Household economic performance

[ghotib]

Just out of curiosity, do people here have a target rate of growth in their household net value, or know the rate of growth in household net value. We started tracking it about 18 months ago, and I think the most interesting thing is how much it's influencing decisions about whether and how much to spend on our home. We really don't want to put more money than we must into a non-performing asset, and that's a powerful incentive to look closely at what we mean by "must".

Anyone else?

Ghoti

[mime]

My accounting teacher said that financially smart people never buy their own house, just rent it.

Sorry for hijackin but I thought I would add that in.

[tech/a]

Hmmm.

Rent your house---buy a rental and collect the rent interest tax deductable along with lots of other things-----reap the capital gain and pay 25% after holding 1 yr plus.

OR

Buy your own home---AND a rental.

Sell home ---no Tax---Move in to Rental for 12 mths---after buying another rental----Sell Rental 1 after living in it 12 mths---no tax---move into other rental----so on so on.

Sounds like your lecturer was great on theory!

Like the family Idea ------ better to spend money on a rental---get more rent then live in it (12 mths) B4 sale to save heaps of tax.

Know which one Id take.

[Battman64]

Rent own home.
Control a very large home.
Trade / work / play from home and claim 50% of rent,
& a portion of the electricity/gas/telephone/Foxtel/internet etc

Buy Lots of rentals with very little of own money.
When they appreciate borrow against them.
Get money back, buy more.
Never sell, never pay CGT.

[Battman64]

Your home if bought will cost you a lot of money to run
ie Council rates, water rates, maintenance etc
paid for with after tax money.

It cost a lot of money to buy, hold and sell property.
Not very good for trading.

I was taught to buy good property and never consider selling.
You only sell bad property.
Why sell something that is making you good money?
Especially if you have borrowed your money out of the asset.

[ghotib]

My accounting teacher said that financially smart people never buy their own house, just rent it.

Sorry for hijackin but I thought I would add that in.
Never's a long, long time. That sounds to me like the sort of statement that started out as good thinking and gradually gets fossilised into something that nobody thinks about at all.

Decisions about whether to buy or rent your home need to take account of your age, what you're doing and what you want to do with your life, other financial circumstances, the stage of the various market cycles that affect you, and no doubt several dozen other variables.

I don't mind being hijacked in a good cause. Keeping a roof over your head, and preferably having some warm, dry space under the roof for a bit more than just your head, is a significant ongoing expense for most of us and has a significant effect on household economic performance (phrase of the moment). So, to wrench the thread back from the hijacker, how do you keep track of your total situation?

Ghoti

edited to fix typo

[Milk Man]

Hmmm.
Sell home ---no Tax---Move in to Rental for 12 mths---after buying another rental----Sell Rental 1 after living in it 12 mths---no tax---move into other rental----so on so on.
Know which one Id take.

I think you have to pay capital gain on a house if it wasn't your residence for the whole time you owned it. I think its split by the time you live in it compared to the time you didn't. I know for a fact that if you hold your residence for over 12mths and you havn't rented it out then there is no capital gain up to a certain dollar amt. Correct me if you think im wrong. It may be a state issue- im in Qld your in SA so...
As for the interest on the loan its inly tax deductible if the original intended purpose was for investment and only the interest is deductible then- not principal as well (classed as capital expenditure) if its a principal and interest loan.

Definitely better to own though- renting is just flushing money down the toilet!

Get the worse house on the best street and you laughin'.

No one take my word for it- not financial advice blah blah blah...

[Battman64]

Rent own home.
Control a very large home.
Trade / work / play from home and claim 50% of rent,
& a portion of the electricity/gas/telephone/Foxtel/internet etc

Buy Lots of rentals with very little of own money.
When they appreciate borrow against them.
Get money back, buy more.
Never sell, never pay CGT.

After years of doing this I am now looking to buy my own home with cash.
An emotional decision and not a very good financial one.

