Interested in investing but don't understand how to beat housing leverage?

Headphonessoundgood · 3 August 2019

Say I invest in an ETF or something similar and all goes well and I get an 8% return, so on 50 grand, that like 4 grand a year. Sounds pretty good ?

But with housing, if I get a 4% return, but I borrowed 95% of the price even if the return was just 4%, that is an 80% return on my investment PER YEAR.

I don't own a house. I rent, but I cannot mathematically understand how inverting in housing is not the superior option ?

I cannot buy a house because I don't have a big enough deposit - and I'd need to either move to somewhere shitty where I would spend an hour on the train (and I have done that and it has a big impact on one's health so I am not keen to do that) or buy an apartment which would be full of defects.

I have heard CFD's exist, but I have also heard they're about the same as going to Crown. The companies will make sure you lose because not only do they give themselves an edge but they make up the price that you bet on ...

So can someone please help/explain things to me ? Please. Am I supposed to just sit on the sidelines and make a poor return while others get rich off housing ? Not saying that sarcastically I actually don't mind.

If I invest in ETF lets say, 2 grand a month in savings, some bad months, so say 20k a year what kind of financial future will that bring ? My guess is not much better than just saving a little more money each month. lol.

tech/a · 4 August 2019

And there you have it.
Realised exactly the same in 1996
The sooner you “Get it” the sooner you’ll get on
The road to wealth.

Back in the day we were ( wife and I ) buying on nothing down
Using equity only.
Hold quite a bit freehold now and just bought another distressed sale.

Look around they are there.

Tough to start but get on board you don’t need to start with a
$500 k + property some great bargains under $300K in Adelaide
And Hobart.
Position Position Position
Look for reasons for price increase eg infrastructure coming like a freeway
Needs some love! Demand. Keep using the increased equity and use the sale
Equity to eventually buy your PPR.

Very few succeed in the Markets
Very few fail in property.

The power of leverage and compound never more on show than in property
Good luck never a better time in your or my lifetime in my opinion!
Except in 1996 perhaps .

Headphonessoundgood · 4 August 2019

I know you have had a good run, but there is no reason to gloat about it. I just wanted some realistic advice on investing.

Cheers.

craft · 4 August 2019

Headphonessoundgood said:
Say I invest in an ETF or something similar and all goes well and I get an 8% return, so on 50 grand, that like 4 grand a year. Sounds pretty good ?

But with housing, if I get a 4% return, but I borrowed 95% of the price even if the return was just 4%, that is an 80% return on my investment PER YEAR.

I don't own a house. I rent, but I cannot mathematically understand how inverting in housing is not the superior option ?

I cannot buy a house because I don't have a big enough deposit - and I'd need to either move to somewhere shitty where I would spend an hour on the train (and I have done that and it has a big impact on one's health so I am not keen to do that) or buy an apartment which would be full of defects.

I have heard CFD's exist, but I have also heard they're about the same as going to Crown. The companies will make sure you lose because not only do they give themselves an edge but they make up the price that you bet on ...

So can someone please help/explain things to me ? Please. Am I supposed to just sit on the sidelines and make a poor return while others get rich off housing ? Not saying that sarcastically I actually don't mind.

If I invest in ETF lets say, 2 grand a month in savings, some bad months, so say 20k a year what kind of financial future will that bring ? My guess is not much better than just saving a little more money each month. lol.

Vangaurd Australian Managed Index fund has been around since 1997. Below is the result if you had set up a direct debit for 2K per month and forgotten about it.

The compounding (re-investment column) may seem like baby steps in the early years but eventually it becomes significant and over time, overwhelming allowing financial independence from passive income.

Take the first baby steps as soon as you can, even if it feels insignificant.

Higher risk approaches to speed the process can always be entertained further down the track from a position of strength once you have some capital and experience behind you.

