of the money for an investment property worth 300K.

So you are borrowing 240K with an interest liability of 24k p.a. (Tax deductible). Lets ignore rental income in this circumstance because that is going to be highly variable depending upon location/size/etc etc. And lets say you can use the remaining 240 in a term deposit at 8%. Below is a ten year period including a boom and bust cycle for an "average" house near where I live. 

1997	157	$131,546	 -3.40%
1998	135	$124,167	 -5.60%
1999	148	$127,500	 2.70%
2000	164	$128,458	 0.80%
2001	188	$126,896	 -1.20%
2002	110	$130,396	 2.80%
2003	270	$155,897	 19.60%
2004	206	$211,708	 35.80%
2005	195	$240,021	 13.40%
2006	209	$274,063	 14.20%
2007	171	$309,813	 13%

So over ten years your property increased in value by 235%. A simple forecast of the same on your $300K property means after ten years it's worth...$705,000.00 -for which you have paid 240K of tax deductible interest... and received some portion of rental income to defray the costs. (Be aware that at some point during this ten years the increase in rental income will turn this revenue positive).

And the other 240K compounding for ten years?

1	8.00%	$259,200	
2	8.00%	$279,936	
3	8.00%	$302,331	
4	8.00%	$326,517	
5	8.00%	$352,639	
6	8.00%	$380,850	
7	8.00%	$411,318	
8	8.00%	$444,223	
9	8.00%	$479,761	


So at end of the day after ten years you've got a house worth 700K with a debt of 240K, and a term deposit worth 480K.

(And paying *lots* of tax)

Now start playing with these numbers until you get an outcome you like

Sir O


----------



## Sean K (9 September 2008)

Do you want a home?

Or, an investment?


----------



## wayneL (9 September 2008)

kennas said:


> Do you want a home?
> 
> Or, an investment?



The best post so far.


----------



## nioka (9 September 2008)

kennas said:


> Do you want a home?
> 
> Or, an investment?




My answer would still be yes, although as an investment I would go for commercial property. Home ownership first, investment property ownership second then invest in the share market third. That is the best balanced way to build wealth and have security for the future.


----------



## wayneL (9 September 2008)

nioka said:


> My answer would still be yes, although as an investment I would go for commercial property. Home ownership first, investment property ownership second then invest in the share market third. That is the best balanced way to build wealth and have security for the future.




Not agreeing or disagreeing, but I'd like to see that substantiated with some numbers.


----------



## tech/a (9 September 2008)

kennas said:


> Do you want a home?
> 
> Or, an investment?





Why cant you have both?

What numbers do you want Wayne?
I can give you some personal ones as I have my own home-IPs both Domestic and Commercial,in my personal investment portfolio---divorced from business.(Although one Commerciual property is meshed with my company warehouse and land in Super).


----------



## pepperoni (9 September 2008)

singlefished said:


> Assuming this is for your PPOR you could put down 20% as a deposit and place the remaining $240k in a linked offset account. This won't reduce your taxable income and you won't receive any interest payments from the bank for the $240k you stll hold. But what this does effectively mean is that you are receiving interest without paying tax as you're being paid interest on the $240k at the same rate as what the mortgage is running at - 9% or whatever it is these days.... hence the term "offset"
> 
> For the life of the loan your repayments will all count towards reducing the principal and you wouldn't need to pay anything out your own pocket to cover the monthly repayments - these can be deducted monthly from the $240k until the balance reaches zero.
> 
> ...




This scheme is worthless, its exactly like buying the house with cash except you waste a couple of grand in loan est and at least a hundred each year in fees.

If you want to use the money down the track you can borrow against equity ... if not dont waste time and money on this nonsense.


----------



## gfresh (9 September 2008)

Sir Osisofliver said:
			
		

> Below is a ten year period including a boom and bust cycle for an "average" house near where I live.




Excellent returns, but during possibly the best 10 year return for Australian realestate probably in history. I don't think it's reasonable to assume these figures will be replicated in the next 10 years to calculate any return. However, if you wish to, sure. 

8% for term deposits for 10 years? where do I sign up? I think it's more reasonable to assume a longer-term average of say 5.5% for a cash return. 

Personally.. 3 x $300k investment properties with $100k down (or leave $100k for extras, other investments) = 3x rents @ ~$320wk = $960/wk income. 

Loans: $600k = ~$1067/wk at 8% interest rates

$200/cash each week from your own pocket (covering rates, body corp, etc). Tax offsets, depreciation, etc may bring that down. Rent rises will soon bring it down to neutral pocket expense, and eventually cfp.  

