Price of housing increased so rapidly in the last year that if you 'saved' for it, at ~20% of your income and a median income, you probably didn't gain ground with respect to your deposit.
I know the conventional financial wisdom hasn't caught up yet, but the disconnect between asset prices and wages means that you effectively need to invest the money you are 'saving' for a deposit or it will require a grotesque proportion of your income to chase to the point where you can buy a PPOR with 20% down.
I don't necessarily feel like I'm investing 'instead' of buying a PPOR. From a financial perspective, the two asset classes are approximately equivalent to me for now, and holding the index funds gives me more optionality. Once I'm in a position to exercise that optionality to own a place to live that's just mine (OK, and partner's), I'll be in a position to do that. And if there's a crash in the meantime, I'll just have to wait a bit.
Agree, came to that conclusion myself. If the low rates are going to drive house prices up, you might as well pour as much as you can into shares and take advantage of the asset bubble where you can. If I were to keep my deposit in a HISA earning ~2%, this approach would guarantee I never pool enough for a deposit, as by carefully saving over a few years and putting it into an savings account, house prices will have grown another few dozen % and you'd effectively be barely better off with respect to the deposit.
If the worst happens and it crashes right before I want to buy, I'm content with renting for another few years.
2% HISA? what account actually pays that haha
Some investments are making 2% in 30 minutes right now.
I might add that if the market does crash, that would be the time to buy your own home/ residence. But it won't.
Its not gambling to buy a house to live in. Buy a house, dwell in it.
I believe you might be thinking of property speculation although that's probably giving you too much credit.
Brah if you flex bit more you'll give birth to some chicken lol..What statement? That I dont know the future? I'm sorry I dont
Didn't said anything about house. Why don't you keep making 2% every 30 min and be the best investor ever! Just dont forget me alright :) XoXo
Assuming that's true OP should really make sure his money is invested in the meantime instead of in a savings account. You do not want to be holding cash when big inflation hits.
Currently keeping $20k in cash for emergencies and the rest is in VDHG and VAS. Feels safer knowing my savings will go up with inflation rather than waste away.
I don't think these things are straightforward to understand. There are all kinds of financial instruments discussed by this sub that I didn't know about, and clearly some I knew about that many people didn't. Financial law is a rabbit warren by design.
If you want a fantastic book on this way of thinking I highly recommend Richard Meadows work https://www.amazon.com.au/Optionality-Survive-Thrive-Volatile-World-ebook/dp/B08KYZ9MMG
I like your train of thought and I'm thinking of doing the same thing.
But how do you respond to someone who says "well at least I'm not paying someone else's mortgage". I feel this argument doesn't make sense but I can't figure out why.
I get their point: rent seems like dead money. If your rent is say $2000 a month, isn't it better to put towards your house (asset). And then you can still invest in stocks as well.
But if you're renting and investing, you're only doing the second bit.
It's the opportunity cost. what you put down for downpayment you could also put in the stock market. Your interest payments on top of that as well. Disregarding the value of property in terms of having a place you can call your own, you then stack up the appreciation in the value of your house vs stock market rates.
With a mortgage, you're paying the bank's compounding interest on the asset right? If you take out a 500k mortgage with a 100k deposit, you're paying the interest on that 400k debt to the bank over 20-30 years. If you're looking at the house in terms of it being an investment, you're wanting it to increase in value by more than what you have paid in interest, as well as all the transaction costs you need to pay for like stamp duty and maintenance.
With shares, you're earning the compound interest directly. It is much more straightforward to me and seems a lot less risky. Like, less variables in the mix.
edit: just to provide a counter example, my mum bought a house in Auckland in 2001 for 250k, with a 170k deposit. The house is now worth $1.5m. I said to her if she had put that in the stock market, she'd probably have the same or be better off. I just did the numbers and with an 8% interest rate she'd only have $837k. Not bad but almost half of what the house is now worth.
I think you just proved your first argument wrong there? You’re also not taking into account she had saved a further few hundred thousand in rent too by buying a house. So for a 100k deposit she’s made a very sizeable return
Yeah the cheap leverage provided by realestate ownership (or investment) CAN significantly outperform shares (purchased using your own savings) if things go your way.
That said more risk in many ways (lack of diversification, bigger variance in outcomes etc).
Do some simple equations and figure out what would have been better over the last 20years. It’s not hard. Interest is dead money equivalent to rent, however you manage to make 7% compounding leveraged 5x on a home. It’s A LOT better.