[mime]

Rent own home.
Control a very large home.
Trade / work / play from home and claim 50% of rent,
& a portion of the electricity/gas/telephone/Foxtel/internet etc

Buy Lots of rentals with very little of own money.
When they appreciate borrow against them.
Get money back, buy more.
Never sell, never pay CGT.

That tax claim sounds a bit "iffy" It was my understanding that if you have a 2 br home and you use one for a study then you can tax deduct the amount of 1 br. I think that's right. Also I think that if you live in a investment prop for more then 6 months it becomes a PPOR and if cap gains free.

[Battman64]

Good point mime.
Our rented home is our business premises.
I trade and teach from these premises.
My wife also runs a business from home.
We run our rental properties from home.
Half our rooms are designated to running our businesses.
So we claim 50% of the rent.
(maximum that is allowed I think!)

[Smurf1976]

Just out of curiosity, do people here have a target rate of growth in their household net value, or know the rate of growth in household net value. We started tracking it about 18 months ago, and I think the most interesting thing is how much it's influencing decisions about whether and how much to spend on our home. We really don't want to put more money than we must into a non-performing asset, and that's a powerful incentive to look closely at what we mean by "must".

Anyone else?

Ghoti
I have targets for my personal net worth (in a financial sense). To me, housing fills a need for somewhere to live and if it makes money then so be it. I'd be quite happy to spend money on things that save costs over the long term though regardless of anything about over/under capitalising since the point is the future cash saving rather than capital value.

[son of baglimit]

work butt off for 10 years (while still young doing overtime, shiftwork, clambering for any promotion you can find).
get made redundant out of dead beat job (you find you would have stayed happy as the junior clerk).
buy a house with the proceeds (some small 2 BR place with numerous negatives, but it dont matter, youre still single).
meet some chick who tricks you into getting her pregnant (she maintains it'll all work out, afterall, you have a house).
4 years and 2 more kids later, she learns how to 'seek professional advice' from some 'pr1ck' who knocks on the door when you aint there (and he sends you the bill for providing her the advice).
find yourself agreeing to a settlement as advised by your solicitor mate where you end up moving out of the house with nothing but the couch your aunt gave you (only to find out one of his mates has now moved in with your ex).
advised by this solicitor mate to work long hard hours to raise the necessary cash to pay the maintenance (only to find out years later that if you had gone on the dole you didnt have to pay a cent).
leave the planet a broken man with the aide of a length of vacuum hose and your other cherished possession - your aunts 78 kingswood.
MORAL OF THE STORY - DONT INVEST IN PROPERTY - ENJOY LIFE TO THE FULLEST AND SPEND EVERY CENT BEFORE SOMEONE ELSE DOES.

[krisbarry]

I would stear very clear of the housing market for the next 4 years. Some very nasty things are unfolding. House prices have out-stripped wages so something has to give! I am so glad I do not own or hold property. Get out while you still can or hold onto your seats, the big roller coaster has hit the top and is ready to crash right back down.

[DTM]

work butt off for 10 years (while still young doing overtime, shiftwork, clambering for any promotion you can find).
get made redundant out of dead beat job (you find you would have stayed happy as the junior clerk).
buy a house with the proceeds (some small 2 BR place with numerous negatives, but it dont matter, youre still single).
meet some chick who tricks you into getting her pregnant (she maintains it'll all work out, afterall, you have a house).
4 years and 2 more kids later, she learns how to 'seek professional advice' from some 'pr1ck' who knocks on the door when you aint there (and he sends you the bill for providing her the advice).
find yourself agreeing to a settlement as advised by your solicitor mate where you end up moving out of the house with nothing but the couch your aunt gave you (only to find out one of his mates has now moved in with your ex).
advised by this solicitor mate to work long hard hours to raise the necessary cash to pay the maintenance (only to find out years later that if you had gone on the dole you didnt have to pay a cent).
leave the planet a broken man with the aide of a length of vacuum hose and your other cherished possession - your aunts 78 kingswood.
MORAL OF THE STORY - DONT INVEST IN PROPERTY - ENJOY LIFE TO THE FULLEST AND SPEND EVERY CENT BEFORE SOMEONE ELSE DOES.

