I can afford a house

[numbercruncher]

morning numbercruncher,

It would be great to see a detailed example of how you've come to this conclusion. What assumptions are you making to say this?

Goodmorning Professor


300k mortgage paid over 20 years implys total repayments of $616,429(at current interest rates) , then whatever the property is worth at he end of it is your profit, so this bit of the equation is anyones guess.

The difference of 20k p/a (400p/w) with no starting bank and returning a conservative 8pc p/a over a 20 year period would total 988,458.43

616,429 + 988,458.43 = 1.6m is what the house needs to be worth to equal the investment in shares.

Well thats my humble opinion anyways

And i agree with Nioka on the forced savings thing and some people wouldnt be disciplined enough to take the alternative route.


(I havnt taken into consideration rising rents but on the flipside this could be negated by rising wages and extra being put into the share option)

 

[professor_frink]

Goodmorning Professor


300k mortgage paid over 20 years implys total repayments of $616,429(at current interest rates) , then whatever the property is worth at he end of it is your profit, so this bit of the equation is anyones guess.

The difference of 20k p/a (400p/w) with no starting bank and returning a conservative 8pc p/a over a 20 year period would total 988,458.43

616,429 + 988,458.43 = 1.6m is what the house needs to be worth to equal the investment in shares.

Well thats my humble opinion anyways

And i agree with Nioka on the forced savings thing and some people wouldnt be disciplined enough to take the alternative route.


(I haven't taken into consideration rising rents but on the flipside this could be negated by rising wages and extra being put into the share option)

I was hoping for a bit more detail numbercruncher- the last part of your post that I've put in bold is just one of many variables involved in trying to work who would end up better off. IMO, those kinds of things probably should be considered before stating that one is better than the other. Or maybe I'm being too picky, and should go off and try and calculate it for myself

 

[numbercruncher]

Hi Professor,

Sorry its not quite up to scratch, but i find it a bit hard to speculate on the level of rent rises and Wage Inflation.

Also on the shares vrs property, property has ongoing costs such as maintenance, rates, Insurance and a large fee to sell - If these costs are factored into extra contributions to the share investment the numbers are lifted quite a bit for the Shares option.

Also one of my theorys on House prices is that within that 20 year time frame we will see some downward pressure on House prices basically because of a Aging population downsizing and the stagnating/shrinking size of the work force.

Whats your opinion ?

 

[bigt]

Did some sums, and not sure it stacks up that well in my favour. I need a 3 bed place in Sydney, close to the city centre. Not going to get much change out of $600/week there.

Also, you have to keep in mind the "quality" of living if you own a house - you can live in a much better quality home if you own, due to renovations/added value etc, than in a standard rental apt. If you wanted to match your rental property standards to a PPOR over 30 years, I'm sure it would cost you a hell of a lot more than your example.

Just my penny...I'm tossing up my options too, so happy to hear of alternatives & opinions.

 

[professor_frink]

Hi Professor,

Sorry its not quite up to scratch, but i find it a bit hard to speculate on the level of rent rises and Wage Inflation.

Also on the shares vrs property, property has ongoing costs such as maintenance, rates, Insurance and a large fee to sell - If these costs are factored into extra contributions to the share investment the numbers are lifted quite a bit for the Shares option.

And they are some of the other variables that IMO make it pretty hard to do an in depth comparison of the two. Any of these could make a large difference as to which is better. The risk of something going horribly wrong, and being in a position where I would have been better off renting is one I'm willing to take, but that's just a personal choice. Other's like yourself, have different opinions on the matter, and will structure your life accordingly.

Also one of my theorys on House prices is that within that 20 year time frame we will see some downward pressure on House prices basically because of a Aging population downsizing and the stagnating/shrinking size of the work force.

Whats your opinion ?

Whilst I think it's quite possible that it could happen, the possibility of it happening isn't enough to influence my decision to buy a PPOR(I'm currently looking for one now). From an investment perspective, I prefer shares to property, so will more than likely not need to worry about house prices as much as someone who is a big fan of IP's. However, once I've bought a house, I'll be focusing on paying off as much of it as I can as soon as I can, so investing in anything will be off the agenda for a year or two in that regard.

