If you were going to buy a house in 2-3 years time...

[kingcarmleo]

Just term deposits and blue chips.

 

[ENP]

I didn't say stocks would 100% surely perform better.

I just said the "lure" of higher returns.

But yes, for the short time frame, term deposits/cash do seem the way to go. Protecting capital. Heard a quote from Warren Buffet saying he didn't get rich from making huge risky gambles with his money, he just tries to not make huge bad decisions and the rest falls into place.

 

[Smurf1976]

House prices will still be going down and no where near the bottom , buy gold silver and keep out of banks because they will crash as well.. CBA has the most to loose due to leanding on over priced houses and I am lead to belive all but ANZ had to borrow money under TARP in 2009 according to Money Morning.

On a positive note, all my debts are with CBA whilst the only real deposits I have with any of the big four are with ANZ.

 

[Dowdy]

If you were looking at 4+ years you could get a first home saver account:

http://www.membersequitybank.com.au/personal/savings_accounts/first_home_saver.html

Thanks for the link but looking in to it, you can only save a max of 80,000K.

That aint much considering it's for a house deposit

 

[So_Cynical]

Thanks for the link but looking in to it, you can only save a max of 80,000K.

That aint much considering it's for a house deposit

lol its a realistic amount 20% of 400K, for those that think 400K is not a realistic price to pay then you probably don't realisticly need a Govt hand out to get what you want.

 

[Glen48]

Some one mention "investment property " there is no such thing. Never has been and never will in our life time..

Posted Mar 21, 2011 10:24am EDT by James Altucher in Newsmakers, Housing
Related: PKB, XHB, ITB, EQR, KBH, MTH, HXM
Editor's Note: The following blog post was written by James Altucher, managing director of Formula Capital, and originally published on his website: The Altucher Confidential.

Prior to the existing home sales report this morning, Altucher sat down with Aaron and Henry to discuss his financial and personal reasons for not owning a home.

Tell us what you think!

Many people have said to me in the past month, “I’m going to buy a home.” Or, “What do you think of the idea of me buying a home?” I like the second batch of people. They are my friends and it seems like they are sincerely asking for my advice. And I’m going to give it to them. Whether they meant it or not.

I have some stories about owning a home. One of them is here: “What It Feels Like to be Rich” where I describe my complete path into utter depravity and insanity. The other one is still too personal. It's filled with about as much pain as I can fit onto a page. Oh, I have a third one also from when I was growing up. But I don’t want to upset anyone in my family so I’ll leave it out. Oh, I have a fourth story that I just forgot about until this very second. But enough about me. Lets get right to it.

There are many reasons to not buy a home: [By the way, I also put this in the category of Advice I want to tell my daughters, including my other article: 10 reasons not to send your kids to college.]

Financial:

A) Cash Gone. You have to write a big fat check for a downpayment. “But its an investment,” you might say to me. Historically this isn’t true. Housing returned 0.4% per year from from 1890 to 2004. And that’s just housing prices. It forgets all the other stuff I’m going to mention below. Suffice to say, when you write that check, you’re never going to see that money again. Because even when you sell the house later you’re just going to take that money and put it into another downpayment. So if you buy a $400,000 home, just say goodbye to $100,000 that you worked hard for. You can put a little sign on the front lawn: “$100,000 R.I.P.”

B) Closing costs. I forget what they were the last two times I bought a house. But it was about another 2-3% out the window. Lawyers, title insurance, moving costs, antidepressant medicine. It adds up. 2-3%.

C) Maintenance. No matter what, you’re going to fix things. Lots of things. In the lifespan of your house, everything is going to break. Thrice. Get down on your hands and knees and fix it! And then open up your checkbook again. Spend some more money. I rent. My dishwasher doesn’t work. I call the landlord and he fixes it. Or I buy a new one and deduct it from my rent. And some guy from Sears comes and installs it. I do nothing. The Sears repairman and my landlord work for me.

D) Taxes. There’s this myth that you can deduct mortgage payment interest from your taxes. Whatever. That’s a microscopic dot on your tax returns. Whats worse is the taxes you pay. So your kids can get a great education. Whatever.