Hope capital gains make you wealthy


----------



## wayneL (9 September 2008)

tech/a said:


> Why cant you have both?



Well that's another good question.


tech/a said:


> What numbers do you want Wayne?
> I can give you some personal ones as I have my own home-IPs both Domestic and Commercial,in my personal investment portfolio---divorced from business.(Although one Commerciual property is meshed with my company warehouse and land in Super).



I like any numbers that substantiate claims. Nokia's post made a statement (and I stress I neither agree nor disagree) about what he would do. I just want to know why.


----------



## pepperoni (9 September 2008)

Sir Osisofliver said:


> Spanning Tree,
> 
> OK This is a hypothetical....so long as it's hypothetical I'll pass on some hypothetical advice...BUT you should speak to a financial adviser about this.
> 
> ...




This is also nuts - the term deposit will struggle to get 8% and has some level of risk but most importantly you pay tax (which will almost certainly outweigh any negative gearing).

Money into mortgage is not at risk (apart from property value risk that exists in both scenarios) and with rates around 9.5% IF you have a mortgage money to pay it off is like getting a 19% risk free return.  Its the best investment by far IF you are already lumbered with a mortgage.

Its all these hairbrained schemes that contribute to the property bubble ... the system should be simplified to save people from their own brilliant schemes.


----------



## Sean K (9 September 2008)

tech/a said:


> Why cant you have both?



You can.

Didn't seem to be the direct question to me.

But, they are VERY different mindsets.

An 'investment' can be a piece if rock in another country.

A 'home', is your sanctuary, surrounded by your family and friends, imo. 

Your home can be an 'investment' of course, but that's not always the case. 

My ideal 'home' is not an investment for example.

If you've got the finances to have both, well and good. 

On the information provided, I'm not sure if the $300K downpayment on a 'home', and an 'investment' property, wherever it is, could cover both. 

Maybe he's earning $150K + a year and it will work.

You'd be better at the sums though tech. Maybe you need to start another company...


----------



## Timmy (9 September 2008)

Buy a Porsche.
You know you want to.


----------



## Sir Osisofliver (9 September 2008)

@Gfresh & Pepperoni...a few things


1) I'm not getting paid.
2) I don't know his circumstances
3) I was trying to make it simple to understand
4) I'm not allowed to provide advice here.
5) My Real estate, Share Market and Fixed Interest forward projections are propritary information which I will not disclose.

What I wrote is an EXAMPLE of the process what Spanning Tree *needs to do for himself*.  Hopefully this just helps him get there a little easier. 

Good Luck

Sir O


----------



## tech/a (9 September 2008)

pepperoni said:


> This is also nuts - the term deposit will struggle to get 8% and has some level of risk but most importantly you pay tax (which will almost certainly outweigh any negative gearing).
> 
> Money into mortgage is not at risk (apart from property value risk that exists in both scenarios) and with rates around 9.5% IF you have a mortgage money to pay it off is like getting a 19% risk free return.  Its the best investment by far IF you are already lumbered with a mortgage.
> 
> Its all these hairbrained schemes that contribute to the property bubble ... the system should be simplified to save people from their own brilliant schemes.





Hahaha.
I love these posts by "Token Multimillionairs!" (Pepperonie's words).

In fact its solid numbers like these(Which can be even MORE positively skewed with sound Tax planning AND a rent roll)---that will turn the few into *Real *Multimillionairs.


----------



## Sean K (9 September 2008)

Still must harp back,

Is this just an investment question?

There still hasn't been a qualification of this from the poster, nor his overall financial position and prospects.

Otherwise, it's all ......

??

We could all have a different plan for $300K...


----------



## nioka (9 September 2008)

wayneL said:


> Not agreeing or disagreeing, but I'd like to see that substantiated with some numbers.




 It worked OK for me. I basically retired about 30 years ago. (retired means being self supporting and doing what you want to do when you want to do it.. It gives me the security of property with sufficient income and capital gain. Extra income for the extras comes from the stock market, a good year means a new car, boat, holidays etc. A bad year means you sit it out comfortably. Numbers? Not for publication. Why are numbers important ?


----------



## pepperoni (9 September 2008)

tech/a said:


> Hahaha.
> I love these posts by "Token Multimillionairs!" (Pepperonie's words).
> 
> In fact its solid numbers like these(Which can be even MORE positively skewed with sound Tax planning AND a rent roll)---that will turn the few into *Real *Multimillionairs.




Its spelt "millionaire" ... id know and you wouldnt though;-).

Ill make you one too if you can tell me which ones are the solid numbers and explain why?  They look so patently wrong its absurd!


