Quote:
Originally Posted by the indigo
It all comes down to the cashdown/leverage.
We don't have 12-18% interest rates anymore...
Maybe it applys with a 10% cashdown, but otherwise it's not a valid argument. The only personal amount you need to consider is the cashdown. Everything else is backed up by the bank. It's not even your money.
Let's say you buy a $200k unit with 25% deposit. (I always put 30-35%)
Investment = $50k
Mortgage = $150k
Unit Value = $200k
Mortgage is 6% per year.
Inflation is 2% per year.
Appreciation is 8% per year.
First year, you pay 6% + 2% inflation interests on the $150k = $12k
First year, appreciation is 8% on the $200k = $16k
There you have a $4k profit before other expenses. That is $4k on the initial $50k (8%). You should be able to break even after paying taxes, insurance, etc.
That is great for the first year. No win, no loss.
In 10 years, the mortgage will be lower and the unit value will be higher. The same 6% - 8% rates will apply but in the profit zone.
Mortgage = $120k
Unit Value = $420k
11th Year, you pay 6% + 2% inflation interests on the $120k = $9.6k
11th Year, appreciation is 8% on the $420k = $33.6k
$24k profit before other expenses.
And the taxman won't charge you anything on profit when you sell.
|
You're not going to get 8% appreciation over the long term. As a rule housing prices can't rise faster than wages.
If the average wage earner can't afford the average home in the area, then there's a bubble and it will eventually pop.
Wages aren't rising at 8% a year, and that will never happen because if it did we'd have massive inflation and your appreciation would be worthless anyways.