I have given up buying a house

[Mofra]

If you buy a house and its price doubles you are no better off

I Disagree. I know of many people who leveraged their equity into stocks and have made quite a healthy return.

 

[Smurf1976]

I Disagree. I know of many people who leveraged their equity into stocks and have made quite a healthy return.

Effectively borrowing money to invest in stocks via a housing mortgage. You could just borrow the money and directly invest it into stocks instead and claim a tax deduction on the interest.

 

[Realist]

With countercyclical investing I'm more talking about investing in things that have cobwebs on them, and when you discover them and ask people about them the usual response is - yeah that old crap - useless - thats why its in the back shed with cobwebs on it.

So would you buy into Railroads, Qantas, Telstra?

I would not.

I like unfashionable, not old fashioned if you know what I mean. It is clear that the airline and home phone business has nowhere to grow. And Railroads died in the ass 50 years ago as an investment. Qantas and Telstra may be the new railroads??? Still there but piss poor investments.

Qantas may move to couriering and Telstra is moving to internet and mobile phones - still I am wary. Maybe wrongly, but I just can not see these old dogs as a great investment.

Fosters (wine is out of fashion) may sell billions of litres of beer to China, Westfield (property trusts are out of fashion) may open malls in India. What are Qantas and Telstra gonna do that will revolutionise their company? Who from overseas uses them?

Australia is a small country, you need companies with overseas exposure. FGL and WDC are WORLD LEADERS!! Telstra and QAN are Aussie "Dogs".

I own FGL, and WDC and see them better than TLS and QAN. Just my opinion...

Cuttlefish, your thoughts on WDC v TLS and QAN as an investment.

(FGL is not so cheap, so no comparison)

 

[Realist]

I Disagree. I know of many people who leveraged their equity into stocks and have made quite a healthy return.

So they took money out of their housing investment and put it into shares.

So shares were the better investment. And they did better.

So you are agreeing with me, not disagreeing.

Thanks!

 

[clowboy]

The point being debated was that there is no advantage to owning a house, not if shares/housing is the better investment. Clearly if housing goes up and you can use this equity to further invest that is a clear advantage to having no equity at all. I know of many people that have bought investment propities with the equity that has been generated from their PPOR.

As for just borrowing the money outright, while this can be done using equity can be easier and you can still further gear into the investment Ie use home equity to fund a margin loan.

How you borrow the money has no relavance to it's tax advantages, how you invest it does. I for one have made reasonable gains from money I borrowed from my PPOR and claimed the interest as a tax deduction. I can with extreme certainty say that it has been highly benificial to my circumstances owning a house, both in the sense that it's value has gone up and in that it has provided a method of using equity to invest.

I would not argue with the point that while you only own one property everything else is going up in value to and that makes it hard to upgrade, but it's easier to upgrade than just buy the expensive model outright.

I reckon the best bet is just to own two or more properties and have a bucket load of shares but if I ever make it that far i'll let you know

 

[Realist]

I reckon the best bet is just to own two or more properties and have a bucket load of shares but if I ever make it that far i'll let you know

Amen...

 

[Mofra]

Effectively borrowing money to invest in stocks via a housing mortgage. You could just borrow the money and directly invest it into stocks instead and claim a tax deduction on the interest.

If you can give me a lender that lends at home loan rates for a margin loan, please let me know.

 

[Mofra]

So they took money out of their housing investment and put it into shares.

So shares were the better investment. And they did better.

So you are agreeing with me, not disagreeing.

Thanks!

Gee, you really missed it didn't you?

Whilst equities dollar for dollar offer the better investment in my opinion, from a lending point of view property offers much better and more flexible leverage.

If you can find a lender that offers 95% finance at home loan rates to buy shares with non-genuine savings, please let me know.

Thanks!

 

[Smurf1976]

I must point out that I have nothing against owning a house per se. It's just that with valuations approaching about double historic levels it's an unusually risky time to buy real estate IMO.

A key point is how, exactly, capital values of houses would rise or even remain stable (in real terms) over the next few years.

Rental yields are ridiculously low by any historic measure so that doesn't support higher prices in the absence of a boom in rents.

House prices are at very high levels relative to wages. Even Hobart and Adelaide are more highly valued than most major overseas cities. As for Sydney, it's one of the most highly valued markets in the world and well above the historic mean. In the absence of a genuine wages boom it's hard to see how house buyers, particularly those buying ordinary homes at the lower end of the market, could possibly pay more.

Likewise interest rates are still near multi-decade lows but are now rising. That doesn't argue for higher prices either. Indeed if interest rates rise more rapidly than wages then it argues for lower prices due to reduced borrowing capacity.

Note that I'm talking about ordinary "average" suburban houses and not mansions etc which are a somewhat different market (though still related to the general economy).