----------



## professor_frink (9 September 2008)

I'd buy the house and try and focus on things that don't involve large amounts of debt and having to be at work for a big chunk of my life.

Looks like I'm in the minority here though!


----------



## Sean K (9 September 2008)

The Gorilla and I are going halves in a pad on the Mornington Peninsula, close enough to the beach to be able to wander down, buy some fish and chips, and watch the sun go down with a cold one....


----------



## Fleeta (9 September 2008)

Spanning Tree said:


> Suppose hypothetically I had $300,000 in cash sitting in a savings account in my bank. The savings account produces interest, which is taxable.
> 
> Suppose I wanted to buy a $300,000 house in Craigieburn...




You're all missing the point. Clearly if you want to buy a house in Craigieburn, you are a bogan. I hope for your sake it is an investment and you don't really want to hang out with the moccie and tracksuit crowd in Craigieburn! How did you come accross the $300k? Drugs or stolen goods?


----------



## professor_frink (9 September 2008)

kennas said:


> The Gorilla and I are going halves in a pad on the Mornington Peninsula, close enough to the beach to be able to wander down, buy some fish and chips, and watch the sun go down with a cold one....




Sounds like a pretty good plan to me


----------



## pepperoni (9 September 2008)

professor_frink said:


> I'd buy the house and try and focus on things that don't involve large amounts of debt and having to be at work for a big chunk of my life.
> 
> Looks like I'm in the minority here though!




Im the same ... I dont want a 30 year mortgage because the risk of a bad recession and or being out of work for a long time in that period I consider to be very high.

Ive had 2 houses and 2 mortgages ... 4 years and 18 months.  I wont borrow any more than I can pay in about 4 years next time either.


----------



## Fleeta (9 September 2008)

pepperoni said:


> Its spelt "millionaire" ... id know and you wouldnt though;-).
> 
> Ill make you one too if you can tell me which ones are the solid numbers and explain why?  They look so patently wrong its absurd!




Pepperoni - don't you mean 'blatently' and not 'patently'? Kettle..pot..black?


----------



## pepperoni (9 September 2008)

Fleeta said:


> You're all missing the point. Clearly if you want to buy a house in Craigieburn, you are a bogan. I hope for your sake it is an investment and you don't really want to hang out with the moccie and tracksuit crowd in Craigieburn! How did you come accross the $300k? Drugs or stolen goods?




Ha ha .. he is saying if he had it. 

Im more worried about the expert financial engineering on this thread


----------



## Sean K (9 September 2008)

professor_frink said:


> Sounds like a pretty good plan to me



Thirds then. 

Maybe there'll be a really really fast train by then....


----------



## pepperoni (9 September 2008)

Fleeta said:


> Pepperoni - don't you mean 'blatently' and not 'patently'? Kettle..pot..black?




pat·ent·ly     Audio Help   (pāt'nt-lē, pāt'-)  Pronunciation Key 
adv.   In a patent manner; openly, plainly, or clearly: a patently false statement. 


Ie its you who is the pot :


----------



## Fleeta (9 September 2008)

pepperoni said:


> pat·ent·ly     Audio Help   (pāt'nt-lē, pāt'-)  Pronunciation Key
> adv.   In a patent manner; openly, plainly, or clearly: a patently false statement.
> 
> 
> Ie its you who is the pot :




Good call mate, i've just learnt something new!


----------



## theasxgorilla (9 September 2008)

kennas said:


> Do you want a home?
> 
> Or, an investment?




My advice...he (she??) should move to a country where its legal to negative gear your PPOR and where interest rates at the end of a tightening cycle are still only 5.85%.  Who me, gloating?

Disclaimer: Sweden is a very dark, cold and miserable place during the winter time.


----------



## pepperoni (9 September 2008)

theasxgorilla said:


> Disclaimer: Sweden is a very dark, cold and miserable place during the winter time.




And lets not forget that the more important "rate" is sweden is the suicide rate!


----------



## theasxgorilla (9 September 2008)

kennas said:


> The Gorilla and I are going halves in a pad on the Mornington Peninsula, close enough to the beach to be able to wander down, buy some fish and chips, and watch the sun go down with a cold one....




Yep, but we're holding onto our 300ks for now right?  Cos we have it on authority from the property bears that the new upper-middle will be giving their newly-renovated-at-great- expense holiday houses away soon.

PS. WTF Craigieburn???  Should check out the Mornington Peninsula.  You can still get places in the 300's and the flow of wealth between Melbourne and the peninsula is likely to be much more stable than between Melb and Craigieburn.


----------



## theasxgorilla (9 September 2008)

pepperoni said:


> And lets not forget that the more important "rate" is sweden is the suicide rate!