I thought the moral of the story was...., choose your mates carefully!! ;)

[ghotib]

I have targets for my personal net worth (in a financial sense). To me, housing fills a need for somewhere to live and if it makes money then so be it. I'd be quite happy to spend money on things that save costs over the long term though regardless of anything about over/under capitalising since the point is the future cash saving rather than capital value.
Do you mean things like water tanks or solar power, where the savings presumably will increase as the resource prices rise?

The way this thread has developed is very interesting. We own our house outright, and we (well strictly I - it's pre us) bought it in 1992. So we've made a very healthy capital gain on it already and in that sense over-capitalising isn't an issue. However we're planning a seachange in the next couple of years, so decisions about how much and what renovating to do are influenced by the fact that if we sell in order to move it will be into a falling market. And if we don't, we'll have a lot of capital tied up in a low yield, depreciating asset. It's a very different situation from when we were struggling to get onto the real estate ladder and then to support mortgages at 13 and 23%.

Ghoti

[tech/a]

My son of Bags.

Simply (If you really must get married) marry a woman with more asset or capital than yourself.Get a pre nup-----avoid Kids (You know the ones without an OFF switch).Im highly allergic to them.

Settle OUT OF COURT but have it RATIFIED by the court.Thank your mate for taking the head case off your plate.---Go find a better one---one who works tirelessly on YOUR team.Then together get MORE than you BOTH need.

KRIS.

I agree with you.
Lock down mortgages.If your in the position to sell mortgaged property and place profit in others to freehold then do that.Should be slowley edging up rents each year and should have been doing that for a couple so far.
The run up is over,time to steady the ship.

Ghotib
Just do it---follow the dream.The fall wont be dramatic----maybe 3-5% unless your inner city.Have a valuer look at the property and have a valuation as it is and with improvements--- if the difference is 2 x the cost of doing them then go for it.---If not maybe just the thing someone is looking for so they can do it themselves.

[son of baglimit]

good to hear from ya tech - YA DONT NEED TO GET MARRIED FOR THAT SCENARIO TO OCCUR - 12 MONTHS CO-HABITATION WILL DO IT.

[ghotib]

I would stear very clear of the housing market for the next 4 years. Some very nasty things are unfolding. House prices have out-stripped wages so something has to give! I am so glad I do not own or hold property. Get out while you still can or hold onto your seats, the big roller coaster has hit the top and is ready to crash right back down.
Hmmm... So you've sold out of LVL have you Kris? :D

Ghoti

[ghotib]

Ghotib
Just do it---follow the dream.The fall wont be dramatic----maybe 3-5% unless your inner city.Have a valuer look at the property and have a valuation as it is and with improvements--- if the difference is 2 x the cost of doing them then go for it.---If not maybe just the thing someone is looking for so they can do it themselves.
Tech!!! I'm SHOCKED!!! Is this advice???

For anyone who cares, we've already decided against major improvements (the rebuild the back of the house kind) and we're checking our numbers on the assumption that we'll sell at current land value only. Assuming those work out, anything else is cream.

As for future property values, it depends on your timeframe. If you're buying a home in a place where you expect to stay for 5 to 10 years, you can afford to take a longish view. In our situation, my view is that we've decided to leave Sydney and we're better off selling immediately than waiting an indeterminate time for prices to rise again. Not just on financial grounds; it's also about focussing on our new life.

Cheers

Ghoti

[tech/a]

Tech!!! I'm SHOCKED!!! Is this advice???

Cheers

Ghoti

Hmmm

My opinion--my veiw as to how I'd handle the same type of situation.

Advice---I guess I should have prefixed it,"If it was me---blah blah"

Now why would anyone even consider my writings as advice?
Mearly personal views. :D :D :D

[krisbarry]

Hmmm... So you've sold out of LVL have you Kris? :D

Ghoti

Sold out of LVL...never!, sorry to disappoint you but holdin' in on this one.

