Joined: Apr 25, 2003 Posts: 3,699 Location: Trying to slim down in NZ!
Posted: Fri 18th Jan 5:15pm Post subject:
Dave_the_Slushy wrote:
happybaboon wrote:
Quote:
At present the bank is charging them $750 a week rent
So many ssabmudes out there. One of my old flatmates is paying nearly $400 week rent to the bank for a 2 bedroom tihster in Marton. 95% mortgage, won't pay it off for something like 50 years at current income (When they're over 70 years old!!).
Compare this to my smarter friends who earn heaps more than those two do and rent an innercity penthouse apartment in Palmerston North for not much more than what the dummies are paying... So, innercity apartment with a spa bath and a great view in a city........ Or would you rather have a doer-upper in Marton..?
Wrong city but right idea. The flip side to high interest rates is that those of us without mortgages or interest-bearing debts can earn stupid sums of money by just leaving our cash in the bank*
So much win.
*and by "bank" I mean Raboplus. Just checked National's rates for comparison. They fail.
Kind of, but inflation takes pretty good care of your investment.
Interest Rate = 8% (roughly)
Less inflation 3% (again, roughly)
Less tax at 33% 2.5%
Remaining interest 2.5%
Joined: Nov 10, 2006 Posts: 1,932 Location: Rocking into Mordor on me mighty steed...his name is Fluffy
Posted: Fri 18th Jan 6:57pm Post subject:
way_downsouth wrote:
Dave_the_Slushy wrote:
happybaboon wrote:
Quote:
At present the bank is charging them $750 a week rent
So many ssabmudes out there. One of my old flatmates is paying nearly $400 week rent to the bank for a 2 bedroom tihster in Marton. 95% mortgage, won't pay it off for something like 50 years at current income (When they're over 70 years old!!).
Compare this to my smarter friends who earn heaps more than those two do and rent an innercity penthouse apartment in Palmerston North for not much more than what the dummies are paying... So, innercity apartment with a spa bath and a great view in a city........ Or would you rather have a doer-upper in Marton..?
Wrong city but right idea. The flip side to high interest rates is that those of us without mortgages or interest-bearing debts can earn stupid sums of money by just leaving our cash in the bank*
So much win.
*and by "bank" I mean Raboplus. Just checked National's rates for comparison. They fail.
Kind of, but inflation takes pretty good care of your investment.
Interest Rate = 8% (roughly)
Less inflation 3% (again, roughly)
Less tax at 33% 2.5%
Remaining interest 2.5%
And yet, still more awesome than the putting it on a house at the moment. Lets say I have a 30 year mortgage on a $272000 100% mortgage at 8% - much less than the current rate but around the average. The repayments on this mortgage will be roughly $2000 a month (ie. almost my entire paycheck after student loan and kiwisaver payments) and over 30 years will pay a total of $719,000, $446,000 of that in interest.
If I assume that the growth in the value of my house will remain constant at 10% per year, then after 30 years my house will be worth roughly $474,000 This makes for an ROI of -34% over the 30 year period (using ROI = (Vf-Vi)/Vf)
If instead I pay rent at $1200 per month and save $800 at 4% interest (assuming no inflation on either the rent or the amount saved each month - probably an invalid assumption), after 30 years I will have paid a total of $720,000 into rent and savings and have $548,000 in savings, making for an ROI of -26%. Still a loss of course, but not as bad as buying a house.
When I've got a chance I'll run the numbers using 7% interest on the savings and adjust rent and savings by 3% annually (once I can find my old econ 101 textbooks)
Joined: Mar 05, 2006 Posts: 1,587 Location: Auckland, Mt eden
Posted: Tue 22nd Jan 8:48pm Post subject:
Dave_the_Slushy wrote:
If I assume that the growth in the value of my house will remain constant at 10% per year, then after 30 years my house will be worth roughly $474,000 This makes for an ROI of -34% over the 30 year period (using ROI = (Vf-Vi)/Vf)
you missed a zero its 4,746,237. some how I thin 10% return on houses for 30 years in unrealistic. its been ~8% until recently, but that was when inflation was about 8-15%.
Joined: Nov 10, 2006 Posts: 1,932 Location: Rocking into Mordor on me mighty steed...his name is Fluffy
Posted: Wed 23rd Jan 7:20am Post subject:
Ah poop, thought that didn't sound right. I guess it all comes back to what will be the growth rate on the house prices over the next 15-30 years. If 8% keeps going, then now is a good time to buy. But if growth is going to taper off (or worse, go backwards) over the short-medium term, then something else might be a better investment. Damned if I know what.
Joined: Mar 05, 2006 Posts: 1,587 Location: Auckland, Mt eden
Posted: Wed 23rd Jan 2:10pm Post subject:
way_downsouth wrote:
Despite the high prices and high interest rates I still maintain that there is money to be made in houses, if you are smart in what you buy.
the way I look at it house prices have reached their limit, as the median wage will no longer service a %100 mortgage on the median house price.
if the rate of devaluation gets high enough where people start selling their rentals before they drop further, then house prices will plummet.
Joined: Apr 25, 2003 Posts: 3,699 Location: Trying to slim down in NZ!
Posted: Wed 23rd Jan 2:16pm Post subject:
philstar wrote:
way_downsouth wrote:
Despite the high prices and high interest rates I still maintain that there is money to be made in houses, if you are smart in what you buy.
the way I look at it house prices have reached their limit, as the median wage will no longer service a %100 mortgage on the median house price.
if the rate of devaluation gets high enough where people start selling their rentals before they drop further, then house prices will plummet.
Possible, but with savings it is possible for a lot of people to finance a house, which until recently is what it has taken to buy a house.
I cannot see devaluation happening and would think that investors that could afford to will hold on. It will be interesting to see what happens over the next 3-4 years though.
Joined: Mar 05, 2006 Posts: 1,587 Location: Auckland, Mt eden
Posted: Wed 23rd Jan 3:28pm Post subject:
way_downsouth wrote:
I cannot see devaluation happening and would think that investors that could afford to will hold on. It will be interesting to see what happens over the next 3-4 years though.
well it has happened the last few months, its happened with apartments in Auckland, I don't think you will get people selling the houses they live in any time soon, but most of this house prices rise is driven by more people getting into rentals, which to make any money out of you need to borrow at least 95% and loss attribute the to you other income, and a 5% drop does wonder for a 95% mortgage
Joined: Apr 25, 2003 Posts: 3,699 Location: Trying to slim down in NZ!
Posted: Wed 23rd Jan 3:36pm Post subject:
philstar wrote:
way_downsouth wrote:
I cannot see devaluation happening and would think that investors that could afford to will hold on. It will be interesting to see what happens over the next 3-4 years though.
well it has happened the last few months, its happened with apartments in Auckland, I don't think you will get people selling the houses they live in any time soon, but most of this house prices rise is driven by more people getting into rentals, which to make any money out of you need to borrow at least 95% and loss attribute the to you other income, and a 5% drop does wonder for a 95% mortgage
I understood that the last few months had seen slowed growth and less sales but no devaluation. The apartments don't surprise me, and that is why banks will not lend 95% on an apartment (with only the apartment as security).
The real money making from rentals is not through LAQC (that is still a benefit and is worth doing), the rental part is almost a fringe benefit on the capital gains being collected tax free.
Definitely agree on the 5% drop thing! It is a scary fact (and hopefully doesn't happen)
Its only some Auckland apartments that have dropped in price, but those were the shoeboxes bought off plans in anticipation of the asian student influx that never occured.
2% in one month, some of the is that its only the cheep houses tha people can afford to buy. and its mainly from provincial areas but that will trickel up.
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