Simple Question

8% sounds fantastic. I like your thinking but there's always the risk of losing everything.
I understand the housing market could potentially crash as well but not in my hypothetical question

 

With you now. 20 year term with 4.5% interest rate $450k principal is $2847 per month so you're looking at $2857 per month rental? Which will equate to round 6.9% yield on a $500k purchase which is pretty good for resi property in today's market (for the purposes of the simple question, I assume we're ignoring stamp duty etc).

The "what ifs" are important in this case. Like "what if" there is are rental vacancies, maintenance items, interest rate increases - this will erode the return. And the margin is thin so it doesn't take much to hurt the numbers.

I personally wouldn't be buying anything that didn't have capital appreciate upside. That builds wealth for mine.

Mortgage calculator | ASIC's MoneySmart

 

Would you kindly advise what shares one should buy to get better than 10% per year over the next 20 years.
If this is possible why are people in the property game?

 

Brilliant, the type of response i was expecting.
Basically the loan was to cover stamp duty.
In today's market guaranteeing capital growth is not easy so basically I'm looking at how bad things would be if one did not accrue annual growth.
I think it would still be ok as one would still be a long way in front.

 

I just averaged out my return on VAS shares since I purchased them a few years ago - maybe 3 years ago and it was 8.92% including dividends and capital growth.

What would $50k compounded at say 4% be worth in 25 years?

And don't forget there are always unexpected expenses with property.

 

It would only be worth $135k according to the money smart calc.

 

50k at 4% over 25 years would only make you around 85k in taxable interest.
I think?

 

Yes not as much as I expected. Maybe a property that pays itself off is not as bad as I thought, but...

You also haven't factored in taxation. $10 positive cash flow includes principal so it might be $200 per month taxable income.

 

Terry should we forget about dropping 50k on an investment property and join you in the share market?

 

Wont you also need to consider inflation? I.e. if you buy an asset today thats worth 500k and in 20yrs is still worth 500k, havent you technially gone backwards?
E.g. if inflation stays at about 1.5%pa for the next 20yrs, a 500k property in 20yrs would be equivalent to about 370k today.

 

Ok so it's the principle + $10 taxable each month.
Is that all deductible on investment properties?

 

Check the returns on a index fund.

Most people manage to see price increases in property in the long term. How many properties havent gone up in the last 25 years? If you think the property wont go up in price dont buy it.

 

I don't understand.
A tenant has paid it all off, how is that going backwards?

 

But right now every capital city is going backwards.
Pretty bleak outlook for property investors and all the people tied up with many investment properties

 

Thanks i will definitely look into the index fund scenario.
Right now property prices seem to be dropping everywhere.

 

Yeah things looked so bleak during the gfc. Lost money in property purchased back then......oh wait. What did you buy when things were cheap?

Long term.... (Shrug) believe what you want to believe.

 

You would need to seek your own advice on that!

 

You would need to work out the taxable income. Which is income less deductions. However principal of a loan is not a deduction.

 

I don't want to believe what I want to believe.
I guess i'm a bit worried about how much properties will increase over the next 20 years vs Index funds vs share markets ect
That's only reason I want to get people like yours opinion on things.
I very much appreciate it.

 

Factor in inflation - which is 0% this quarter but was averaging around 3% pa.