Investment Blog

[Buffett Jr]

Do you write one yourself or know of anyone that writes one?

I'm considering starting one to cover my journey investing in shares, property, etc. Firstly to have an outlet to put all my thoughts on a platform to allow me to look back at where I started and where I am now. Secondly to help me to thoroughly think about every investment decision I'm making. Thirdly, to share the information and skills I've learnt through investment over almost the past decade to help others that want to improve their earning potential, savings rate and investment performance.

It would be based on myself, a late 20's corporate employee, living frugally, investing wisely and setting myself and my wife up for a financial future and all the highs and lows that come along with it.

Would people even be interested to read and learn about what I have to say?

Thoughts?

[Mat J]

Yes, very much so.

[sideburns66]

Absolutely. I am in a very similar boat (however early 20's) so would be keen to hear experiences of others before me. :t_up:
Oh.. and I don't have a wife :p

[robbo24]

No.





Haha, just kidding. Yes. :D:D:D:D

[Jay]

A yes from me too - that's 3 yes's :-)

[Markymarknz]

I would also enjoy reading about your journey.
I myself am currently reading "Rich dad - poor dad" (as per suggestions picked up on ST), early 30's and trying to put solid financial foundations in place.
Always good to hear from someone else who wants to invest in something other than just a mortgage.

[pedro1]

That sounds like a great idea!

[Intel]

Do you write one yourself or know of anyone that writes one?

I'm considering starting one to cover my journey investing in shares, property, etc. Firstly to have an outlet to put all my thoughts on a platform to allow me to look back at where I started and where I am now. Secondly to help me to thoroughly think about every investment decision I'm making. Thirdly, to share the information and skills I've learnt through investment over almost the past decade to help others that want to improve their earning potential, savings rate and investment performance.

It would be based on myself, a late 20's corporate employee, living frugally, investing wisely and setting myself and my wife up for a financial future and all the highs and lows that come along with it.

Would people even be interested to read and learn about what I have to say?

Thoughts?


I have genuinely thought about doing this/ have wanted to for a few years now, however I think I would lose my job if I did and dont want to take the risk (even though it would be anonymous).

After reading multiple blogs around investing, I always turn to the ones that have a track record of success so I can attest to the value add of the blogger (as a reader)

My main suggestion would be to open a non-profit trading account to track your progress, and if you are the guru we all aspire to be, people will read.

The blog below is a great example.

http://reminiscencesofastockblogger.com/

Intel,

[Crystal Ball]

I would also enjoy reading about your journey.
I myself am currently reading "Rich dad - poor dad" (as per suggestions picked up on ST), early 30's and trying to put solid financial foundations in place.
Always good to hear from someone else who wants to invest in something other than just a mortgage.

And that a a big YES from me too Buffett Jnr

I am quite new to the game and currently reading "Fundamental Analysis for Dummies" by Matt Krantz which supposedly will help me assess the future value of a business, gauge a company's performance against its competitors and make informed investments in both Bear and Bull markets - here's hoping ! Ps got the book online from Book Depository - very good prompt service I might add.

[robbo24]

Don't forget to include your despair at paper losses and the likes. Don't forget the name the stock too. That way when you capitulate we can exploit your blog.

That's the juicy stuff.

[dingoNZ]

I have genuinely thought about doing this/ have wanted to for a few years now, however I think I would lose my job if I did and dont want to take the risk (even though it would be anonymous).

After reading multiple blogs around investing, I always turn to the ones that have a track record of success so I can attest to the value add of the blogger (as a reader)

My main suggestion would be to open a non-profit trading account to track your progress, and if you are the guru we all aspire to be, people will read.

The blog below is a great example.

http://reminiscencesofastockblogger.com/

Intel,

This blog is gold-dust, seriously a good read

[Leftfield]

I like the idea. Can't wait to see the book and the movie!!

[NT001]

Yes I like the idea. I'm not so interested in hearing the intricate details of what others have done and whether they've won or lost and how much - I'd be more interested in a forum for discussion about the investment climate and investment approaches that cover a broader spectrum than just a single listed company.

For example I've just been mulling how the quite serious economic setback caused by the global dairy price downturn is going to affect the market - it seems to me it will lead to a lot of shareholders recalibrating their portfolios over the next few months, which could affect share prices, especially in non-blue-chip companies.