[sam76]

I would stear very clear of the housing market for the next 4 years. Some very nasty things are unfolding. House prices have out-stripped wages so something has to give! I am so glad I do not own or hold property. Get out while you still can or hold onto your seats, the big roller coaster has hit the top and is ready to crash right back down.

These figures were released today.

Man, some families must be REALLY struggling out there....




Median house prices and percentage of weekly wage needed to pay home loan

Median house price Percentage of weekly

wage needed to pay loan

Sydney $511,000 36.4 p/c

Canberra $366,000 19.8 p/c

Melbourne $352,000 29.9 p/c

Brisbane $307,500 32.8 p/c

Perth $275,000 25.9 p/c

Darwin $275,000 17.8 p/c

Hobart $271,000 30.4 p/c

Adelaide $270,000 27.8 p/c

Source: AMP-REIA home loan affordability report

[dutchie]

Wages must be high in Canberra

[Smurf1976]

Do you mean things like water tanks or solar power, where the savings presumably will increase as the resource prices rise?
Ghoti
In short, yes.

Water tanks wouldn't make too much financial sense where I live (Hobart) since the mains supply is unmetered (99% of the water coming down the River Derwent flows out to sea unused apart from hydro-electricity so there's no real point in saving it).

But if I was looking at something like solar power or a heat pump etc. then I would look at the aspects of that in itself without thinking "am I over capitalising on this house". If the savings make it pay then who cares about whether or not it adds to resale value of the house?

In terms of how much does it need to return, most energy saving systems etc. are pretty conservative investments with tax free benefits hence I'm willing to accept a relatively low return on capital. As a benchmark I would use the mortgage rates to see if it stacks up since capital could be borrowed at that cost if need be.

:2twocents

[Smurf1976]

My son of Bags.
KRIS.

I agree with you.
Lock down mortgages.If your in the position to sell mortgaged property and place profit in others to freehold then do that.Should be slowley edging up rents each year and should have been doing that for a couple so far.
The run up is over,time to steady the ship.

Ghotib
Just do it---follow the dream.The fall wont be dramatic----maybe 3-5% unless your inner city.
The evidence that I am seeing in Hobart is that nominal prices most certainly are dropping. The recent trend is for asking prices to drop below psychological price barriers so that they ""look" cheap.

If I were to buy today then I could basically buy a 1980's brick house for what I would have paid for 1950's weatherboard (same area) 12 to 18 months ago. Bigger blocks of land and bigger houses too.

A few "desperate looking" sales seem to be starting to appear. Empty properties with the price noticeably lower than others in the area.

Just what I've observed. With the ongoing construction boom here I just can't see it ending well for those who have borrowed heavily for speculative investments in property.

Other states may be different so do your own research. :2twocents

[Julia]

Interesting reading through this thread. I gather most of the posters are blokes? Owning versus renting advantages/disadvantages have a fair bit to do with at what stage you buy in the property cycle. While living in New Zealand I was paying 23% in the 70's on a mortgage for an investment property. However, the capital gain during the time I owned it meant that interest was pretty much meaningless in terms of the bottom line when I sold it. Rents were also very high at the time.
Now own my home outright and it has doubled in value in the last two years.
The other factor no one seems to have taken into account (maybe because you are blokes?) is the emotional value of owning one's own home. If I were renting, I wouldn't be particularly interested in adding value via creative gardening etc, but in actual fact derive lots of satisfaction from this aspect of property ownership. It's not all about making money either. I've just installed a heat pump for the pool the $11,000 value of which I will never get back on selling. Doesn't matter. I enjoy the warm pool. It's easy to lose sight of the reason most of us try to make enough money: isn't it so that we can enjoy life? I've known a lot of people who have made constant money making their only aim, and who have unexpectedly met an untimely end.What good did all that money do them? Once there's enouh to provide a comfortable retirement, why not just enjoy what it can buy?
Sorry if I've gone off the track of the original thread. Just the meanderings of one person.

