Exactly why NG should be removed from established property investments completely.

If you did get rid of it you must rid of CGT at the same time to not discourage investment.

Another option would be to police NG more closely and only make it available for some circumstances. ie only newly built houses under a benchmark build price or maybe approved first home buyers for any house under a benchmark price. That way you can't negative gear a $2m beach house against your $300k salary.

^ Spot on.

Where else can I get 8% compounding every year for 20 years and pay no tax on my gain. My home was easily the best investment I've ever made. And I got a place to live to whole time as a bonus!!

Not saying it's sustainable, but those are the simple historical facts.

Select to expand quote

Harrow said..
Where else can I get 8% compounding every year for 20 years and pay no tax on my gain.

Well, since you asked...

Aussie or US shares. Held in super.

Select to expand quote

Harrow said..
Where else can I get 8% compounding every year for 20 years and pay no tax on my gain. My home was easily the best investment I've ever made. And I got a place to live to whole time as a bonus!!

Not saying it's sustainable, but those are the simple historical facts.

Sure, the best investment you've ever made, but if you'd put the mortgage payments into tow or three rentals properties and rented yourself, you'd be way ahead now because the renters largely pay your mortgage - if you have one....

did u see grand designs australia last night? modular build in clovelley. It was a $1.6m Knockdown and they were driving past, saw there was an auction on, one registered while the other had a quick look through and they bought it just like that!
That hydrologist engineer should hang his head in shame. I was thinking water mains. He could have tested the water for chlorine and flouride. Name and shame that turkey

Have to say buying property was financially the smartest decision I've made so far. Perhaps the markets will crash and it will be a dumb decision. However when capital gains far surpass your income its not too bad. I was seriously considering selling up in 2012 and am glad I didn't. Who knows in the future though ? If they do know they are not sharing their knowledge.

Yep, there's a couple of very good investments for your future with minimal tax implications, your residence and your super and this shouldn't change. There is also a link between home ownership and social stability, I'm guessing that this stems from having to have your krap together to be able to cover your financial responsibilities.

I watched that grand designs MUN, that was a bit of a bugger about the water hey?

Select to expand quote

Adriano said..

Harrow said..
Where else can I get 8% compounding every year for 20 years and pay no tax on my gain. My home was easily the best investment I've ever made. And I got a place to live to whole time as a bonus!!

Not saying it's sustainable, but those are the simple historical facts.

Sure, the best investment you've ever made, but if you'd put the mortgage payments into tow or three rentals properties and rented yourself, you'd be way ahead now because the renters largely pay your mortgage - if you have one....

I have to disagree with that. Its not as cut and dried as it seems. I guess it depends a lot on where you buy the rentals, as to the rental returns that are going to pay off that mortgage. There also seems to be a rule that a property is either going to do well in capital growth or it will do well in rental returns, but not both.

A friend at work and I did the calculations and worked out that while I bought an investment property and he didn't, if you sold his house and my houses, you would arrive at about the same amount. I.e. the investment property return was no better than if I had just ploughed my own money into my own house.

Rental returns in Sydney tend to suck, so its not simple, and certainly not cheap to acquire these two or three rentals in the first place.

Well yes of course. One can't just lucky dip invest in the share market, for example.

It's no different in property.

No one ever got rich in property by only owning their own home.

Disagree away...

You can make a little profit buying well and then having a plan of downsizing and moving further from a CBD as your life progresses. But true, unless you get very lucky, you won't get rich buying and selling in the same market.

I'm surprised at the number of people who don't do the maths to constantly calculate and track a "break even" sale price for their investment making sure all costs and taxes are included. For example if you did this and started to see an increasing delta between property sale values and your break even value you have the opportunity to cut your losses and punch out early.

Select to expand quote

Adriano said..
Well yes of course. One can't just lucky dip invest in the share market, for example.

It's no different in property.

No one ever got rich in property by only owning their own home.

Disagree away...

You are wrong. I won't disagree!

Yes, I don't think that could happen unless they got terrifically lucky and sold just before a bust and bought when prices went right down... which is not very likely at all. In fact a guy at work was telling doomsday stories about the Sydney property market and was saying that he was selling and then renting until it fell... Months later after he had sold, he bought another house. When I asked him why he had contradicted himself he came up with ' I have to buy now or I might not be able to afford to later', which is the sort of belief that has fuelled this boom.