[bunter]

Yes provided there's no talk of 'journeys'.

[couta1]

I don't want to watch the Texas chainsaw massacre again so not in a hurry to write an investment blog:scared:

[Lizard]

I've always wanted to write the "Ten Trades to a Million" blog... however, for a thousand very good reasons, I've always put off actually tackling this one.... mostly down to the statistical probabilities of making it past 3 posts in under a decade... :)

[Lizard]

I've always wanted to write the "Ten Trades to a Million" blog... however, for a thousand very good reasons, I've always put off actually tackling this one.... mostly down to the statistical probabilities of making it past 3 posts in under a decade... :)

For clarity, the idea is to start with $1,000 and then double it on each trade - actually, the original idea was on one trade in a month and therefore, turn $1,000 to $1,000,000 in under a year....

Even in my wildest fantasies, I couldn't envision the "one month per trade" criteria actually being achieved!

[percy]

For clarity, the idea is to start with $1,000 and then double it on each trade - actually, the original idea was on one trade in a month and therefore, turn $1,000 to $1,000,000 in under a year....

Even in my wildest fantasies, I couldn't envision the "one month per trade" criteria actually being achieved!

I wonder if or how many posters have done it in reverse, ie started with $1mil and ended up with $1,000 in a year or less?

[Lizard]

I wonder if or how many posters have done it in reverse, ie started with $1mil and ended up with $1,000 in a year or less?

Oh, I can remember one that did it with just one trade! (Although he may have exaggerated the depth of his pockets while building his upside down pyramids).

[percy]

I am thinking of an Australian Rural Supply company?
Getting close????

[Buffett Jr]

Here is a link to the blog if anyone is interested.

http://onedollartwo.wordpress.com/

[stoploss]

For example, after 2 seconds on google, I now know your girlfriend's name, that you like cycling etc. Be very careful. There are some terrible people on the internet. Cheers

Yea some terrible stalkers .......

[Buffett Jr]

Good one mate, but do you think its wise to share so many personal details (full name etc)? I can't imagine that playing out well in future if you become a financial success.

Otherwise, best of luck!

Hmm..

Good idea, I might remove my last name.

[Buffett Jr]

Good idea to not publish your last name, and dont give away too many personal identifying details in your posts. Better safe than sorry.

One little tip from me for your future success - keep investing in the stock market until you have enough money to pay cash for a house/apartment (renting is so much cheaper than paying a mortgage so do it as long as possible), then you can borrow against the house (line of credit) to buy a portfolio of dividend producing shares, thus making the mortgage on your own home tax deductible. Its like having your cake and eating it too. The share dividends pay the mortgage, you deduct the mortgage from your personal income tax, and reinvest the tax benefits into further investments. Shares provide a higher yield than a rental property, and with no holding costs that eat away at your cash flow.

Yes removed last name now, good idea on that one.

That is the plan with our revolving credit mortgage on our rental property. We will buy shares in the companies name and offset the mortgage interest until we have built up enough to purchase the 2nd property, 3rd, etc.

[Markymarknz]

Good idea to not publish your last name, and dont give away too many personal identifying details in your posts. Better safe than sorry.

One little tip from me for your future success - keep investing in the stock market until you have enough money to pay cash for a house/apartment (renting is so much cheaper than paying a mortgage so do it as long as possible), then you can borrow against the house (line of credit) to buy a portfolio of dividend producing shares, thus making the mortgage on your own home tax deductible. Its like having your cake and eating it too. The share dividends pay the mortgage, you deduct the mortgage from your personal income tax, and reinvest the tax benefits into further investments. Shares provide a higher yield than a rental property, and with no holding costs that eat away at your cash flow.

Do you know if it is possible to offset non-dividend paying shares or angel investment capital against income tax? I have invested a five figure amount in a business with friends and it will likely not be profitable for a wee while. I wonder if this presents me with the opportunity for tax advantages...