Actually it's a myth.  Google "sweden suicide myth" to find out more.  What isn't a myth is the disproportionate _rate_ of beautiful blonde females over here, of which I already have one of my very own...so you can all have your millions, as far as I am concerned I've already won life


----------



## prawn_86 (9 September 2008)

theasxgorilla said:


> Actually it's a myth.  Google "sweden suicide myth" to find out more.  What isn't a myth is the disproportionate _rate_ of beautiful blonde females over here, of which I already have one of my very own...so you can all have your millions, as far as I am concerned I've already won life




Well arn't you in a happy/gloating mood today? :


----------



## pepperoni (9 September 2008)

theasxgorilla said:


> Actually it's a myth.  Google "sweden suicide myth" to find out more.  What isn't a myth is the disproportionate _rate_ of beautiful blonde females over here, of which I already have one of my very own...so you can all have your millions, as far as I am concerned I've already won life




Blondes you say???

OK you win ;-)


----------



## theasxgorilla (9 September 2008)

prawn_86 said:


> Well arn't you in a happy/gloating mood today? :




Haha, could be something to do with the fact that I am hoping on a plane bound for Brussels in a few hours for a multi-day junket at some as yet unknown destination.  Doh!  There I go again


----------



## Sean K (9 September 2008)

theasxgorilla said:


> Yep, but we're holding onto our 300ks for now right?



For a little while longer. But not sure how much.

I had an uncle that owned 1000's of acres around Flinders a few years ago.

Thousands........

I'm still shocked everytime I think of it. Like WTF!!!!!!

Sold it off for pittance....now.....crap!!!!!!

Anyway, another story...

Mornington will be the Marthers Vinyard of Victoria.

Our time will come..

Not too far off..


----------



## pepperoni (9 September 2008)

Sir Osisofliver said:


> Spanning Tree,
> 
> OK This is a hypothetical....so long as it's hypothetical I'll pass on some hypothetical advice...BUT you should speak to a financial adviser about this.
> 
> ...




What the hell am i missing here cause its driving me nuts?

Give the bank the 300k at 8% and then you borrow it back for 9.5%.  

I dont get it ... Even it it werent for tax making your 8% more like 4%?  No tax saving/negative gearing will bridge that gap .. Even if the property were empty???

I feel like Ive just witnessed the financial advice equivalent of a 300 car pile up?


----------



## N1Spec (9 September 2008)

pepperoni said:


> What the hell am i missing here cause its driving me nuts?
> 
> Give the bank the 300k at 8% and then you borrow it back for 9.5%.
> 
> ...




i think you need to factor in the capital gains.


----------



## pepperoni (9 September 2008)

N1Spec said:


> i think you need to factor in the capital gains.




They are the same if you buy with cash or borrow and invest in a TD.

The only variables are the net interest expense and the tax (incl negative gear).

Makes even less sense if you positive gear too IMO.

I watched alot of people out west get conned with these sorts of schemes in the 90s.  

The market took off and the flawed structures didnt matter so they are all rich now but thats not the point ha ha.


----------



## Sir Osisofliver (10 September 2008)

pepperoni said:


> What the hell am i missing here cause its driving me nuts?
> 
> Give the bank the 300k at 8% and then you borrow it back for 9.5%.
> 
> ...




Pepperoni,

Did you miss my second post?

I don't know anything about this guy. Perhaps he's a doctor earning 500K a year and NEEDS negative gearing and tax minimisation strategies. Perhaps he's made a career out of saying "you want fries with that?" and the 300K is from dear departed granny. In either case he needs to *play with the numbers, which I told him to do. *IE Evaluate the effectiveness of multiple options to get the best outcome for his circumstances. This is an EXAMPLE. If I was getting PAID for this and was allowed to provide advice here on the boards....Then I would go through that process of evaluating which option is best for his circumstances.

Does that make any more sense for you?

Sir O


----------



## pepperoni (10 September 2008)

No ... I think investing money at 8% instead of paying off mortgage at 9.5% should be punnishable by death.

Every cent should go onto the mortgage unless its going to do better than 9.5% AFTER TAX (and factor in negative gear benefit on the property of course).

Nobody else seems to care so forget it I guess.


----------



## Glen48 (10 September 2008)

Get on to SBS web site and have a look at Insight House prices ( Tuesday 9). Houses prices to go down by 40% as we have the highest priced houses in the World most are at 2-3 times annual income OZ's at 7 times.
to work out the true value of a house take the Monthly rent income and x 150.
Look at patrick.net to see what will happen to the OZ market, look at onthehouse.com.au to see how many houses were sold last year and this year and then have a look at The Money managers.
Got to bed and get in the fetal position and ask some one to ring you when its all over.