E) You’re trapped. Lets spell out very clearly why the myth of homeownership became religion in the United States. Its because corporations didn’t want their employees to have many job choices. So they encouraged them to own homes. So they can’t move away and get new jobs. Job salaries is a function of supply and demand. If you can’t move, then your supply of jobs is low. You can’t argue the reverse, since new adults are always competing with you.

F) Ugly. Saying “my house is an investment” forgets the fact that a house has all the qualities of the ugliest type of investment:

Illiquidity. You can’t cash out whenever you want.

High leverage. You have to borrow a lot of money in most cases.

No diversification. For most people, a house is by far the largest part of their portfolio and greatly exceeds the 10% of net worth that any other investment should be.

For more on Altucher's personal reasons not to own a home, go here.

 

[Julia]

That is one of the most biased and ill informed pieces of nonsense I've ever read.

He ignores the capital gain if one buys at the right time, and totally fails to take account of the emotional and psychological satisfaction of owning one's own home, the security that offers, and the freedom to make whatever changes you wish.

To say it's a stupid 'investment' on the illogical basis that he's using, is short sighted and narrow.

These sorts of tracts are usually spouted by those who are trying to justify their own poor decisions where they have bought ill advisedly and sold similarly.

 

[So_Cynical]

That is one of the most biased and ill informed pieces of nonsense I've ever read.

He ignores the capital gain if one buys at the right time, and totally fails to take account of the emotional and psychological satisfaction of owning one's own home

Its an American article.

http://www.jamesaltucher.com/2011/03/why-i-am-never-going-to-own-a-home-again/

Now quite as relevant in Aust because we are different...just ask robots.

 

[FxTrader]

... Saying “my house is an investment” forgets the fact that a house has all the qualities of the ugliest type of investment:

Illiquidity. You can’t cash out whenever you want.

High leverage. You have to borrow a lot of money in most cases.

No diversification. For most people, a house is by far the largest part of their portfolio and greatly exceeds the 10% of net worth that any other investment should be.

True enough when looking at a PPOR from a purely financial perspective, it's has more of the characteristics of a liability than an asset with entry and exit costs being extemely punitive on a percentage basis. But discussion of the importance of home ownership can be a very emotive topic that brings non-financial factors into play.

I would say that home ownership is more of a religion here than in the states. When I talk with many friends here their blind faith in capital growth and attachment to owning their own home at almost any cost frequently borders on the irrational (they rarely fully understand or examine all the costs involved in mortgaging a PPOR and how much capital gain needs to accrue for each year of ownership for them to just break even on sale). The tired old cliche "rent money is dead money" gets rolled out time and again and the great fear of being priced out of the market by not getting in as soon as you think you can afford it. Purchasing a PPOR is usually more of an emotional and lifestyle decision than a wise investment made after careful financial analysis.

 

[AlexL]

The first home savers acccount requires a minimum contribution of $1000 in four financial years. Given that we are approaching the end of this financial year, the actual time that your money is locked in is a little more than two years. I personally think that a guaranteed return of over 22% is a pretty good investment. Both the co-contributions and the cap on the account are indexed with inflation.
I hold a FHSA with Members Equity.
Alex

 

[Dowdy]

lol its a realistic amount 20% of 400K, for those that think 400K is not a realistic price to pay then you probably don't realisticly need a Govt hand out to get what you want.

20% is a reasonable amount for a deposit but i'm looking for a 60-80% deposit. Why do you want to spend most of your working life paying off a mortgage and nearly half is interest payment alone?!

Find a cheap place to rent and save like a mofo

If you save 5-7k a month you'll have $250,000 saved up within 3 years

 

[Reasons]

20% is a reasonable amount for a deposit but i'm looking for a 60-80% deposit. Why do you want to spend most of your working life paying off a mortgage and nearly half is interest payment alone?!

Find a cheap place to rent and save like a mofo

If you save 5-7k a month you'll have $250,000 saved up within 3 years

If you can save the majority it is an excellent start. I have found this Noel Whittaker article really useful to explain a very efficient way to pay off a loan as quickly as possible and manage interest rate changes...


NEWSLETTER

By Noel Whittaker

Thursday, 4 May 2006

...

It’s important to understand the way loans work. The repayments are normally shown as factors and these depend on the interest rate and the term of the loan. Here are the factors for loans with interest rates from 6.5% to 9% over a range of terms that vary from 5 years to 30 years. For example, if you had a loan of $100,000 at 7% and paid it back at $899 a month, the loan would be paid off in 15 years. If your loan was $300,000 at 8% you would have to pay back $2,508 a month (300 x 8.36) if you wanted to pay it off in 20 years.