[Harvey Specter]

Do you know if it is possible to offset non-dividend paying shares or angel investment capital against income tax? I have invested a five figure amount in a business with friends and it will likely not be profitable for a wee while. I wonder if this presents me with the opportunity for tax advantages...If you borrowed funds to invest in the business then posibly. For that you would need to ensure that the interest expense could be traced directly to the investment and is not mixed with other, not tax deductible activities (ie. personal house).

Then the question is what is the purpose of your investment. If it is a long term hold and you expect dividends once the firm has made it then that should be fine. Hard to prove with investments where there is a long lead time before any dividends - take Xero for example: how can anyone say that are buying that for the potential future income stream and not the large 'capital growth' in the mean time.

[couta1]

Nope. The purpose of the loan has to be to purchase "income producing" assets, as its an income tax benefit you seek to get. Buying a non-dividend paying stock means you are not purchasing with the intention to derive income (you are buying with the purpose of deriving a future capital gain), so no tax benefit. If you paid tax on the future capital gains, it could be offset against that.

Not sure what the case is in regards to investment in non-company structured businesses - best ask an accountant.
However if you borrowed to buy CNU when it was a dividend paying stock and you still hold you could still continue to claim the loan interest off your tax even though currently it is paying no dividend

[MAC]

Some insight and advice in the herald today if you include yourself amongst “affluent couples in their 30s and 40s are most likely to want to free themselves from the 9 to 5 rat race”.

http://www.nzherald.co.nz/personal-finance/news/article.cfm?c_id=12&objectid=11337471

I was fortunate enough to give it up a couple of years ago at 46, it was a tough decision though actually, harder than I thought it might be, one’s profession can define a lot about who you are.

These days compared with generations past, companies especially corporates seem to have a lot less loyalty to their staff and that is perhaps reciprocated also, most no longer work for the same company for life they tend to move from position to position every few years, so why not move to your own ‘retired’ position if you want to call it that. Wouldn’t go back anything, life’s short.

[skid]

The best situation seems to be with people who are good enough at their profession that they can become part time consultants (or small contracts)

[Harvey Specter]

Nope. The purpose of the loan has to be to purchase "income producing" assets, as its an income tax benefit you seek to get. Buying a non-dividend paying stock means you are not purchasing with the intention to derive income (you are buying with the purpose of deriving a future capital gain), so no tax benefit. If you paid tax on the future capital gains, it could be offset against that.Who says it wont be income producing in the future? And if you take that view, then the gain would be taxable as income.

We are off topic however so will let this argued.

Note: I dont know what the 'true' answer is and I'm not sure the IRD would give an definitive answer either.

[Markymarknz]

Thanks for your thoughts, KW and Harvey S, I think I will run it past an accountant at some point just to make sure I am not missing a simple trick somewhere. I liked your original advice KW:

"borrow against the house (line of credit) to buy a portfolio of dividend producing shares, thus making the mortgage on your own home tax deductible."

This is something I will investigate in future....once I have enough cash :P

[couta1]

Thanks for your thoughts, KW and Harvey S, I think I will run it past an accountant at some point just to make sure I am not missing a simple trick somewhere. I liked your original advice KW:

"borrow against the house (line of credit) to buy a portfolio of dividend producing shares, thus making the mortgage on your own home tax deductible."

This is something I will investigate in future....once I have enough cash :P
If you do make sure you diversify and don't put all your eggs in one basket as I did with CNU and went down 100k out of the 150k I borrowed and the loan still needs to be repaid in a few years.

[Crystal Ball]

Yes removed last name now, good idea on that one.

That is the plan with our revolving credit mortgage on our rental property. We will buy shares in the companies name and offset the mortgage interest until we have built up enough to purchase the 2nd property, 3rd, etc.

Might pay to check this all out with a chartered accountant or a corporate tax lawyer to make sure it's all above board.....
Good luck with the blog, will enjoy following your journey !! :-)

[sommelier]

If you do make sure you diversify and don't put all your eggs in one basket as I did with CNU and went down 100k out of the 150k I borrowed and the loan still needs to be repaid in a few years.

One has to wonder if Couta is just a troll playing a really long game with ST readers.

[dingoNZ]

Out of curiosity how do you all track you entry/exit points of your holdings etc? I have a pretty complex spreadsheet I've been used and getting very happy with all the data its churning out for me. Just curious what others are doing to track things?