----------



## Sir Osisofliver (10 September 2008)

pepperoni said:


> No ... I think investing money at 8% instead of paying off mortgage at 9.5% should be punnishable by death.
> 
> Every cent should go onto the mortgage unless its going to do better than 9.5% AFTER TAX (and factor in negative gear benefit on the property of course).
> 
> Nobody else seems to care so forget it I guess.




Pepperoni,

Ok how about investing money at 15% and borrowing at 9.5%? that work for you?

We have no way of knowing what level of investment return he is capable of achieving, nor the rate at which he could borrow. This is why I said he had to play with the numbers (in association with how much risk/return he is prepared to accept). I know a very wealthy man in Melbourne who borrows money at the Libor rate and by a series of sneaky manouvers invests it here in Australia. I persoanlly think that he's setting himself up for the mother of all tax audits, but maybe that is just me.

Sir O


----------



## wayneL (10 September 2008)

Glen48 said:


> to work out the true value of a house take the Monthly rent income and x 150.




A friend of mine just bought a flat in Basingstoke UK for £120,000 with a projected rent of £800PCM. That 150 times. (8% gross yield)

**Verifiable - I have seen the documents

Quite an astonishing deal by recent history.... Same flats last year were ~£180,000. Here is the current delusional asking prices.
http://www.rightmove.co.uk/viewdetails-17443562.rsp?pa_n=6&tr_t=buy

Here is the identical flat @ £825PCM asking
http://www.rightmove.co.uk/viewdetails-19204984.rsp?pa_n=4&tr_t=rent

This sort of deal is not common yet, but an indication of where things are going.

<edit to add> ~250-275 times is more typical at the moment. (going on asking 
	

		
			
		

		
	



	

		
			
		

		
	
 prices)


----------



## Spanning Tree (10 September 2008)

Thanks for the discussion, everyone.

This is all hypothetical, so I won't be doing it anytime soon. This idea is done mainly as an investment with the aim of reducing tax.


----------



## Ageo (10 September 2008)

Spanning Tree said:


> Thanks for the discussion, everyone.
> 
> This is all hypothetical, so I won't be doing it anytime soon. This idea is done mainly as an investment with the aim of reducing tax.




Like others have pointed out buying your own home and buying an IP is 2 different things. I have learnt 1 thing thow, less debt means less passive income i need to survive comfortable in this world. If its 1 thing i learnt from Kiyosaki that was it


----------



## wayneL (10 September 2008)

Ageo said:


> Like others have pointed out buying your own home and buying an IP is 2 different things. I have learnt 1 thing thow, less debt means less passive income i need to survive comfortable in this world. If its 1 thing i learnt from Kiyosaki that was it



I wish it was as clear cut as that *though* Ageo.

More debt at current valuations means massive negative cash flows.


----------



## tech/a (10 September 2008)

Ageo said:


> Like others have pointed out buying your own home and buying an IP is 2 different things. I have learnt 1 thing thow, less debt means less passive income i need to survive comfortable in this world. If its 1 thing i learnt from Kiyosaki that was it




While true.
There are times when you can be out of the norm with debt.
These times arent now but there was and will be again times when capital appreciation warrents heavy investment.
Both in Property and the Markets.

If there is one thing Ive learnt its when the time presents itself and opportunity is punching youi in the face to take advantage of it best to put all you can afford rather than take the conservative approach.

Conservatisim while nice and comfortable---wont get you those home runs which you need in life.
Genuine home run opportunities dont come around all that often.
Better to say I did rather than I wish I had.


----------



## jersey10 (10 September 2008)

tech/a said:


> While true.
> There are times when you can be out of the norm with debt.
> These times arent now but there was and will be again times when capital appreciation warrents heavy investment.
> Both in Property and the Markets.




give us a date Tech!

I know you think the stockmarket will move sideways for a few years to come, how long till the property market moves upward again?


----------



## tech/a (10 September 2008)

jersey10 said:


> give us a date Tech!
> 
> I know you think the stockmarket will move sideways for a few years to come, how long till the property market moves upward again?




I have answered this question once before---cant find it.

But Ive seen it twice in my lifetime and I'll probably see it once more.
Hit in the head opportunity occurs in property when.

(1) Interest rates drop to close to or all time lows.
(2) Its far cheaper to buy established property than it is to build.
(3) Rent return is greater than finance costs at 80%.Infact its almost impossible NOT TO gear positively.
(4) Opportunity will last 3-7 yrs you want to be in the first 3.
(5) Commercial property will do exactly the same but 3-5 yrs after the Domestic market---so you'll get a second bite! You want to be in the first 2 yrs of this boom as it will last only a couple of years.