Whilst it would be unwise to dismiss the BB's retiring as a non event, I think(or possibly hope) the change will be a gradual process, not a sudden shock like some people seem to think. With things like reverse mortgages starting to become popular, we may see the BB's staying in their oversized Mcmansions whilst working part time a little longer than some think(obviously this is just one of quite a few different scenario's that could happen). If some of the BB's stay in the workforce part time for whatever reason, then combined with increase immigration, we may not see any great economic 'armageddon', just a slow and gradual shift away from the world the BB's have created.

Hopefully

 

[nioka]

Whilst it would be unwise to dismiss the BB's retiring as a non event, I think(or possibly hope) the change will be a gradual process, not a sudden shock like some people seem to think. With things like reverse mortgages starting to become popular, we may see the BB's staying in their oversized Mcmansions whilst working part time a little longer than some think(obviously this is just one of quite a few different scenario's that could happen). If some of the BB's stay in the workforce part time for whatever reason, then combined with increase immigration, we may not see any great economic 'armageddon', just a slow and gradual shift away from the world the BB's have created.

Hopefully

It is not the baby boomers who have the "Mcmansions" . It seems to be the following generation that are that way inclined. The BBs. in my experience seem to be happy where they are or if having a sea or tree change often choose the type of home they are used to. Reverse mortgages will tie a lot to their existing home, the reason being that the mortgage has to be paid out on the sale of the property and you can't get a reverse mortgage to buy the next. Retired people have a problem to get a new mortgage unless they still have a good income. There will be no economic armageddon which will be in any way caused by the BBs in this regard.

 

[Flying Fish]

STC if you are single, just borrow up to the hilt and enjoy life. When you are dead, the debt goes nowhere!!

 

[nioka]

STC if you are single, just borrow up to the hilt and enjoy life. When you are dead, the debt goes nowhere!!

And if you don't die early the debt worries will probably cause you to wish you were.

 

[Julia]

Agree entirely with Nioka's last two points.

I know it's fashionable to blame baby boomers for pretty much everything, but really not always appropriate.

Most baby boomers I know are helping their aged parents as well as helping their kids through university. Don't know any who are living in McMansions.

 

[Flying Fish]

So I guess if your olds were born before the end of WW2, they new a thing or two about tough times?

 

[professor_frink]

Alright then, I withdraw my comment about Baby Boomers living in Mcmansions, and will not mention anything of the sort again

 

[numbercruncher]

So whos living in all the Mcmansions then ? If its not the Boomers or there parents, Not gen Y they are too young, must be Gen X ?

 

[Flying Fish]

So whos living in all the Mcmansions then ? If its not the Boomers or there parents, Not gen Y they are too young, must be Gen X ?

Maybe no one lol

 

[moXJO]

Maybe no one lol

D.I.N.Ks

 

[wayneL]

D.I.N.Ks

Those that need them the least... LOL

 

[Flying Fish]

DINKUMS lol

 

[nioka]

So whos living in all the Mcmansions then ? If its not the Boomers or there parents, Not gen Y they are too young, must be Gen X ?

Migrants?

 

[Flying Fish]

Who cares they are welcome to leggo land

 

[theasxgorilla]

Whats your opinion ?

Shares v. property, all calculations make the assumption that you do nothing but sit on the real estate and maintain it. THE key advantage with real estate over shares is the control you have as the owner. You can create something with your own ingenuity. IMO, this is why there is no one vrs the other. If/When the market isn't working for you, or even if it is, you can still do work to the house you live in to, as it says in the Richest Man in Babylon, "Make of thy dwelling a profitable investment".

 

[Julia]

Reverse mortgage market has grown to $1.8b.
http://www.smh.com.au/articles/2007/09/24/1190486168395.html?sssdmh=dm16.280496

As the article points out, rising interest rates and falling house prices could render this a very shaky proposition. Let's hope the LVR's stay very conservative.