Alternatively you could sell up in an expensive place and buy in a much cheaper place, but that is also unlikely as most people get comfortable with where they live and won't even move more than a suburb away let alone to a different city.

Funnily enough, I am considering just this sort of move, but it will come down to how much I can get out of the Sydney property market, and what I can afford with the result.

Select to expand quote

bene313 said..

Harrow said..
Where else can I get 8% compounding every year for 20 years and pay no tax on my gain.

Well, since you asked... Aussie or US shares. Held in super.

Ha true, I should have specified that I mean outside of super. Sure super is great, but I wouldn't want to be putting all of my hopes on it. It's just as likely that they'll raise the tax free age above 60 one day because they're worried an aging population is going to run out of money, and so not let you have your super until age 65. I'm keeping enough outside of super so the government doesn't get to decide when I retire.

Select to expand quote

FormulaNova said..

Adriano said..
Well yes of course. One can't just lucky dip invest in the share market, for example.

It's no different in property.

No one ever got rich in property by only owning their own home.

Disagree away...

You are wrong. I won't disagree!

Yes, I don't think that could happen unless they got terrifically lucky and sold just before a bust and bought when prices went right down... which is not very likely at all. In fact a guy at work was telling doomsday stories about the Sydney property market and was saying that he was selling and then renting until it fell... Months later after he had sold, he bought another house. When I asked him why he had contradicted himself he came up with ' I have to buy now or I might not be able to afford to later', which is the sort of belief that has fuelled this boom.

Alternatively you could sell up in an expensive place and buy in a much cheaper place, but that is also unlikely as most people get comfortable with where they live and won't even move more than a suburb away let alone to a different city.

Funnily enough, I am considering just this sort of move, but it will come down to how much I can get out of the Sydney property market, and what I can afford with the result.

So in other words.....you're wrong...

No one ever got truly rich buying and selling their own home....unless of course they sell at the top of the market and decide to rent in perpetuity....but even then, it's only one property and unless one is in the plus $5M market and there's no mortgage to settle, I wouldn't call them rich anyway.

The reason there are no self-help books or seminars about how to get rich on the property market buying and selling one's own home is because.....it doesn't happen.

Buying and selling rentals in a rising market however, particularly where rent is good and capital gains high - that does get savvy investors rich, wealthy even, particularly if one can fund the purchase price fully - and many savvy investors do.

But I guess you knew that anyway...right Formula?

I often wonder when people quote the amount of money they "made" on a a house purchase/sale if they added the real costs of ownership.

1. rates
2. insurance
3. maintenance
4, improvements
5. interest paid on mortgage
6. interest foregone on deposit amount, and the ongoing mortgage payments.
7. depreciation

no 6 is interesting.....if you are paying 5% interest, and you instead invested in the 10 yr ave share market gain of 10%..the cost to you is 15% pa.

Select to expand quote

Agent nods said..
I often wonder when people quote the amount of money they "made" on a a house purchase/sale if they added the real costs of ownership.

1. rates
2. insurance
3. maintenance
4, improvements
5. interest paid on mortgage
6. interest foregone on deposit amount, and the ongoing mortgage payments.
7. depreciation

no 6 is interesting.....if you are paying 5% interest, and you instead invested in the 10 yr ave share market gain of 10%..the cost to you is 15% pa.

Not after tax it ain't. And not after factoring in the relative risk. Stock market might have been 10% but only with hindsight.

I reckon a lot of people don't factor any of the real costs Agent Nods. My wife and I are both "numbers people" , an acquaintance made us aware of what seemed a decent return (about 40% increase on purchase price) on a "fix and flick" real estate investment they made locally. Of course "numbers people" like us are natural skeptics and we also wondered where we had gone wrong to not be getting on board with this high level of return. Anyhow, when you worked out all the expenses and then factored in the cost two people's labour for most nights and weekends for 12 months, we estimated that they made less than $25/hour and then suffered a relationship breakdown. They shoulda just done some overtime. Needless to say, we kept quiet and didn't destroy "the dream"

Select to expand quote

Cambodge said..Not after tax it ain't. And not after factoring in the relative risk. Stock market might have been 10% but only with hindsight.

If invested in Super - tax free. The 10% is a balanced return so probably fully franked - so same tax advantage.. If you look at share market long term there is at least 10% return pa.