[couta1]

One has to wonder if Couta is just a troll playing a really long game with ST readers.
Yourve lost me with this comment the above post is simply honest facts posted in order to help someone else from making the same mistake as myself. PS-I don't play games except with my young grandchild.

[gv1]

Thanks for your thoughts, KW and Harvey S, I think I will run it past an accountant at some point just to make sure I am not missing a simple trick somewhere. I liked your original advice KW:

"borrow against the house (line of credit) to buy a portfolio of dividend producing shares, thus making the mortgage on your own home tax deductible."

This is something I will investigate in future....once I have enough cash :P

Its just like borrowing aganist your home for any business. Interest is deductible.

[Crystal Ball]

Or just a really honest, genuine person that shares both his positive and negative investment experiences, not just the former (like most other posters).

Personally, i find his honesty very refreshing.

As do I ......

[gv1]

Do you write one yourself or know of anyone that writes one?

I'm considering starting one to cover my journey investing in shares, property, etc. Firstly to have an outlet to put all my thoughts on a platform to allow me to look back at where I started and where I am now. Secondly to help me to thoroughly think about every investment decision I'm making. Thirdly, to share the information and skills I've learnt through investment over almost the past decade to help others that want to improve their earning potential, savings rate and investment performance.

It would be based on myself, a late 20's corporate employee, living frugally, investing wisely and setting myself and my wife up for a financial future and all the highs and lows that come along with it.

Would people even be interested to read and learn about what I have to say?

Thoughts?


Well done buddy. Something bigger to come I guess.

[baller18]

Good idea to not publish your last name, and dont give away too many personal identifying details in your posts. Better safe than sorry.

One little tip from me for your future success - keep investing in the stock market until you have enough money to pay cash for a house/apartment (renting is so much cheaper than paying a mortgage so do it as long as possible), then you can borrow against the house (line of credit) to buy a portfolio of dividend producing shares, thus making the mortgage on your own home tax deductible. Its like having your cake and eating it too. The share dividends pay the mortgage, you deduct the mortgage from your personal income tax, and reinvest the tax benefits into further investments. Shares provide a higher yield than a rental property, and with no holding costs that eat away at your cash flow.

Hmmm, I don't necessary agree with this, "rent till you have enough cash to buy a house with cash." Why do you suggest this KW?

Why pay 400 rent? or whatever the rent is, and you could possibly pay 100 extra a week to mortgage a house (just depends how flash of a place you want to live in)? Just $100 bucks less to invest in the stock market. Better than the 400 just going down the drain... Plus there is bound to be capital growth in a property, regardless how much is it.
Like you and many others have said, long term wealth is made from slow little incremental increases from the stock market.

To be honest, I think a steady return of 12% a year over a portfolio is considered excellent, for most investors. I mean, don't get me wrong there are people out there bound to have a return of 100% in 5 years (like yourself), however, it would be very rare for a lot to be doing this.

What I'm trying to say, buying property is kinda timing your entry point as well, however, property is still a much safer heaven for most people. Easy, banks will lend you 800K for a one million house if you have a 20% deposit, but no bank will lend you 800K for shares because you have 200k worth of shares.

[Markymarknz]

This is exactly what I did to get myself started.

This will potentially make a huge difference to my finances (building up the asset column) so as you can imagine I am rather excited, its hard to have enough "cash" for a house these days unless you buy in Invercargill. I have actually been living in a cramped rental property living miserly, but here's a thought:

I can get close to say $200k including cash, shares (currently a mixture of divvy and non-divvy), stake in private business (the plan of course is that this business will make profit KW, kind of like xero?), kiwisaver and first home owner grants etc (due to wife being on maternity leave we fit the criteria).

So I am thinking, what if I buy a house for $350k, can I theoretically structure things to realise some tax benefit?

On that, does anyone have a recommendation for someone (good accountant) to assist with setting up a suitable structure, preferably in the Wellington region? Or even someone on the forum that can offer a service for a fee of course?

[Markymarknz]

1. Because rent is far cheaper than a mortgage when considering a like for like property. eg. for $400 a week you can live in a home worth $1 million. Thus you maintain a nice standard of living while still saving the difference between your rent and what a mortgage on a $1m home would cost.