When you see all of these come together---put your life on it!
For those ander 30 you'll probably see this another 3 times in your life---lucky buggers!


----------



## jersey10 (10 September 2008)

tech/a said:


> I have answered this question once before---cant find it.
> 
> But Ive seen it twice in my lifetime and I'll probably see it once more.
> Hit in the head opportunity occurs in property when.
> ...




so the last time this scenario occurred was 1999-2005??

and the next time??

i can't see this happening in the next ten years without a major correction to current house prices


----------



## tech/a (10 September 2008)

jersey10 said:


> so the last time this scenario occurred was 1999-2005??
> 
> and the next time??
> 
> i can't see this happening in the next ten years without a major correction to current house prices





First time I saw it was in the late 70s 1978 to be exact
2nd time was 1996
So Id say around 15-18 yrs time.For a perfect storm so to speak.

Doesnt mean there wont be opportunity just that it wont hit you in the head.


----------



## robots (10 September 2008)

hello,

and look at the people who get swept along for the ride, just typical house owners with a roof over there head plodding along,

always liked the one from Kathmandu with the byron bay shack, 60k to 6mil, just for a roof over your head,

all the best

thankyou
robots


----------



## wayneL (10 September 2008)

tech/a said:


> I have answered this question once before---cant find it.
> 
> But Ive seen it twice in my lifetime and I'll probably see it once more.
> Hit in the head opportunity occurs in property when.
> ...



tick.

(6) Everybody will think property is a crap investment.


----------



## Temjin (10 September 2008)

pepperoni said:


> No ... I think investing money at 8% instead of paying off mortgage at 9.5% should be punnishable by death.
> 
> Every cent should go onto the mortgage unless its going to do better than 9.5% AFTER TAX (and factor in negative gear benefit on the property of course).
> 
> Nobody else seems to care so forget it I guess.




I do.  Pepperoni is right here.

Paying off your mortgage (if you have an existing one) will essentially give you a risk free return of your mortgage rate because all future interest expenses are instantly reduced. As mortgage interest are tax non-deductible, the effective return would be even higher if the individual's net tax rate is quite high.  

Of course, if the person's opportunity cost is far higher than the above combined (i.e. like approx 12.8%+ over the remaining term of your mortgage loan for someone on the 30% tax bracket excluding medicare levy), then this would be a different case.


----------



## singlefished (11 September 2008)

pepperoni said:


> This scheme is worthless, its exactly like buying the house with cash except you waste a couple of grand in loan est and at least a hundred each year in fees.
> 
> If you want to use the money down the track you can borrow against equity ... if not dont waste time and money on this nonsense.




Pepperoni,

Can't quite fathom why you believe this option is nonsense?

You appear to advocate paying off a mortgage ASAP and hence minimising the amount of interest you'll be charged on the loan. Doesn't an offset account of equal value to the borrowings achieve this end?

What am I missing? For only a couple of grand establishment and about a hundred bucks a year you get to pay off the loan in whatever timeframe you feel comfortable with without paying a penny in interest?

And if you do ever have to dip into it (not that you should really need to), the cash is there for the taking without filling in any paperwork or asking the banks permission to do so.

This option might not be AS cheap as paying it all upfront in a one-off "slap your wodge on the table" style payment, but overall I'd say it's a very FEASIBLE option to minimise interest on a home purchase.

Cheers,
Scotty....


----------



## Greg71 (12 September 2008)

Spanning Tree said:


> Suppose hypothetically I had $300,000 in cash sitting in a savings account in my bank. The savings account produces interest, which is taxable.
> 
> Suppose I wanted to buy a $300,000 house in Craigieburn. Would it be a good idea to buy this house outright with the cash and not worry about any home loan or would it be better to take out another loan and use the interest from the bank savings account to pay the mortgage?
> 
> By taking out another loan I can claim the interest repayment as a deduction to reduce my taxable income. One of the problems with borrowing to reduce taxes is the debt obligation is produces. However, in this example I have $300k in a bank account produce the income needed to easily fulfill this debt obligation.




Hypothetically, you need to see this dvd. 

http://www.yourfreepropertydvd.com 

I have, and if I were considering a property investment, this would be a dvd I'd want to see first, seriously. Don't pay too much attention to the first couple of paragraphs, just the points.


----------



## pepperoni (12 September 2008)

singlefished said:


> Pepperoni,
> 
> Can't quite fathom why you believe this option is nonsense?




Why set up a loan ($2k) pay account keeping fees, and then put the purchase price in an offset account!

