Pay Down Debt vs. Investing

[kid hustlr]

Really really appreciate all the thoughts in this thread.

 

[tech/a]

Re: Pay Down Debt vs Invest

Yes, I hear you. But the house itself is not an investment vehicle first and foremost. It is primarily a roof over your head, and at the end of the day, if you were to happily remain in your modest first home once it was paid off, it doesn't matter at all if it never appreciates in value.
Trading up is something that most of us do however, me included. But it normally results in bigger and bigger loans!

My Oh My OH my.

Attitudes like this guarentee mediocrity.

But consider this.
Had you rented for 20 yrs (The average time it would take Joe very average to pay the home off).You wouldnt have a home.
20 yrs ago the home would have been $60,000
Today same home $400,000

Not an investment?
Your kidding yourself just in this area---let alone the endless opportunities in good use of equity.

 

[prawn_86]

Re: Pay Down Debt vs Invest

20 yrs ago the home would have been $60,000
Today same home $400,000

But do you honestly believe, with at least a few years (at a minimum) of contractionary credit conditions coming up, that 400k house will be worth 2.6m in another 20 years time?

And also, how does one unlock the value in that house without either selling (which has associated costs) or drawing down on a mortgage which means that you will then be paying interest on that value? Unless you move houses and rent out your original PPOR i guess

 

[tech/a]

Re: Pay Down Debt vs Invest

But do you honestly believe, with at least a few years (at a minimum) of contractionary credit conditions coming up, that 400k house will be worth 2.6m in another 20 years time?

Well when I was 17 and my wage was $ 9.70/ week pumping gas and houses were $9,000 I could not fathom that Id EVER earn $500K a year and be paying over a million for a home---so on that basis--who knows?

And also, how does one unlock the value in that house without either selling (which has associated costs) or drawing down on a mortgage which means that you will then be paying interest on that value? Unless you move houses and rent out your original PPOR i guess

You use it as collateral.
Unlocks incredible opportunity.

Sorry stuffed up that format!

 

[McLovin]

Re: Pay Down Debt vs Invest

But do you honestly believe, with at least a few years (at a minimum) of contractionary credit conditions coming up, that 400k house will be worth 2.6m in another 20 years time?

Exactly. At some point there is no more capacity to allow for higher prices. I'm not saying the entire property market is stuffed -- there will always be growth somewhere -- but generally property looks expensive. How many baby-boomers have their retirement nest-egg tied up in the family home? How many baby-boomers are going to be tapping that nest-egg soon?

The other big issue is the soaring cost of living. I'm fairly certain I could live cheaper in London than I do in Sydney (regardless of exchange rates) which is absurd.

 

[kid hustlr]

Your PPR should be considered an investment. At some point in some time the value of your place will matter - be it whether you decide to sell or your kids decide to sell or you want to redraw equity etc etc. It definitely matters.

 

[tech/a]

Exactly. At some point there is no more capacity to allow for higher prices

.

How do you work that out?

You could have said the same thing 30 yrs ago.
So inflation will stop?
Wages will not increase?
The $ will not rise and or fall?
Money will stop being printed.
Prices of ANYTHING will stop rising??---because there will no longer be capacity?? ----Get outa here!!

You could have said the same thing 150 yrs ago.
My Great Grand dad paid 10 Guineas for 5000 acres 20 miles from the
CBD of the time Thats about $17.
You couldnt put a price on it.--- now.

 

[McLovin]

.

How do you work that out?

Like this...

 

[notting]

Nice chart but Mr average aint always the driver.
He's stays average whilst things go up.
The devide increases and has not taken too many backward steps over time.
Inflation is the polically popular tax, for democracies.
Even comunists can't avoid it.
Unions are jumping up and down with good reason, but no desert.
I guess that's why commodities are popular.

 

[tech/a]

Like this...

All will catch up like it has in the past.
May take longer but convergence will occur

Then
Off it will go again.

Enjoy the opportunities if your able.
If your mediocre then youll more than likely watch and lament or complain.
(not meaning you personally!).

 

[prawn_86]

Going off track so this will be my last post about this in this thread, but there are a number of reasons pointing to a 'stagnation' or prolonged period without economic growth.

