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

[tech/a]

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]

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]

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!

tick.

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

 

[Temjin]

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]

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]

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]

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]

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]

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]

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]

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]

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.

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]

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]

I know what you meant.



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!

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]

I know what you meant.



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!

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.