Property can come down - as it is currently doing right now.

I forgot some other costs.

8. Conveyancing fees
9. inspection fees
10. Estate agents fees and commission

Agent Nods, your No.6 numbers don't seem quite right. The amount of "principal you have paid off" on the property loan is (hopefully) earning you a capital gain when you eventually dispose of the investment, so the cost difference between the house and the shares is only the difference between the final return percentage values on the disposal of the asset. Not the opportunity value of the principal paid off, plus the cost of the loan. But you're on the right track, very few people ever factor in ALL the costs and invest with their hearts and not their heads.

Select to expand quote

Cambodge said..
Not after tax it ain't. And not after factoring in the relative risk. Stock market might have been 10% but only with hindsight.

Compulsory super has derisked the stock market to some extent. Super funds have to put their money somewhere, so a lot of it is in stocks. Big funds don't invest in single dwellings, although I suspect a lot of SMSFs do, also using borrowed money, (which should not be allowed) helping to pump up the bubble.

Select to expand quote

Agent nods said..
no 6 is interesting.....if you are paying 5% interest, and you instead invested in the 10 yr ave share market gain of 10%..the cost to you is 15% pa.

Why have you added that 5% on? The bank doesn't give you money for free to invest in the share market, you'd be paying at least an extra 3% for a margin loan compared to a home loan, so your 10% share market return should be reduced to 7% for the comparison if you want to take interest payments into account.

If you want to consider the borrowed portion of the investment:
- Home owner...8% return - 4% loan = 4% return
- Shares...10% return - 7% loan = 3% return

Then you need to pay tax on the 3%.

Remember that most people borrow the majority of the cost of their home, so the above comparison is more valid than simply comparing the 8% and 10% returns. I wouldn't be recommending to most people to go and take out a margin loan for several hundred thousand dollars. If I'd made the same loan for shares, instead of buying my house, I would have been made bankrupt by the margin call I would have received a couple of years later.

some of you guys seem to be missing the fact that unless you own more more than one property you are not long property as an investment at all.

ie if your own solitary house goes up in value you arent worth more as the cost of replacing it with a similar quality one has also gone up by the same amount. same goes for the cost of renting a similar property generally speaking (though the latest boom has temporarily put this out of whack in oz)

one of the greatest financial furphys in australia this one.

Select to expand quote

Harrow said..Why have you added that 5% on?

My scenario was no borrowed money..... Just the deposit amount and the monthly amount you would have paid on the home loan goes into super or managed share fund etc. The 5% was the interest you pay the bank on the home loan, and 10% interest gained on investment, So this scenario is much lower risk.

Property does have risks..... Perth's median has price is down 25% from 2007 peak. That is a lot to recover

Select to expand quote

Cambodge said..
Not after tax it ain't. And not after factoring in the relative risk. Stock market might have been 10% but only with hindsight.

Average Annual Cumulative Return for Australian Shares for the period 1950 to 2018 = 11.9% p.a

That means if you put $50 in the ASX200 in 1950 it would be worth $210,269 today. Source: Andex 2018

If you bought ASX200 at the very top before the GFC, you would still be in front today. No hindsight required, just a belief that capitalism will remain.

As for tax...

If there was no CGT exemption, I agree in many instances there would probably be minimal CGT unless the property was held for a very long time, or the buyer's timing was very good. The best thing about owning your own home is that it is a mechanism for forced savings. If the CGT exemption on one's residence was removed, all the "holding costs" would need to be tracked!! This is a crazy idea - you own your home for 20 years, sell it and need to calculate the cost base, 20 years of Bunnings trips, etc to reduce your CGT liability!!

Select to expand quote

Bara said..
some of you guys seem to be missing the fact that unless you own more more than one property you are not long property as an investment at all.

Exactly. We don't need a book written by FN to tell us the bleeding obvious.

I thought this was interesting macro-economic news on the property front:

www.abc.net.au/news/2018-06-25/australia-named-as-household-debt-problem-country/9905390

Okay, I got curious. I've done the figures roughly before, but this time I did it accurately. I bought my home in 1998, and sold it in 2018.

I assumed that every cent I spent on that house was placed into an account that earned 10% p.a. compounding, paying no annual tax at all.

I included: deposit on the house, stamp duty, all my mortgage payments, annual insurance, land rates, water rates, renovations and landscaping, agents fees for the sale, and deducted modest rent for a not so equivalent home.