So_Cynical · 4 August 2019

Headphonessoundgood said:
Say I invest in an ETF or something similar and all goes well and I get an 8% return, so on 50 grand, that like 4 grand a year. Sounds pretty good ?

But with housing, if I get a 4% return, but I borrowed 95% of the price even if the return was just 4%, that is an 80% return on my investment PER YEAR.

If you borrow 95% and get a 4% return on BHP shares isn't it the same?

tech/a · 4 August 2019

Headphonessoundgood said:
I know you have had a good run, but there is no reason to gloat about it. I just wanted some realistic advice on investing.

Cheers.

Fark me

Value Collector · 4 August 2019

Headphonessoundgood said:
Say I invest in an ETF or something similar and all goes well and I get an 8% return, so on 50 grand, that like 4 grand a year. Sounds pretty good ?

But with housing, if I get a 4% return, but I borrowed 95% of the price even if the return was just 4%, that is an 80% return on my investment PER YEAR.

I don't own a house. I rent, but I cannot mathematically understand how inverting in housing is not the superior option ?

I cannot buy a house because I don't have a big enough deposit - and I'd need to either move to somewhere shitty where I would spend an hour on the train (and I have done that and it has a big impact on one's health so I am not keen to do that) or buy an apartment which would be full of defects.

I have heard CFD's exist, but I have also heard they're about the same as going to Crown. The companies will make sure you lose because not only do they give themselves an edge but they make up the price that you bet on ...

So can someone please help/explain things to me ? Please. Am I supposed to just sit on the sidelines and make a poor return while others get rich off housing ? Not saying that sarcastically I actually don't mind.

If I invest in ETF lets say, 2 grand a month in savings, some bad months, so say 20k a year what kind of financial future will that bring ? My guess is not much better than just saving a little more money each month. lol.

What if you lose 4% on that property?

——-

The reality is leverage will always amplify your profits and your losses.

Leverage is not an argument for or against any underlying assets class, you can use leverage for any investment just about.

sptrawler · 4 August 2019

Headphonessoundgood said:
I know you have had a good run, but there is no reason to gloat about it. I just wanted some realistic advice on investing.

Cheers.

I don't think Tech was gloating, just trying to add some enthusiasm, to a rather dry subject.

brty · 4 August 2019

Headphonessoundgood said:
Say I invest in an ETF or something similar and all goes well and I get an 8% return, so on 50 grand, that like 4 grand a year. Sounds pretty good ?

But with housing, if I get a 4% return, but I borrowed 95% of the price even if the return was just 4%, that is an 80% return on my investment PER YEAR.

I don't own a house. I rent, but I cannot mathematically understand how inverting in housing is not the superior option ?

I cannot buy a house because I don't have a big enough deposit - and I'd need to either move to somewhere shitty where I would spend an hour on the train (and I have done that and it has a big impact on one's health so I am not keen to do that) or buy an apartment which would be full of defects.

I have heard CFD's exist, but I have also heard they're about the same as going to Crown. The companies will make sure you lose because not only do they give themselves an edge but they make up the price that you bet on ...

So can someone please help/explain things to me ? Please. Am I supposed to just sit on the sidelines and make a poor return while others get rich off housing ? Not saying that sarcastically I actually don't mind.

If I invest in ETF lets say, 2 grand a month in savings, some bad months, so say 20k a year what kind of financial future will that bring ? My guess is not much better than just saving a little more money each month. lol.

Headphonessoundgood said:
I don't own a house. I rent, but I cannot mathematically understand how inverting in housing is not the superior option ?

Let's go back 30 years and you took this attitude of leverage being good for your investment, and you bought yourself an apartment in Tokyo, how well do you think you would have done? The correct answer is that you would probably still have a poor investment that had cost you money, especially if you borrowed 95% of the 1989 cost.

For the last 20 years property has been an excellent investment, up until about 18 months ago (of course it does depend on where, talking Melb +Syd). The prior 20 years property was also an excellent investment, does it mean the next 20 years it will also be an excellent investment??? I'm sure some property in some areas will be great investments but perhaps not all property. Personally I wouldn't touch inner city apartments for investment.

You come onto the forum asking pretty much for advice from experienced investors, you get some reasonable replies then try to argue them. I think tech/A gave the appropriate comment.

Smurf1976 · 6 August 2019

Value Collector said:
The reality is leverage will always amplify your profits and your losses.

This is the most important point to understand about leverage.

It amplifies both profit and loss.

With a profitable investment it'll lead to more profit yes. With an unprofitable investment it will lead to a greater loss and, if the leverage is high enough, that could end up being a total loss or worse.

That's not to say don't do it but to understand it. You wouldn't teach someone to drive by simply telling them to go faster but rather, they need to focus on getting the steering, gears, use of brakes etc right before any thought of travelling quickly.

Headphonessoundgood · 6 August 2019

So_Cynical said:
If you borrow 95% and get a 4% return on BHP shares isn't it the same?

How do you actually do that ? Can I go and borrow 95% and invest in vanguard and pay the loan off week by week with a reputable lender and not get "margin call" like how you don't get "margin call" when you own a house ?

Value Collector said:
What if you lose 4% on that property?

Nothing, you keep it and get a 2-4% return on rents and wait for it to recover that 4% in price. Or you pay it off and keep the rent. As long as you pay the mortgage, nothing happens. There are people in WA 15%-25% under who just keep paying the mortgage losing only a little bit each week as the government picks up the rest of the tab through property investor welfare. Socialism at its absolute finest.I just don't see how any other form of investment compares.

Headphonessoundgood · 6 August 2019

craft said:
Vangaurd Australian Managed Index fund has been around since 1997. Below is the result if you had set up a direct debit for 2K per month and forgotten about it.

View attachment 96558

The compounding (re-investment column) may seem like baby steps in the early years but eventually it becomes significant and over time, overwhelming allowing financial independence from passive income.
View attachment 96560
View attachment 96561
View attachment 96562
Take the first baby steps as soon as you can, even if it feels insignificant.

Higher risk approaches to speed the process can always be entertained further down the track from a position of strength once you have some capital and experience behind you.

24k a year net in 1997 was a lot of money, so I think this analysis is flawed.

Had you 24k a year in 1997 to put away that was an awful lot of money. Had you had that money to invest in housing you'd be worth 10's of millions rather than just 1.5 million. Unless I am missing some time value of money elements to your sheet.

Again I really hate property investing, but the numbers are the numbers.

I think back then houses were selling for between 50-100k.

sptrawler · 6 August 2019

Headphonessoundgood said:
24k a year net in 1997 was a lot of money, so I think this analysis is flawed.

Had you 24k a year in 1997 to put away that was an awful lot of money. Had you had that money to invest in housing you'd be worth 10's of millions rather than just 1.5 million. Unless I am missing some time value of money elements to your sheet.

Again I really hate property investing, but the numbers are the numbers.

I think back then houses were selling for between 50-100k.

It sounds as though you have answered your own question, as tech/A said ATM it is a great time to invest in property, if you pick wisely.

Headphonessoundgood · 6 August 2019

sptrawler said:
It sounds as though you have answered your own question, as tech/A said ATM it is a great time to invest in property, if you pick wisely.

A real shame there isn't a more moral way to invest. Pushing up the prices of housing in Adelaide through Ponzi investments just screams like it deserves some bad karma.

satanoperca · 6 August 2019

Headphonessoundgood said:
A real shame there isn't a more moral way to invest. Pushing up the prices of housing in Adelaide through Ponzi investments just screams like it deserves some bad karma.

You need to keep your headphones on as you will not hear nor listen to anyone, anyway.

sptrawler · 6 August 2019

Headphonessoundgood said:
A real shame there isn't a more moral way to invest. Pushing up the prices of housing in Adelaide through Ponzi investments just screams like it deserves some bad karma.

If you have a moral problem buying investment property, then stick with stocks.
Secondly if you think renting investment property, is an easy way to riches, I think you will be in for a shock.
There is no easy way to make money, if there was everyone would be onto it, the housing boom you just witnessed in Sydney/Melbourne happens once or twice in a working lifetime.
There will be plenty of would be's if they could be's, going broke ATM, by over extending into that bubble market.
If this trade war between the U.S and China plays out badly, you may find that we have more problems than wondering what to invest in, keeping our jobs becomes paramount.

Smurf1976 · 7 August 2019

Headphonessoundgood said:
I think back then houses were selling for between 50-100k.

Not for a normal house in any capital city they weren't.

Even in Melbourne, Adelaide and Hobart which at that point were still pretty much stuffed from the early-1990's recession which saw prices go nowhere for years, the average house cost $110K or more depending on the city in question (Melbourne being more costly than the other two).

For Sydney which was growing strongly by that point, prices were into the 200's back then.

Anything under $100K was either a relatively cheap property or it was somewhere other than any of the state capital cities. Not that there's anything wrong with regional areas of course, just that they're not where most property investors would in practice have invested.

jbocker · 7 August 2019

Headphonessoundgood said:
A real shame there isn't a more moral way to invest. Pushing up the prices of housing in Adelaide through Ponzi investments just screams like it deserves some bad karma.

Seriously? I struggle to understand what you are trying to learn. Are you asking for a system with ETFs that will perform similar to housing (via some form of leverage)

Headphonessoundgood said:
So can someone please help/explain things to me ? Please. Am I supposed to just sit on the sidelines and make a poor return while others get rich off housing ? Not saying that sarcastically I actually don't mind.

I think you REALLY DO mind.
Ponzi? Is there something specific to Adelaide. There are Ponzis and scams in all forms of investment.
Immoral? Many families don't buy a house and choose to rent (for many reasons). If no one takes the risk to invest in the rental market what do those families do? Price movement is then a market force on supply and demand; some booms plenty of flat years and some busts.

Value Collector · 13 August 2019

Headphonessoundgood said:
Nothing, you keep it and get a 2-4% return on rents and wait for it to recover that 4% in price. Or you pay it off and keep the rent. As long as you pay the mortgage, nothing happens. There are people in WA 15%-25% under who just keep paying the mortgage losing only a little bit each week as the government picks up the rest of the tab through property investor welfare. Socialism at its absolute finest.I just don't see how any other form of investment compares.

You wouldn’t be making 2-4%, the rent would be eaten up by loan interest on that 95% loan, plus insurance, rates, management, maintenance etc.

So your capital value would be down, and you would have received a negative income, the non leveraged guy would have beaten you.

InsvestoBoy · 13 August 2019

Headphonessoundgood said:
How do you actually do that ? Can I go and borrow 95% and invest in vanguard and pay the loan off week by week with a reputable lender and not get "margin call" like how you don't get "margin call" when you own a house ?

If you buy $100 shares in an index fund or whatever you are buying the leverage of the companies that you're invested in. The companies are already levered up to varying degrees, especially in the index.

Interested in investing but don't understand how to beat housing leverage?

Headphonessoundgood

tech/a

No Ordinary Duck

Headphonessoundgood

craft

Attachments

So_Cynical

The Contrarian Averager

tech/a

No Ordinary Duck

Value Collector

Have courage, and be kind.

sptrawler

brty

Smurf1976

Headphonessoundgood

Headphonessoundgood

sptrawler

Headphonessoundgood

satanoperca

sptrawler

Smurf1976

jbocker

Value Collector

Have courage, and be kind.

InsvestoBoy

Similar threads

Interested in investing but don't understand how to beat housing leverage?

No Ordinary Duck

Attachments

The Contrarian Averager

No Ordinary Duck

Have courage, and be kind.

Have courage, and be kind.

Similar threads

Privacy & Transparency

Privacy & Transparency