Real estate vs. trading

[tech/a]

Re: - real estate vs trading

Seriously?

Best interest rate for borrowings you could get is probably 6%.

The 'cost' of your deposit is the risk free rate you could get by leaving it in the bank or term deposit.

Do you know of any rental yields in the 5-6% range?

The house I rent just sold with a rental yield of just over 2%.

I'm not saying that it isn't possible to make money out of R/E, I just that I don't think there is much low hanging fruit.

Now yes I agree.If putting 100-80% loaned funds into a deal.

But all my rentals including my commercial properties return 10-15%
But bought them in the mid to late 90s.
Other properties are now freehold due to selling those with in my view least potential and putting the capital gain in those which do.
Bit like selling the least performing stock and keeping the best.

There are ways to benifit from both asset classes.
Most here unfortunately are fixed in their opinions which is effected by "Popular belief" (Remember only 6 mths ago petrol would be $2 a litre by Xmas!!!!). Those that prosper will stand out from the crowd.

The house I rent just sold with a rental yield of just over 2%.

What would that be if the owner had invested 50% capital of his own in the property? OR paid 100% in a super fund?

 

[Realist]

Re: - real estate vs trading

What would that be if the owner had invested 50% capital of his own in the property? OR paid 100% in a super fund?

A rental yield should be determined by the value of the proprty compared to the rent you get.

Not by how much you owe on the property.

So if a house worth $500K that you owe only $100K on returns $25K a year in rent its yield is 5% - not 25%!

Because quite simply you could sell the $500K place and put $400K unhedged into shares and get $50K a year return and have no expenses or effort!!

That is why property is not a great investment at the moment. Yields compared to price are very low!

 

[GoldenYears]

Re: - real estate vs trading

It's easier to become a millionaire today simply because a million dollars is worth far less than it used to be - inflation.

Someone who is a millionaire today is no wealthier than someone with $100K some years ago or even $10K some decades ago. Inflation!

I agree it has been much easier to become a millionaire through property in the last 10 or whatever years due to inflation as well as other factors (like low interest rates fuelling high demand) driving up property prices, but I think your comparisons of 10k and 100k are a little off. I see what you are saying though.

Using a guesstimate average inflation rate of 5% for the last 20 years then $1M today discounted back for 20 years = a little over $376k in 1986

 

[Realist]

Re: - real estate vs trading

I agree it has been much easier to become a millionaire through property in the last 10 or whatever years due to inflation as well as other factors (like low interest rates fuelling high demand) driving up property prices, but I think your comparisons of 10k and 100k are a little off. I see what you are saying though.

Using a guesstimate average inflation rate of 5% for the last 20 years then $1M today discounted back for 20 years = a little over $376k in 1986

Being worth a million $ in Sydney means you probably still have a mortgage and will have to work hard for many more years to pay it off and set yourself up for retirement....

 

[markrmau]

Re: - real estate vs trading

What would that be if the owner had invested 50% capital of his own in the property? OR paid 100% in a super fund?

Sorry, I don't understand.

The yearly rent I paid, was 2.38% of the sale price.

If you subtract the council rates, sewerage charges (not including fresh water charges which renter pays), $200 for insurance, from my yearly rental, the return drops to 2.04%.

This doesn't include maintenance charges because I typically do the small stuff myself.

It doesn't matter how much of the owners capital is invested and how much is borrowed. If you fund 100%, the cost of the capital is about 5%. If you borrow the whole lot, the cost of capital is probably 6.5% or more.

Either way, you are paying 5-6% for a return of 2%.

Thats fine, as long as you expect capital growth of a minimum about 4% to break even. (ignoring tax for simplicity).

So, to make a decent return considering the risk, perhaps you would want to expect a growth greater than 7%. (ie for me, 3% [=7% expected return - 4% standstill return]) is not sufficient risk v reward.

Thoughts?

 

[GoldenYears]

Re: - real estate vs trading

Being worth a million $ in Sydney means you probably still have a mortgage and will have to work hard for many more years to pay it off and set yourself up for retirement....

I was talking about nett worth not gross.