Just buy the darn thing ... K-I-S-S.

Only when you are definitely going to use some of you home equity elsewhere would you bother settting up a loan.


----------



## Glen48 (12 September 2008)

GUANGZHOU, China ”” China has joined the United States, Britain, Spain and others on the list of nations suffering a real estate decline.
Skip to next paragraph
The New York Times

Although the last national statistics showed single-digit growth from July 2007 to July 2008 in the average price of commercial and residential real estate, real estate brokers say prices are down from peaks reached earlier this year, while the number of transactions has plunged.

This downturn comes as the growth rate of Chinese exports has slowed ”” sharply in yuan terms ”” and stock markets have plummeted. The confluence of events has resulted in what economists describe as a deceleration in China’s economic growth ”” although at nearly 10 percent it remains the envy of many nations.

Brokers say that sales volumes first dropped precipitously here in southeastern China, and then the decline spread across the country. Faced with few buyers, sellers started cutting their prices for residential and commercial real estate.

In some neighborhoods in the southeast, prices have dropped by 10 to 40 percent.

In other parts of the country, transactions have fallen, but prices have only started to follow. For instance, the number of home sales has plunged by two-thirds in Harbin in the northeast, though prices are down as little as 4 percent from the same period last year.

“People are thinking more carefully and taking much longer before they decide to buy or not to buy property,” said Hwang Sha, a real estate broker in Xiamen in east-central China.

Cities deep in China’s interior are least affected. Dan Yian, a real estate agent in Chongqing, the largest city in southwestern China, said that the volume of housing transactions there had slowed by 20 to 30 percent so far this year. But prices have not yet fallen from a stable level of $730 a square meter, or 10.76 square feet, which works out to nearly $66,000 for a typical apartment of about 970 square feet.

Export-dependent coastal cities in mainland China have had the steepest downturns in their real estate markets. Some of those problems are starting to make ripples elsewhere in Asia.

Freddy Wu, the chief executive of Hong Kong Property Services, said his real estate agency had seen mainland investors default in recent months on a tenth of their purchases of Hong Kong apartments, forfeiting the down payments that they made.

“A lot of investors from China have their cash tied up in the mainland stock market and in mainland real estate, so they would rather take a loss now,” instead of being forced to sell mainland investments at a loss to come up with the cash to complete purchases in Hong Kong, Mr. Wu said.

The skylines of Chinese cities remain dotted with cranes. But Ralph J. Gerson, the executive vice president of Guardian Industries, the largest American glass-making company and the world’s third-largest, said that demand was rising less rapidly in China for the company’s high-tech insulated glass for modern office buildings.

“It used to be booming, and now it’s growing at a slower pace,” he said. Fresh evidence of broader economic problems in China came on Wednesday as the government released monthly statistics. Growth in imports and in fixed-asset investments slowed. Inflation dropped sharply at the consumer level, to 4.9 percent in August from 6.3 percent in July.

But unlike the subprime meltdown in the United States, and the resulting credit crisis, weaknesses in China’s real estate market do not at this point appear to pose a threat to the vitality or stability of the financial system.

One reason is that Chinese banks require down payments of at least 30 percent, giving banks an ample cushion of cash against losses. American banks frequently did not require down payments. Foreclosures are also rare here, and many Chinese still pay cash for their homes, particularly in rural areas.

Leo Wah, a Chinese banking analyst for Moody’s, said that Chinese banks could weather the decline in real estate prices, but cautioned that they could face more challenges if economic troubles spread.

“We do not believe that it would cause a serious problem, but if property prices fall some more, it won’t be the only sector that has problems,” he said.
Real estate difficulties pose a dilemma for China’s leaders because they coincide with a two-thirds drop in share prices on the Shanghai stock market since the market’s high last October. The two together could produce a negative effect, causing Chinese consumers to feel poorer and to reduce spending.

The most recent national data from the government shows that the average price for all residential and commercial real estate was 7 percent higher in July than a year earlier. But brokers across China say that within that period, prices peaked in many markets ”” either at the end of last year or at various times this year ”” and have slid since. The stocks of real estate developers have plunged, too. China Vanke, the country’s biggest publicly traded developer, reported on Tuesday that its sales had plummeted in August by 35 percent from a year earlier.

The real estate decline is affecting ordinary Chinese, too. Perhaps most consequential is the emerging view, apparent on blogs and in interviews, that apartments and houses, like shares on the declining Shanghai stock market, are no longer a certain path to prosperity.

Lin Bin, a 48-year-old insurance saleswoman who lives in Guangzhou, said the 1,000-square-foot, three-bedroom apartment she bought here in 2002 was still worth more than she paid in 2002. But she said she had lost two-thirds of the $4,400 she put into the stock market a year ago and worried that the housing market might be next.