With the sale of my home, I ended up with a much healthier wad of cash (and I mean beyond any shadow of a doubt) in my hand compared to if I had received the 10% compounding return, and that is before paying any tax on the shares. Then ask yourself how realistic that 10% return is. The median compounded rate of superannuation over the last 25 years is 7.4%. Let's be generous and use 8%, and then I am ridiculously better off before, and even more so after, tax considerations. And to top it off, this is after we really did a fire sale of our house to get a buyer locked in before the Christmas break. Looking closely at the spreadsheet, it is the rent that is the killer for the share investment option.

I'm not saying don't use super, I max mine out every year. But I really don't buy this thing that owning your own home is a poor investment.

Select to expand quote

bene313 said..
Average Annual Cumulative Return for Australian Shares for the period 1950 to 2018 = 11.9% p.a

There's a couple of problems with simply comparing % returns of shares with home ownership. The first is you need to add the cost of rent. The second is that the leverage you get when buying a home is generally safer than leveraging with shares. If I'd taken an equivalent loan for shares, instead of borrowing for a home, I'd have been bankrupt the following year from the margin call, but the bank didn't call me in whenever house prices dropped. Then again if I decided not to take the risk of a margin loan, and I only invested my spare cash in shares, compared to leveraging a home loan, well, I've given those results in my previous post and the home loan won by a country mile. And I think that is what people are overlooking....the house % return might be lower than shares on face value, but the leveraged return of a home loan is higher when compared to non-leveraged share investing and rental payments. You need to do the maths to see it, and I just did.

In both cases, you are banking on continuing compounding returns. How far can they go, which will crash and when?

Select to expand quote

Adriano said..

FormulaNova said..

Adriano said..
Well yes of course. One can't just lucky dip invest in the share market, for example.

It's no different in property.

No one ever got rich in property by only owning their own home.

Disagree away...

You are wrong. I won't disagree!

Yes, I don't think that could happen unless they got terrifically lucky and sold just before a bust and bought when prices went right down... which is not very likely at all. In fact a guy at work was telling doomsday stories about the Sydney property market and was saying that he was selling and then renting until it fell... Months later after he had sold, he bought another house. When I asked him why he had contradicted himself he came up with ' I have to buy now or I might not be able to afford to later', which is the sort of belief that has fuelled this boom.

Alternatively you could sell up in an expensive place and buy in a much cheaper place, but that is also unlikely as most people get comfortable with where they live and won't even move more than a suburb away let alone to a different city.

Funnily enough, I am considering just this sort of move, but it will come down to how much I can get out of the Sydney property market, and what I can afford with the result.

So in other words.....you're wrong...

No one ever got truly rich buying and selling their own home....unless of course they sell at the top of the market and decide to rent in perpetuity....but even then, it's only one property and unless one is in the plus $5M market and there's no mortgage to settle, I wouldn't call them rich anyway.

The reason there are no self-help books or seminars about how to get rich on the property market buying and selling one's own home is because.....it doesn't happen.

Buying and selling rentals in a rising market however, particularly where rent is good and capital gains high - that does get savvy investors rich, wealthy even, particularly if one can fund the purchase price fully - and many savvy investors do.

But I guess you knew that anyway...right Formula?

Sorry, I am playing catch-up on posts.

Adriano, you are so keen to see me as being wrong that you ignored what I was trying to say. I was saying that "you were wrong in that I won't disagree", i.e. I agree with you. Are you one of those people that go out of their way to have a contrary point of view?

You even pretty much said that same as I did, in that it would take something exceptional.

Getting back to the discussion at hand, I think there are some really leveraged people out there. I have probably mentioned this before, but probably about 2 years ago there was an article in one of the papers about this guy who had heaps of investment properties. He was still quite young yet had amassed a bunch of places. My friend and I often talk about this topic and tried to do the sums. We couldn't figure out how this guy got the loans in the first place, and then how he was servicing them once he got them.

The only thing I could think of was that he was somehow laundering money. I.e. buying a house, pumping cash into it to improve its value and then renting it out for more than he could have previously, or selling it for a bumper profit.

I wonder. During a property boom, could a drug dealer that has bundles of cash do this, and then pop out the other side with windfall property values? Would anyone even look twice or just assume that it was a buoyant property market?