 

[emma]

You don't have to buy if you're clever enough - see http://www.smh.com.au/news/TECHNOLO...keys-to-a-house/2006/07/11/1152383702596.html

 

[Realist]

If you can give me a lender that lends at home loan rates for a margin loan, please let me know.

Home loans aren't tax deductable from capital gains.

Margin loans are.

 

[Mofra]

Home loans aren't tax deductable from capital gains.

Margin loans are.

Most of my clients are longer term investors. Their non-mortgage borrowings are more likely to be capital protected loans & porimary production schemes.

They certainly wouldn't exclude a major source of capital growth when there are so many other avenues of tax minimalisation available to them.

 

[eddievanhalen]

Hi guys,

I realise many may not be in a position to do this............yet , but I have paid out my housing loan with trading profits and immediately redrawn it out to 90% interest only (fully deductible) as an investment loan - also redrawn out my IP loan to 90% again (after reval)and re-invested the difference. Effectively my housing loan has become another investment loan with no change in my financial situation (other than a more tax effective loan structure and more $$ to play with) - all I needed was the resources to pay out the loan for one day.

It is my intention to never again have a non-deductible "housing loan". Any future PPOR I buy will be with cash and that house will then immediately be used as security for an investment loan - interest only and fully deductible.

Many things are possible if you work hard and think outside the square from time to time.

If anyone here has a traditional housing loan for say $250k and has more than that in the stock market (net of margin loans etc.......) , I'd be doing some thinking about restructuring. Ofcourse this is dependent on people's individual situation and any break fees on existing loans etc..........

Just a thought on how you just might be able to use property at traditional homeloan rates as security for investment in the stocmarket. You could then use that money to buy marginable stocks if you really want to be aggressive


Ed

 

[Realist]

I have paid out my housing loan with trading profits and immediately redrawn it out to 90% interest only (fully deductible) as an investment loan -

Are you living in this house?

Can you live in your own "investment" property?

 

[eddievanhalen]

You're getting confused with the meaning of an "investment property" - yes I'm living in it but it ain't an investment property. I'm not paying myself rent LOL .

If you borrow money to buy an "investment property" and you put tenants in etc..........then ofcourse it's deductible interest

There's a difference between doing that and using a property I own as security for a loan that is to be used for "investment purposes"

In one case you are taking out a loan to buy a house that happens to be an investment property - in the 2nd case you are using your house (unencumbered) as security for a investment loan. That could be used for shares or as a deposit for more property etc...........

Two entirely different things but in both cases the interest is deductible.

Clowboy had it right - it's the purpose of the loan that matters , not the security.

Ed

 

[clowboy]

Even if you are not in a position to fully pay out your loan, it may pay to investigate this as you can still use this principle on part of your home loan. As long as the two different loans a clearly identifiable you should noit have any problems (talk to an accountant.) Most home lenders allow for splits these days which makes it really easier.

As an example, my home loan has several splits, one is my actual home loan which I pay down and the other is an investment loan which I pay interest only on.

 

[blinkybill]

How many really successful and wealthy people do not own a fridge?

Did buying a fridge make them wealthy, probably not. Buying a house did not make them really wealthy either.

Buying residential real estate has made a lot of people wealthy but obviously it depends largely on where and when

 

[Realist]

Buying residential real estate has made a lot of people wealthy but obviously it depends largely on where and when

You can not get rich by buying a house and paying off the mortgage for 30 years - simple as that.

You can get rich by buying many houses for a cheap price, doing them up and selling them in good times for a much better price.

That to me is like saying you can get rich by working 5 days a week in an office, then on the weekends and weeknights working your ass off doing manual labour as a plasterer. Yep you'll make alot of money, but have no life either!!

bugger that, I go to the beach and play golf on weekends.

There aint no point in having money if you have no life.

Shares are more fun too.

 

[redandgreen]

You can not get rich by buying a house and paying off the mortgage for 30 years - simple as that.

You can get rich by buying many houses for a cheap price, doing them up and selling them in good times for a much better price.

That to me is like saying you can get rich by working 5 days a week in an office, then on the weekends and weeknights working your ass off doing manual labour as a plasterer. Yep you'll make alot of money, but have no life either!!

bugger that, I go to the beach and play golf on weekends.

There aint no point in having money if you have no life.

Shares are more fun too.

once your landlord kicks you out or increases your rent by an unrestrained amount you may start thinking differently....

 

[Smurf1976]

You could also get rich by buying lots of houses at the bottom of the cycle and selling them at the top. Just like shares.

If you held the houses during the down part of the cycle then, whilst inflation may mean that prices don't actually fall but instead "plateau", interest would wipe out much of your gains. And of course you would lose the profits from doing something else with the money during this part of the cycle. Timing matters.