2. Understand the power of compounding returns. That $100 a week extra might not seem like much, but over time it adds up to a **** load [any mathematicians here feel like calculating it?]

3. Buying and living in a home means your mortgage is not tax deductible. A tax deductible mortgage is worth approximately 36% of $26,000 (or $9,360 a year back in your pocket) based on $500 interest a week.

4. If you want exposure to property capital growth you can invest in property shares.

5. A bank will lend you $800k for shares, provided the house is the security. They don't care what you want to use the money for, so long as you can afford the mortgage. And you will find it a lot easier to borrow the money when you can prove that you will have additional dividend income to pay it back, than if you just borrowed to buy the house and live in it with no other assets. (Do be warned though, buying a house with cash, but with a line of credit on it, will break most banks/mortgage brokers software applications and stuff up their process. My bank ended up paying out the full line of credit on settlement, despite instructions that no drawdown was to occur, because they are so used to doing it that way, then I had the hassle of repaying it and getting the interest charged refunded).

6. Because once you have bought a house for cash, and your dividends are paying off the mortgage for you, you then have $400-$500 a week to invest in the share market, and will be well on the road to financial freedom in a few years.

7. You can get a much better yield on imputed shares in NZ than you can on a rental property. Thus if you do it right, after borrowing at 6% and buying shares returning 10% you not only pay off the mortgage but have cash left over to reinvest in other shares. Its like FREE MONEY :D

Live well below your means, save as much as possible, invest everything, and wait. It is worth the sacrifice in the short term (renting, or buying a house that's cheaper than what you would ideally like) in order to maximise future financial benefits. The funny thing is, once you are living "rent free" (because dividends are paying the mortgage) all that extra money can then be deployed back into your investments, and soon you are back in the same position as if you never bought the house in the first place - again, its amazing what directing $400-$500 a week into the share market can achieve through compounding. Whereas if you were paying off that much in a mortgage yourself you would never get ahead (or you would but much much more slowly, like 25 years it takes to pay off a mortgage).

Smart financial planning is one reason why the rich get richer and the poor continue to struggle for life. Once you have got it all set up in the beginning, the rest is easy. I believe the Rich Dad book works along those lines as well.

What do you think of my scenario KW? Buy a $350-400k house with just shy of $200k. Do you think the banks will do a part loan?

[Harvey Specter]

What do you think of my scenario KW? Buy a $350-400k house with just shy of $200k. Do you think the banks will do a part loan?Banks will lend you 80% so get a loan of $200k to enable you to purchase the $400k property and a $120k revolving loan which you use solely for investment purposes. YOu dont even have to tell them what the second loan is for.

If fact in your situation (young corporate) they will probably allow you to go over 80%, especially since the home isn't that much.

[sideburns66]

1. Because rent is far cheaper than a mortgage when considering a like for like property. eg. for $400 a week you can live in a home worth $1 million. Thus you maintain a nice standard of living while still saving the difference between your rent and what a mortgage on a $1m home would cost.

7. You can get a much better yield on imputed shares in NZ than you can on a rental property. Thus if you do it right, after borrowing at 6% and buying shares returning 10% you not only pay off the mortgage but have cash left over to reinvest in other shares. Its like FREE MONEY :D


Thanks for your post KW. Really good.
Just wanted to question your above two points.

1. Where can you rent a $1m home for $400 a week..? I want to live there!
7. What kind of listed property trusts return 10%? I want some shares in these!

Thanks in advance.

[sideburns66]

What do you think of my scenario KW? Buy a $350-400k house with just shy of $200k. Do you think the banks will do a part loan?
I work at a bank. They will split it any way you like. Harvey's post is correct - they will pay out enough upon settlement to complete the purchase, and the rest is yours.

[Markymarknz]

I think you are better off waiting a few years and saving like mad until you have the other $150k - . Otherwise you need two loans, only one of which is tax deductible. Banks wont do second mortgages. You might be able to get some sort of split loan, where the funds are clearly separate, eg. two different accounts with different limits and payments etc. Would need to ask your bank. If you channel your share purchases from one account, and use the other as a revolving credit (paying it down by having your income deposited into it) to minimise non-deductible debt, it should work. Better ask an accountant though as to what the IRD think about it - I'm sure you're not the first person to think of it and they can have funny regulations which if you breach them makes everything non-deductible.

