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WHY BUY
HOUSES?
The answer is simple. It is the only product I have bought and made
money.
On EVERYTHING else you lose.
It is a product that you do not need to sell on a daily or weekly basis
and does not require time-and-effort each week to maintain.
Although there are some hassles and expenses, the overall result is a
gain of about 8% -10% each year.
And it is the only product that keeps up with inflation.
Buying a house is not a short-term investment. You may not see any gain
for the first 3 years – due to Stamp Duty (about 4.5%) land tax (payable
each year – about $500), and solicitors fees (about $2,000).
But there are some advantages to owing a NEGATIVELY GEARED PROPERTY.
Your personal income is combined with the income from the property and
your
Income Tax is paid on the total amount. It is worked out
this way.
If you buy a house for $550,000:
1. Your income + Income from tenant = $50,000 + $15,000 = $65,000.
2. Less 2.5% Depreciation of the building of the rental property = $250,000x0.025 =
$6,200
3. Less depreciation on carpet, blinds, appliances etc $3,000
4. Less rates, insurance, etc $3,000
5. Less Mortgage $25,000
You will be putting-in $300 per week to buy the house, but your Income
Tax assessment will be on $65,000 - $36,200 (all the above costs) =
$28,8000 rather than $50,000. A saving in TAX of $6,000 per year.
If you put 50% deposit on a house and the interest is 8%, you will be
getting an appreciation of 8% on the whole value of the house ($44,000).
You can write-off small amounts for car-travel, household costs associated
with running the rental business and lots of other costs. It is the only
way to minimize your TAX.
A house in our family sold for $82,000 25 year ago. It is now
worth $600,000. That is an annual compound interest of 8.2%.
You can see the enormous difference between $82,000 and $600,000 only
takes a rise of 8.2% per year to create this increase.
We know that everything is rising at 5% – 10% per year and house prices
are no exception. I have absolutely no idea of house prices in 20 years,
but it does not matter. It will be the only asset that has not
depreciated.
Even though a rental property has its frustrations, it is an asset you
know exists and can put your finger on.
Shares have their problems. You forget about shares and when you want to
sell, the price is low. The dividend on shares is only about 3% and the
full tax rate applies. Shares can drop to zero or remain low for 5
years. Take Telstra and Qantas. Millions of Australians have lost
billions of dollars on these companies alone.
And Superannuation Funds are a total fraud. They realise less than 5%
per year and when you want to get your funds out in 35 years, they will
be bankrupt.
The same with Life Insurance schemes. They certainly will not be paying
$1,000,000 to policy holders in 35 years. There is already so much fraud
with these funds that nothing will be left for the policy holders in 35
years.
This has already occurred with funeral policies for war veterans. Due to
the high incidence of deaths of these servicemen, the policies are
rising enormously each year to the point that they cannot be kept-up by
the policy-holder.
It is best to put all your money into paying off a house and create a
single account that you draw from when you need funds.
This type of account is called a re-draw account and you can use the house
as collateral.
This is the only opportunity I can recommend.
There is no other investment that is "safe as houses."
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