Quote:
quote:Originally posted by duncan macgregor
...Its simple economics it is always cheaper to buy anything than rent...
Rental Gain: +6% (& surely an unispiring location if in Auckland)
Mortgage Outgoings or Cost of Capital if debt free: -8% (long term avg 11.4%)
Average Increase net of new construction last 20 years: 8.5% (Maybe closer to 8%)
Rates, Insurance: -0.5%
Maintenance, Capex: -2%
NET GAIN: 4%!*
4%! Wow, call my broker and sell those shares. By coincidence, the opportunity cost of me not buying a house is that I give up about 4% in rent (Because my financially savvy land-lord is happy to subsidise me due the tax advantages that losing real cash apparently provides). That means I have to earn a "massively challenging" 8% on funds to match what could otherwise be put towards owner occupied housing
* ...if mortgage free the gain is probably closer to +12% before factoring opportunity cost... a near'ish call if your business or share investing skills are only average. Of course the emotional return could be well above the financial results. An obvious mitigating factor when reading the cheerful disregard for fiscal physics in this thread.
Quote:
quote:Originally posted by duncan macgregor
If the house increases in value more than the mortgage interest rate, then you can borrow against it at a nil real cost.
Nil real cost?
I can borrow at around 8%. That is obviously not free.
I can deduct inflation to know what the real rate is. Maybe around 4.5 to 5%? Still has a cost.
I can invest the new funds borrowed and make the expense deductible. Save another 39% of the 4.5 to 8%? Still has a cost.
I can invest the funds in something that earns enough money to cover that 8% cost, arguably meaning no real cost to me er...personally. To cover 8% and outgoings is that likely to be another house? How many would generate that sort of cash return? I'm struggling to see "no real cost". Probably find it in the chapter entitled "Borrowing More: No Real Risk".
Quote:
quote:Originally posted by duncan macgregor
The house gives you access to cheap money from the bank, which can be used to buy a car, boat, or shares, more so than try and do it any other way.
Cheap is a relative thing. It might give you access to cheaper capital than borrowing on credit card, from a finance company or a local loan shark. But with some of the most expensive real rates in the world, even the mortgage is not cheap.
Quote:
quote:Originally posted by duncan macgregor
To not own a house would tell me one of three things.
1,You might move.
2, you are a financial dumbo.
3, You have very little money.
If you borrow money to buy shares and own a house mortgage free then its number two.
You forgot...
4. You are better with both maths & investing than the crappy options presented here.
I'd have thought using a formerly mortgage free house to borrow to buy shares might arguably by the smartest cost of capital / cost benefit analysis available in the "have to borrow and/or own a house" argument.
Wouldn't know though, this financially dummy prefers not to borrow for the purpose of marginal economics. Probably find out how to do it in the "Why property never underperforms averages for 20 years" c