I would love to wait KW but it gets hard with the wifey continuously chirping away in your ear ;) and in fairness we are in our early thirties and from everyone we know we are the only ones that still don't own a house. The rental stock in our area is also terrible, if there was a half decent rental property we could probably continue without owning but it does get to you eventually.

I like the idea of keeping any borrowings on the lean side, my wife is actually a champion of not spending money unnecessarily, we don't have any debts and only ever pay cash for things. I see a 'line of credit' on the mortgage as an opportunity at a bit of a power play of sorts.

The financial benefits I will realise from buying are:

- $10k welcome home loan ($5k per person)
- $6k kiwisaver grant ($1k per person for every year in kiwisaver)
- $25k amount my wife and I will have combined in kiwisaver (not including government subsidy)

I know the $25k is not free money, its our kiwisaver investment, but my understanding of using a line of credit as an investment it may be more useful in my own control gaining me a tax advantage than being taxed at current PIE rates. I will most likely continue contributing the maximum from my salary to kiwisaver as the employer contribution effectively provides a 100% ROI

Just as an aside, we currently have both sets of parents offering us $10k towards our first house (like all good parents probably should seeing as they have experienced the largest capital gains in history on their properties), so this combined with welcome home and kiwisaver grant will give us a total of $36k free money!

What do you think KW (or anyone)? Am I crazy?!? :)

[RGR367]

Okay Guys, let Buffet Jr do his thing and remind ourselves why this Thread was started by him.

[Markymarknz]

No, I guess if you really cant stand renting any longer then its a nice compromise. However, I cant help thinking that another five years of saving and investing like mad will see your cash pile grow so that you could actually buy it outright, thus saving yourselves tens if not hundreds of thousands of dollars in non-tax deductible interest over the next 25 years. Now I don't know that I am some kind of investing genius, just lucky, or market compounding really is god's gift to investors, but when I started out I was in debt and so I created a financial goal of having $250k in cash at the end of five years (my Rich Dad Poor Dad plan). Which is kind of where you are now.

I would set a goal to keep paying down the non-tax deductible mortgage component ASAP so I don't think I would let our non-tax deductible interest last 25 years? We would effectively have around $150k of non-tax deductible mortgage, I roughly work out that would be around $150-200 per week in interest component costs on our repayments (obviously decreasing as we pay down the capital component), our rent is $320 per week so I think it actually stacks up...?

Sorry RGR, I am not trying to hijack this thread or anything, I believe Buffet Jr's intention was to get people thinking about investing so its worked for me! His thread could have actually provided me with a significant opportunity that I was otherwise missing out on.

PS: I have also subscribed to his blog, it reads well so far.

[zb3]

1. Because rent is far cheaper than a mortgage when considering a like for like property. eg. for $400 a week you can live in a home worth $1 million. Thus you maintain a nice standard of living while still saving the difference between your rent and what a mortgage on a $1m home would cost.

2. Understand the power of compounding returns. That $100 a week extra might not seem like much, but over time it adds up to a **** load [any mathematicians here feel like calculating it?]

3. Buying and living in a home means your mortgage is not tax deductible. A tax deductible mortgage is worth approximately 36% of $26,000 (or $9,360 a year back in your pocket) based on $500 interest a week.

4. If you want exposure to property capital growth you can invest in property shares.

5. A bank will lend you $800k for shares, provided the house is the security. They don't care what you want to use the money for, so long as you can afford the mortgage. And you will find it a lot easier to borrow the money when you can prove that you will have additional dividend income to pay it back, than if you just borrowed to buy the house and live in it with no other assets. (Do be warned though, buying a house with cash, but with a line of credit on it, will break most banks/mortgage brokers software applications and stuff up their process. My bank ended up paying out the full line of credit on settlement, despite instructions that no drawdown was to occur, because they are so used to doing it that way, then I had the hassle of repaying it and getting the interest charged refunded).

6. Because once you have bought a house for cash, and your dividends are paying off the mortgage for you, you then have $400-$500 a week to invest in the share market, and will be well on the road to financial freedom in a few years.