Julia

[krisbarry]

Here is the comparison:

A 3 bedroom Bungalow style family home 7 km from the city of Adelaide could in 2000 be purchased for a bargain price of $155,000

NOW....

That same house in 2005 is worth $400,000

AND....

for that same $155,000 in the same location at current 2005 prices buys you a 2 bedroom dumpy cream brick 70's unit. (Hang on a minute, I'll just change into my flared pants, and tie-dyed peace hippie T-shirt and smoke a pipe) LOL

Hmmmmm.... Its not rocket science, but VALUE in housing has outstripped wages, and something has to give, and yes it has already started. House prices are falling, finally!

[Smurf1976]

Hmmmmm.... Its not rocket science, but VALUE in housing has outstripped wages, and something has to give, and yes it has already started. House prices are falling, finally!
When an average wage will not buy even a modest house there are only two real possibilities. One is that employers are about to be hit for, and actually pay, large pay rises with a degree of backdating (or even larger rises if not backdated) or the period of rapid house price inflation is over. The latter seems more likely IMO. :2twocents

[tech/a]

Julia.
Exactly the sort of thing you should be doing to enjoy your OWN property.
I know of many who have even "Over capitalised" on their own home improvements.10 yrs later that over capitalisation isnt an issue.
By the way us "Blokes" like to be proud of our homes like you Gals.

Most of our IP's are more luxurious than home--but home has a feel that only those living in it can create.--Know what you mean.
As for enjoying success again cant agree more--keep telling my 80 yr old dad the same thing.He and mum are still capable of most things---me I spend more time travelling than at the office---or so it seems.

Kris

Thats happenned twice before in my lifetime.It will happen again.Housing prices are relaxing but I,d hardly call them falling.Every property I look at is only slightly negotiable.I will have 2 on the market very soon and their expected sale price is beyond what I'd have thought---and beyond last years prices.Just had 4 properties valued and they ALL were valued at more than 12 mths ago.

Over the years I have always seen FEAR in both the Realestate and Stock Markets when prices reach spike extremes.It does happen more often than youd think.I cant understand this reaction if those making it have implemented risk reduction stratergies.
In the stock market this can be done in the stroke of a key board.
Property in loan lock down and sensible gearing.

There are times for increased exposure and times for risk reduction---simply dont play the same game for ALL occasions.

[krisbarry]

I will have 2 on the market very soon and their expected sale price is beyond what I'd have thought---and beyond last years prices.Just had 4 properties valued and they ALL were valued at more than 12 mths ago.

.

Just questioning your reason for selling now, if as you say that house price are not falling, or are you getting out b4 the fall, which will eventually hit Adelaide too, if it hasn't already.

[tech/a]

Kris.
My aim is passive income.

The 2 I'm selling are in my veiw at their current peak in value.
You live in Adelaide so are aware of Seaford and Seaford rise.
It is here that the 2 are.They also have the least equity in them.
$$ wise not % wise. There is about 130K in each while their value is around $250K.
Of the 9----2 are freehold selling these will allow me to place another in freehold. So of the 7 left 3 will be un encumbered returning good rent (2 of them the other is our home) 3 others are Esplanade between Moana south and Pt Norlunga---they have the greatest long term potential as they are still sub $600k each which is crazy for esplanade property---anywhere else in a major city (Including Aldinga,and Sellicks--10 k down the track) are $800k to 1 million plus.

Its a calculated decision to increase cashflow decrease gearing and decrease exposure to possible interest rate increases.The final position will see me positively geared to 11% Interest Rates if they become a reality.

I have some good deductions from other dealings so am not to fussed re capital gain on these 2.(2005/2006)
With 7 left best positioned for passive price increase due to where they are (One is Commercial and flying ,possible super contribution if accountants can convince me!) I think youll agree Im not abandoning the property market.

I'll also be left in a strong position to seek other funds if a "bargain" comes up.
EG 20,000 squ meters of land to sub divide---.

Im just balancing the property books NOW while everything is nice and slow.

tech
Must have a beer sometime.