“I’m not contemplating buying a second home as an investment because I hear that stock market and housing prices will continue to fall through next year,” she said while shopping recently.

Part of the problem is a severe credit squeeze. Through last winter, China’s central bank repeatedly raised the amount of capital it required Chinese commercial banks to deposit with it. The goal was to slow bank lending and control inflation. The commercial banks responded by continuing to lend to big corporate customers, most of them state-owned or at least state-controlled, while reining in other lending.

Central bank data shows that total loans to households plummeted by a third from March to July of this year. The bulk of these loans are mortgages because Chinese shoppers, even car buyers, use mostly cash.

“It’s collapsing; it’s unbelievable, and most of it is from mortgages ”” I don’t see how the housing sector is going at all,” said Nicholas R. Lardy, a specialist in Chinese finance at the Peterson Institute for International Economics in Washington.

He added that the decline was so precipitous that it had to reflect weaker demand for housing, and not just regulatory restrictions on credit.

To increase lending may be difficult now. The central bank needs ever greater reserves from commercial banks to buy dollars and prevent China’s currency from rising against the dollar, which could cause China’s exports to slow further.

China’s trade surplus set a record of $28.7 billion in August, the government announced on Wednesday, mainly because of an unexpected slowdown in the growth of imports. Slower growth of imports is a common sign of a weakening economy.

Assessing national trends in Chinese real estate is often difficult because of long lags in the data. Real estate brokers say prices are holding up better for homes in prime locations than in outlying areas. Top-quality commercial buildings are faring better than older buildings.


----------



## Spanning Tree (13 September 2008)

I heard in Australia it takes the average person 8 years to save up for an average home. This figure is about 3 or 4 years in other countries like the US.

From a value perspective I will probably be better off just living with my parents here and then when I have a enough move to America to buy a cheaper house.

Warren Buffet's tactic is to buy good assets at low prices. Even if houses are good assets, Australian houses certainly aren't at low prices.


----------



## tech/a (13 September 2008)

> As mortgage interest are tax non-deductible, the effective return would be even higher if the individual's net tax rate is quite high.




Most of mine is Tax deductable.
But as I have said you need to *own* some IPs to be able to *really* make use of some niffty accounting.

Really until your involved in serious property investment you cant and wont be exposed to the myrid of opportunity that can be utilised.


----------



## Temjin (13 September 2008)

tech/a said:


> Most of mine is Tax deductable.
> But as I have said you need to *own* some IPs to be able to *really* make use of some niffty accounting.
> 
> Really until your involved in serious property investment you cant and wont be exposed to the myrid of opportunity that can be utilised.




I was mentioning mortgage interest repayment on a PRINCIPAL HOME only. Investment properties are an entirely different game and I know there are PLENTY of generous tax advantages, similar to owning a business with a company structure.


----------



## jeflin (13 September 2008)

Glen48 said:


> GUANGZHOU, China ”” China has joined the United States, Britain, Spain and others on the list of nations suffering a real estate decline.
> Skip to next paragraph
> The New York Times
> 
> ...





The worst is yet to come. The Chinese used to have a high savings rate but over the last couple of years, they placed their nest eggs on asset classes like stocks and properties. Could be in for a rude shock as their value shrinks. 

Are the Chinese prepared for a stock market crash? I fear that there could lots of people committing suicide, much like Hongkong speculators in previous crisis.


----------



## tech/a (13 September 2008)

I know what you meant.



> I was mentioning mortgage interest repayment on a PRINCIPAL HOME only.




*SO WAS I.*

My payments on my PRINCIPAL place of residence ARE tax deductable through clever accounting and use of IP's I own---actually one of them.
All totally legal.

If you only have one then of course not.
He could however do exactly the same thing with his $300K.

Buy an IP first then one for him with a large chunk of his mortgage tax deductable.
You'll work it out Temjin---your a smart guy!


----------



## jersey10 (13 September 2008)

tech/a said:


> I know what you meant.
> 
> 
> 
> ...




buy a house as an investment property. rent out a room(s) to someone.  rent out a room to yourself.  If you have one room and rent 2 rooms out the property is 2/3 tax deductible, 4 rooms rent is 3/4 tax deductible.


----------



## pepperoni (13 September 2008)

tech/a said:


> I know what you meant.
> 
> 
> 
> ...





PPOR payments being deductable is not clever .. just bet your house on an IP .

Im still waiting for some bright spark to tell me how investing mortgage money in a TD makes real millionaires  Where is capital punishment when its needed most.


----------