The factors are a great illustration of the way compound interest works. Notice that relatively small increases in repayments will reduce the loan from 30 years to 25 years, but it takes a massive increase in repayments to increase it from 10 years to 5 years. Imagine you had a loan of $100,000 at 7 % and you were paying it back over 30 years. Repayments would be $665 a month and total interest payable would be $139,400. If you increase those payments by just $42 a month to $707 a month, the term would drop to 25 years, you would pay $112,100 in interest. That simple act of increasing your repayments by $42 a month ($9.67 a week) has saved you $27,300 in interest.

Also notice that the effect of the rate diminishes as the loan term reduces. A $100,000 loan at 6.5% over 30 years requires $532 a month – if the rate goes to 9% your payments will increase to $805 a month. The increase is $273 a month.

However, if the term was 10 years an increase in rates from 6.5% to 9% could cause your repayments to increase from $1,135 a month to $1,267. That’s just $132 a month.

This is why I urge people to pay their loans back at $12 a $1,000 a month if possible. That will reduce the term to approximately 10 years and take interest rates out of the equation as the term of the loan will be largely unaffected by rate fluctuations.

If you can’t do $12 a $1,000, and I appreciate there are many of you who can’t, try to pay back at least $8 a $1,000. As you can see from the above table this will keep your loan to around 20 years. That’s not as good as a 10 year term, but it’s certainly better than 30.

CASE STUDY
You have a home loan of $200,000 at 6.5% which you are paying back at $2,271 a month over 10 years. If interest rates rise to 8%, and you maintain the same payments, the term will increase by only one year to 11 years. If you are paying back the $200,000 loan over 15 years you would be paying $1,742 a month. A rise in rates to 8% would extend the term by just three years if the payments of $1,742 remained unchanged.

Provided you are not especially nervy, and can afford repayments in line with a 15 year term, staying with variable is probably your best option. Remember too, that if you are an investor the Tax Office is paying nearly half your interest bill. A rise of one percent is really only point five percent after tax.

 

[Pancakes]

Thanks for the link but looking in to it, you can only save a max of 80,000K.

That aint much considering it's for a house deposit

I wouldn't use the FHSA alone. My plan for saving a deposit would be;

-Deposit $5,500 per year into the FHSA to get the maximum government co-contribution of $935 for 4 years
-If I had a partner have them open their own FHSA to get the maximum government co-contribution for 4 years (or less)
-Save as much as I possibly could for 4 years in another high interest (perhaps term deposit) account

There is no reason the FHSA has to be your sole account for saving, in fact I'd recommend against that! Only put a max of $5,500 into the FHSA per year!

 

[jbocker]

The first home savers acccount requires a minimum contribution of $1000 in four financial years. Given that we are approaching the end of this financial year, the actual time that your money is locked in is a little more than two years. I personally think that a guaranteed return of over 22% is a pretty good investment. Both the co-contributions and the cap on the account are indexed with inflation.
I hold a FHSA with Members Equity.
Alex

I think that is a great tip Alex, I will talk to my kids about this. Waiting for the housing market to sort itself out for two and bit years might be a good thing (which I think is only going to go sideways for a while anyway). Now off to the FHSA site to find out more...

 

[Sdajii]

For me personally, definitely shares. Actually, that's pretty much what I've done over the last couple of years, and in that time I've multiplied what would have just been enough to pass as a deposit several times over by playing with that money with very speculative shares. If it continues as well as it has been going for much longer it will mean I have a full payment on a house rather than a small deposit.... yes, if it goes bad I may end up closer to where I started.

Of course, it depends on how good you are at trading, how much you like risk, and how much a risk gone bad will screw you up.

By nature I am a risk taker far beyond most peoples' preference, and I cringe at the level of safety desired by most people. Statistically that means you would probably cringe at my appetite for risk and not want to put yourself in the same position. Not all the risks in my life have gone as well as my stock trading venture Of course, as I said, my stock trading venture could blow up in my face.

Some say it's better to be safe than sorry. Others say nothing ventured nothing gained. You should definitely be asking yourself this question rather than doing what other people would do.