1. Western children born now are the first to have a lower life expectancy than their parents
2. Medical innovations are taking more and more time to acheive and costing more and more with less actual results
3. Energy/resources are finite meaning increasing costs put added pressures on other budget areas
4. Less innovation. What new products have we had in the last 10 years? Most have been a modification of an existing product
5. Baby boomers beginning to retire/down size.

Many people i know are also saying the same thing. We are in a contractionary/stationary period in which we will see very little growth until the World can get itself out of all the debt it has binged on in the last 30 odd years. We need to shift from growth to sustainability, and as that shift (very) slowly happens we probably wont see the same price increases as we have in the 20th century

 

[notting]

Inflation is the real problem not debt.
They print it's simple.
I'v been waiting for the housing crash for about as long as I was waiting for the Stock market crash that happened in 2008. Doesn't look too likely.
Australia is the best place in the world there for it should be the most expensive, people have worked it out.

 

[McLovin]

All will catch up like it has in the past.
May take longer but convergence will occur

I don't doubt that. I certainly wasn't trying to speculate on when or how, I was just making an observation.

To be quite honest, I find discussing property always seems to end up in arguments. Most people get way too emotional about it. (not meaning you )

Property is to investing what the Melbourne Cup is to betting on horses; everyone becomes an expert.

 

[Tysonboss1]

Nice chart but Mr average aint always the driver.
He's stays average whilst things go up.
.

And mr average goes from renting a house on a 1/4 acre block, to a smaller house on a smaller block, then a town house and then eventually an apartment,

Mean while that average 1970's house on a 1/4 acre block 10kms from sydney is now a luxury on mr rich can afford,

Hence incease density aswell as inflation means the property owner is far better off, than the renter

 

[Tysonboss1]

Like this...

the number of people living in a city is not fixed, the amount of land in the city is,

if the average wage $60,000 and you have 2million people land value will be X

If you increase the number of people to 3million while still only having an average wage of $60,000, the fact that there is now an extra million people earning $60,000 willing to either buy of rent will mean values of land will increase, even though wages have not.

What you will see is house blocks being chopped up into apartment buildings and town houses,

a person earning $60,000 can't afford to pay for $1M for a house block, but they can afford it if their exposure is limited to 1 apartment out of 6 on that block

 

[Junior]

the number of people living in a city is not fixed, the amount of land in the city is,

Not true for Melbourne, govnt keeps releasing more land and the city continues to expand.

if the average wage $60,000 and you have 2million people land value will be X

If you increase the number of people to 3million while still only having an average wage of $60,000, the fact that there is now an extra million people earning $60,000 willing to either buy of rent will mean values of land will increase, even though wages have not.

You're intimating that land values in the city will outpace wages indefinately. Not sustainable. Surely there will be a point in time where the infrastructure is so stretched and congestion so bad that the trend of population increases in major cities will stagnate or reverse.

What you will see is house blocks being chopped up into apartment buildings and town houses,

a person earning $60,000 can't afford to pay for $1M for a house block, but they can afford it if their exposure is limited to 1 apartment out of 6 on that block

.....

 

[Tysonboss1]

.....

Point 1 - No doubt they would have trouble releasing any new land within 10km's of the city, Secondly they new land releases proove my point, they take a big parcel worth maybe $10M in the past and break it up into higher density of 100 blocks valued at $200,000.

point 2 - Thas true, as you would notice apartments don't increase in value as much as high land content property types in the same area. If a land existed where the cities were at their limits, the 1 or 2 remaining suburbs would be sort after by the mega rich, look at the luxury house blocks in and around sydney, you looking at many millions.

Any way thats my last off topic post, this isn't the property thread

 

[Eager]

Re: Pay Down Debt vs Invest

My Oh My OH my.

Attitudes like this guarentee mediocrity.

Tell that to your grandparents, who no doubt lived a heck of a lot more modestly than you, but were probably far, far happier.

 

[Tysonboss1]

Re: Pay Down Debt vs Invest

Tell that to your grandparents, who no doubt lived a heck of a lot more modestly than you, but were probably far, far happier.

I bet they are happier selling their house for $400,000 to fund a better aged care facility, than if their home was still worth 45pounds.

Your home is an investment, first of all it provides a much cheaper roof over your head than renting for the majority of your life, and then it can be sold in the twilight years to fund a more dignified exit in the final act.

 

[Eager]

^ Point acknowledged.