7. You can get a much better yield on imputed shares in NZ than you can on a rental property. Thus if you do it right, after borrowing at 6% and buying shares returning 10% you not only pay off the mortgage but have cash left over to reinvest in other shares. Its like FREE MONEY :D

Live well below your means, save as much as possible, invest everything, and wait. It is worth the sacrifice in the short term (renting, or buying a house that's cheaper than what you would ideally like) in order to maximise future financial benefits. The funny thing is, once you are living "rent free" (because dividends are paying the mortgage) all that extra money can then be deployed back into your investments, and soon you are back in the same position as if you never bought the house in the first place - again, its amazing what directing $400-$500 a week into the share market can achieve through compounding. Whereas if you were paying off that much in a mortgage yourself you would never get ahead (or you would but much much more slowly, like 25 years it takes to pay off a mortgage).

Smart financial planning is one reason why the rich get richer and the poor continue to struggle for life. Once you have got it all set up in the beginning, the rest is easy. I believe the Rich Dad book works along those lines as well.

I don't think this is very solid advice.

1) I’d love to hear of 1 million dollar home you can rent for $400. Renting is not cheaper than buying. Think about it. Investors need to earn a premium, if renting were cheaper, no one would be buying investment properties.

2) The tax deduction is only worth the amount deductible x your marginal tax rate. Thus to someone on the top marginal tax rate, the deduction results in savings of 33%, not 36%.

3) Sure shares on average may return close to 10%. But there can be periods where even the 10 year return is poor. Borrowing at 6% to invest in shares is rather risky, especially if you happen to do so just before a market crash. There are much more efficient ways to leverage IMO.

He would be far better off buying a house. By buying a house now he has locked in the amount he will have to repay, his house will keep increasing in value, but his mortgage wont. Whereas if you are renting the rents will keep increasing, inflation works against you, rather than for you.

If I were MarkyMark, I would put down the majority of my money and buy a house and then leverage some share investments in the overseas markets. This will allow you to take advantage of the disparity in interest rates between countries, and as your mortgage will be small, you wont be paying much in the way of crazy 6% interest repayments.

Using his mortgage to leverage (assuming 6% interest rate), the real cost to him after tax deductions, assuming he is on the top marginal tax rate, is 4%.

If I were you MarkyMark I would:

Purchase just under 50k worth of a US ETF using a margin loan with interactive brokers at 1.59% interest. After tax deductions the real cost to you of this interest rate is only 1%. Do this in your personal name and you will avoid the FIF regime. Also as the NZ dollar is high at the moment, you are likely to see some positive currency gains. Sure you will essentially be taxed twice on US dividends because you won't benefit from imputation, but US dividends account for only 2%ish of returns, so its not a biggy.

To get more leverage, you could put a small margin down and purchase an Emini S&P 500 futures contract, topping up the margin with your employment cash flow where need be. As futures are currently in backwardation, if you keep rolling these over to obtain your leverage, you will effectively be being paid to leverage.

[zb3]

I am very happy to be doing "the wrong thing" as so far its meant that I retired at the age of 40, own two homes both paid for with cash, and have $1mil + in the share market. How you doing?

PS. Obviously the examples I used were merely illustrative of the principle I was talking about, not authoritative advice on the NZ property market!! However, I am still used to Australian property figures and tax info, so in Sydney for instance it is not uncommon to only be getting 2-3% yield on a property. Even using Auckland figures, the rental yields are only 4% (and dropping as prices go up) whereas the cost of borrowing is 6.7%. By the time you deduct the costs of the property (rates, maintenance, insurance etc) yields will be even lower. I assume you have heard of negative gearing - this is where investors earn less on the property than they borrow. So fairly obviously, renting IS cheaper than buying, depending on what the property market is like in your area. I have also been told that it is possible to get 10% yields on NZ fully imputed shares, as many people on here have used this argument in favour of investing in NZ shares rather than Australian REITs which I am fond of.