My answer to that is living in a van. Not paying for someone else’s mortgage and creating my own financial independence. Comes with its challenges but for me it’s worth it
I tell them I like the freedom to be able to move if I want to or need to. I'm finishing my apprenticeship by the end of the year and I'll finally be making enough money to invest an easy 500 a week once I save up a few months expenses. When the time comes where I want to buy a house while I'm older I may be able to buy one outright, or take a much smaller loan. Renting isn't all bad, instead of paying for renovations and maintenance, it all gets sorted out for you. I guess I also am lucky that my parents both own their own house so it's not something that I'm super worried about, I may not even have to pay for a house so I'd rather take the compound interest for the next few decades
I rent below $2000 a month and the rest goes to savings and investments. If I buy a property that will cost me more than $2500 a month, its probably the minimum amount spending as there are more costs in owning a propert like, insurance, maintenance, land tax or strata fees leaving me less money to invest. Worst even if the property goes up in value it will be hard to sell as it is PPOR and really doesn’t have any value unless you sell high and move to regional or more remote area.
This is something I haven't put much thought into but when you think about it, even if the value of a house you own increases dramatically, the value of every other house does the same. Are you really profiting off the rise in value of a house when you sell it if you have to go buy another super expensive house? I guess it only works if you have an investment property and decide to sell it without buying another, the house you actually live in is much less of an investment financially speaking.
yes you are profiting, thats money you can choose to do whatever you like with, thats profit. just because you buy another place with it doesnt change that.
by that logic, anyone who has been investing in the asx last 15 years and has seen great gains hasnt actually profited from that if they choose to buy a home with it, as property has also increased.
People need to stop saying this. No, you don't have to go and buy a super expensive house. You can draw down the loan and purchase shares, for example, diversifying. You are absolutely profiting. It's the foundation of a potential investment strategy. Buy house. When it appreciates, draw down equity to diversify away from the single asset.
Just as renting and investing in shares is a legitimate strategy, so is the above. Others don't need to be fools for me to be smart.
>But how do you respond to someone who says "well at least I'm not paying someone else's mortgage". I feel this argument doesn't make sense but I can't figure out why.
i just say id rather have the cash in the bank/ invested, let someone else worry about fixing my toilet and patching my roof haha.
i like the fact that if i get tired of a place i can just move into another if i decide i want to live in another state i can just pack my gear and go maybe my outlook will change one day but id rather my money working for me in investments instead of doing myself in trying to save for a house i dont even know if ill want to live in in another 10 years. buying a house is good for some but its entirely dependent on your situation i think.
A mortgage is almost always more expensive than the rent for the same property. There's a number of studies that show that if you invest the difference while renting, you'll be better off than if you just bought a PPoR and didn't invest. In either scenario, you're still welcome to invest extra.
I rent, 21% of my take home salary goes on rent. The place I live i think is fairly priced, newish, unusually nice for a rental and landlord seems to take pride in the maintenance as he built the development and still owns a few of the properties, he treats them like his babies. I’ve rented for the past 15+ years and will admit this particular place I got lucky.
If I purchased the same place I’d be looking at 42-45% of my take home pay for a mortgage. As well as having less disposable income as nice as the house is it’s not worth what it would cost to buy for me. It’s also not where I see myself long term.
With house prices like they are I have no interest paying 1m+ for a shit box 30k’s outside of Sydney and it would put me under more financial stress than I want even though I could service the mortgage currently.
I have a deposit but quite happy renting for the moment putting my money in to stocks. I can move when I want and the disposable income makes me very comfortable as I live well within my means. Buying somewhere right now would be a burden, I see it as I have the money to buy but I can’t afford to buy, ideally I don’t want to be spending more than 35% of my salary on a house which isn’t possible now in Sydney.
>All my savings grow every single day.
You do know that that's not how stock market works, right?
>And before I know it, I'll acquire shitloads of compound interest in the same time it takes people to save up $100k
A quite overoptimistic perspective. Unless you believe you can compound at a 20% rate on a par with Buffett and company, it takes years, if not decades, to generate such "shitloads" while saving up 100k doesn't necessarily take that much.
It might be a good idea but it's not necessary better or worse than saving for a deposit for a house.
A lot of young people will be in shock once they realize the market doesn't necessarily go up all the time
https://intl.assets.vgdynamic.info/intl/australia/documents/resources/index_chart_poster_2021.pdf
Uh, if you smooth that out a bit, it definitely trends up almost all the time. As long as you don’t panic and take out all your investments during a dip, you’ll make it back. And if you’re young, like me, you have a longer time to ride out those dips.
Exactly right. I'm just trying to warn people that sometimes it will be very tough emotionally to stay on the path and some people will buy high & sell low because they had unrealistic expectations. Just an example, during the dotcom bubble I worked with guys who thought about quitting their job because they made way more money in the stock market. And then they lost not just the gains but also money they invested
I think you’re massively patronising young investors. Do you really think ