Is buying a house similar to trading on margin? (2 Viewers)

[Eject!]

Does buying a house (to live in) with 20% down carry a level of risk similar to trading on margin where you borrow 80% of the money?

Is it something only the poor and middle class do?

Particularly interested to hear from high net worth persons who’ve held on to their money for decades.

 

[Value Collector]

Does buying a house (to live in) with 20% down carry a level of risk similar to trading on margin where you borrow 80% of the money?

Is it something only the poor and middle class do?

Particularly interested to hear from high net worth persons who’ve held on to their money for decades.

Yes some of the risks are the same, but some aren't.

For example your house doesn't get reassessed in value everyday, so you are not likely to get a margin call and have to sell your house provided you continue to make your monthly payments.

when it comes to using a margin a loan, you have the risk of becoming a forced seller and being forced to sell at a loss because the share market has a temporary down turn, even if you are completely right about an investments long term prospects, you can lock in losses just because of temporary fluctuations, this doesn't really happen with housing.

------------------------------------

Think of it like this, you can either rent a house or rent the money to buy a house. Paying of a mortgage can be a great way to get ahead and lower your cost of living, rents tend to increase with inflation over the years, where as except for interest rate fluctuations your home loan repayments stay they same and eventually disappear.

If you rent for 40 years, you will spend alot more money on rent than you would in interest and maintenance, and you don't end up owning the home.

 

[Dona Ferentes]

a home has two components; the building and the land. Important to differentiate the cost/ value trajectories.

 

[Value Collector]

a home has two components; the building and the land. Important to differentiate the cost/ value trajectories.

Yes, but it’s not that important to the decision of rent vs own, the building goes down in value over time obviously, but land value should rise and offset that, not to mention that the rent you pay will rise at least by inflation over time, and after 7 years of so be higher than your mortgage payments which include principle.

After all, rents will always be higher than property depreciation over time, other wise no one would invest in property.

 

[Smurf1976]

Yes, but it’s not that important to the decision of rent vs own,

Agreed but it does have relevance to the decision of what to buy.

Eg a multi-story apartment you're mostly buying part of a building, very little of your money's going into the land it's on. In due course this will depreciate.

Buy a 50+ year old suburban house and almost all your money's buying land, the house itself is worth very little if it's just a standard volume built one. To the extent anything can depreciate, that's already occurred.

 

[Smurf1976]

For the record, in my case I bought the house I'm in now in 2018.

Not the first place I've owned and I paid outright, no loans.

My offer was almost $30k below asking but accepted by the vendor without further negotiation.

That they found it an attractive offer was presumably because:

*Cash buyer able to settle as fast as the legals could be done.

*My offer did not depend on the sale of any other property going through first.

*My offer was subject to a building inspection from which I specifically excluded everything except structural and pests. That was likely of relevance to the vendor since they'd have known it was in overall run down condition and would have failed any plumbing or electrical inspection for sure.

*My price was land value only, free house in practice.

House was built in the 1960's and extremely run down when I bought it.

I haven't tried to hide its age and make it look like a modern house but I've repaired, replaced and otherwise done it up, mostly using my own labour.

 

[over9k]

No.



A bank would never let you take out a margin loan at 19:1 leverage (or higher) at 2% interest over 30 years.

 

[tech/a]

No.



A bank would never let you take out a margin loan at 19:1 leverage (or higher) at 2% interest over 30 years.

invest in property first
invest the capital appreciation or
part of it in trading
invest the long term profits in
longterm property AND strong
growth companies.

 

[Austwide]

IMO, as all above are saying buy property first.
Additional benefits are

No CGT if you live there as you stated
Stability in where you live (no rental provider evicting you for his reasons)
Ability to borrow against the equity at home loan rates
You can value add to the house by improvements
Possibly sub-divide in the future

 

[bsnews]

invest in property first
invest the capital appreciation or
part of it in trading
invest the long term profits in
longterm property AND strong
growth companies.

This sums it up.
The real reason for you to buy a property is it is a forced investment. The bank demands your payment.
Where as most other forms of get rich need disciple and most people fail hard on that score.

 

[tech/a]

This sums it up.
The real reason for you to buy a property is it is a forced investment. The bank demands your payment.
Where as most other forms of get rich need disciple and most people fail hard on that score.

To secure you’re financial security over a lifetime you really need
to use other peoples money
The adage “ Money makes Money “ is very true.

Low risk investment generally returns less in percentage terms and
over longer periods of time. Doing it with a Million is far better than $100k

To get that sort of money you need to start with lesser amounts
to prove to lenders you are a sound risk if they lend you theirs!
Think house deposit.
Once your good at it lenders will throw money at you.

Collateral And Serviceability the keys to the lock.

 

[dyna]

I'm a bit off topic with this,but here goes,anyway. Property investment is so easy and straightforward,it ought to be your first port-of-call,before even trying your hand at any other markets.As noted above,banks will throw money at you.Try getting the bank manager to pony up for the sharemarket!Decades ago,when interest rates were high and the top marginal tax rate was far more punitive,negative gearing worked a treat for me and my fellow tradies.(Although a few of them went broke, gearing into,way too many properties) Not sure if that strategy would work as well today,even with the better depreciation rates.If you've got the patience to ride out the inevitable property market slumps,and can accept a truly pitiful return on equity,and learn a few skills to add value along the way,it's hard to go wrong in real estate.As for that old adage,"Location,location,location",it's the land first,of course and not just for the views,either. Buy well,close to the big four:Hospitals,Education,Employment and all modes of transport.What big four to avoid? Bushfires,floods,cyclones and...(ahem) low socio-economic areas. Holding properties forever,is a bit silly,I'll admit,but you drive past them all the time and your mind thinks of them differently to your shareportfolio.There's no liquidity,no excitement...all a bit boring,to be honest.

 

[qldfrog]

I'm a bit off topic with this,but here goes,anyway. Property investment is so easy and straightforward,it ought to be your first port-of-call,before even trying your hand at any other markets.As noted above,banks will throw money at you.Try getting the bank manager to pony up for the sharemarket!Decades ago,when interest rates were high and the top marginal tax rate was far more punitive,negative gearing worked a treat for me and my fellow tradies.(Although a few of them went broke, gearing into,way too many properties) Not sure if that strategy would work as well today,even with the better depreciation rates.If you've got the patience to ride out the inevitable property market slumps,and can accept a truly pitiful return on equity,and learn a few skills to add value along the way,it's hard to go wrong in real estate.As for that old adage,"Location,location,location",it's the land first,of course and not just for the views,either. Buy well,close to the big four:Hospitals,Education,Employment and all modes of transport.What big four to avoid? Bushfires,floods,cyclones and...(ahem) low socio-economic areas. Holding properties forever,is a bit silly,I'll admit,but you drive past them all the time and your mind thinks of them differently to your shareportfolio.There's no liquidity,no excitement...all a bit boring,to be honest.

Definitely as a PPOR but IP will give you not only poor return but also endless headaches

 

[Smurf1976]

Buy well,close to the big four:Hospitals,Education,Employment and all modes of transport.

Amenity and lifestyle are another since they'll attract buyers willing and able to pay a premium price when it comes time to sell.

Anyone with $ is likely to want things around them that they like. Beach, parks, local restaurants or whatever but it goes beyond purely utilitarian things at that end of the market.

At the opposite end it's the house itself and in particular associated "bling" that's important. Trouble is, that stuff depreciates and usually rather quickly.

 

[Value Collector]

This sums it up.
The real reason for you to buy a property is it is a forced investment. The bank demands your payment.
Where as most other forms of get rich need disciple and most people fail hard on that score.

Yep, I think for the average Joe that is not going to be to committed to a saving and investment plan or will raid their nest egg along the way to buy cars or holidays, Paying off their own home and making some additional contributions to their super over the years is a good way to set them selves up for retirement.

The trap that my in-laws fell into over the years though was constantly redrawing equity from their home loan to fund the purchase of holidays, cars and consolidating credit card debt constantly into their home loan.

The result is now that they are in their 60's wanting to retire and still have a large house payment, so while property ownership is a great form of forced saving, it's possible banks will encourage a hyper consumer to negate those benefits by tapping into those forced savings.

 

[Value Collector]

I'm a bit off topic with this,but here goes,anyway. Property investment is so easy and straightforward,it ought to be your first port-of-call,before even trying your hand at any other markets.

I do think that the sharemarket can be a great way to invest funds while you save for a deposit if you know it is going to be a few years before you are able to buy, or if you are in a job that makes you move constantly early in your career.

 

[frugal.rock]

Never went with margin lending.
The fear of a margin call defeats the purpose of riding out a drawdown, not to mention as far as I know margin lending restricts you to blue chips?

There's plenty of warnings if the bank is going to foreclose in property, unlike margin lending which could be a bit sudden.

I recently refinanced a small existing home loan (June 2020) and added on another chunk purposefully to trade with.
(The bank was told a granny flat build which is the eventual aim with profit.... nearly there.)
2.6% interest which was ok at the time, and freedom to invest/ trade how I like.

That freedom isn't there with margin lending.
With the covid related hoops required to jump through for a refinance 9 months ago, margin lending could be a proper pain?
Despite money being cheap, banks/ brokers still don't want a pile of junk debt. Or do they...?

 

[tech/a]

You know I’ve never had a margin call.
I was taught HOW to trade margin.

95% don’t know HOW to trade margin they
use it to increase their risk and decrease
opportunity by taking on MORE risk.

Now that’s not smart.

 

[frugal.rock]

95% don’t know HOW to trade margin

I'm in that 95%... never went there out of fear.
Great idea for a new thread ? @tech/a

 

[tech/a]

I'm in that 95%... never went there out of fear.
Great idea for a new thread ? @tech/a

Doesn't need it’s own thread

let’s say you have $100k and another $100k on Margin

You are prepared to risk 2% $2000.
You want to buy FMG and at the time it’s $20
you Already own other trades taking up 75% of your capital.

Your stop is at $19.50 risking $2000 that means you can buy
4000 shares at $20 —— $80000

you don’t have the money but you can buy the full position
using your margin. $25000 of your money and $55000 on margin.

NO increase in risk! —— Increase in opportunity.

No you don’t buy more with the borrowed funds left over.