However, like you, I would like to know where in NZ it is possible to get a rental yield greater than 6.7% AFTER annual property costs are accounted for, because I would like to invest there! :confused:

I'm almost half your age so comparing net worths is pointless. Sure your method may have resulted in some good returns, but that doesn't mean there aren't better methods out there. Just because some properties have negative rental yields does not mean renting is "obviously" cheaper than buying. The majority of properties have positive rental yields, especially for lower value properties at any rate. Even if the rental yields were negative, you aren't factoring in capital gains. Suggesting he invest fully in shares until he has enough cash to buy a house outright is the worst advice I have ever heard. Share prices could crash and property prices could continue to rise, where would he be then? If renting is better than buying why would you suggest he buy property at all?

Another positive factor about investing in property is that it is much safer to leverage. Even x2 leverage in the 2008 2009 crash would have wiped you out.

[dingoNZ]

I'm almost half your age so comparing net worths is pointless. Sure your method may have resulted in some good returns, but that doesn't mean there aren't better methods out there. Just because some properties have negative rental yields does not mean renting is "obviously" cheaper than buying. The majority of properties have positive rental yields, especially for lower value properties at any rate. Even if the rental yields were negative, you aren't factoring in capital gains. Suggesting he invest fully in shares until he has enough cash to buy a house outright is the worst advice I have ever heard. Share prices could crash and property prices could continue to rise, where would he be then? If renting is better than buying why would you suggest he buy property at all?

Another positive factor about investing in property is that it is much safer to leverage. Even x2 leverage in the 2008 2009 crash would have wiped you out.

I'm inclined strongly to agree with this chap

[dingoNZ]

Ahh, all the little Poor Dad's have come out to play. Kiyosaki was right, some people will never get it.

Oh I'm sorry I didn't realize your way was the only right way and people weren't entitled to their opinions?

Get off your high horse mate. Sure you've had success and well done for that but preaching to others that their ideology is incorrect is not only very arrogant but also very narrow minded. There is more than one way to get to the finish line.

[zb3]

Ahh, all the little Poor Dad's have come out to play. Kiyosaki was right, some people will never get it.

An insightful and educated response, thank you.

[Markymarknz]

Everyone has a different strategy I suppose, property has never interested me, it has for a long-time seemed hyper-inflated. I have an opportunity with a house that could be a good value play (good location, s&%t house) hence my interest. It is a place that I think may hold its value even through a significant downturn in property prices, particularly with the value we can add (once the smallish mortgage is paid off).

The fact that I already have invested some money in a business, it looks like the best way for me to get some tax benefits is through a line of credit type arrangement, hence a mortgage.

zb3, I must admit what you suggest sounds potentially very beneficial, are you currently using a similar investment tactic? I suppose the attractiveness of investing in local stocks is having a good grasp of my investments, maybe in future I could get more sophisticated but for now NZ divvy stocks such as FBU, GEN, FPH etc are easy for me to understand. Maybe slightly naive of me :/

[zb3]

Everyone has a different strategy I suppose, property has never interested me, it has for a long-time seemed hyper-inflated. I have an opportunity with a house that could be a good value play (good location, s&%t house) hence my interest. It is a place that I think may hold its value even through a significant downturn in property prices, particularly with the value we can add (once the smallish mortgage is paid off).

The fact that I already have invested some money in a business, it looks like the best way for me to get some tax benefits is through a line of credit type arrangement, hence a mortgage.

zb3, I must admit what you suggest sounds potentially very beneficial, are you currently using a similar investment tactic? I suppose the attractiveness of investing in local stocks is having a good grasp of my investments, maybe in future I could get more sophisticated but for now NZ divvy stocks such as FBU, GEN, FPH etc are easy for me to understand. Maybe slightly naive of me :/

I haven't implemented it yet as I am in my last year of uni and only have 60k worth of shares. But as soon as I start my full time job I will have enough cash flow to manage the volatility and shall begin implementing this extensive plan that I have conjured up. Fair enough I guess it is best to stick with what you know - although you don't really need to know anything to invest in a ETF which tracks the market, and at the same time you will outperform the majority of people who pick their own stocks, with 1/1000th of the effort.

[Jay]

Looks like the blog has now gone:confused:

[Markymarknz]

Similar question to yours with a similar answer to mine here:
http://www.theage.com.au/money/investing/is-our-borrowing-to-invest-plan-a-wise-one-20141016-11743r.html

Ahh yes, remarkably similar :)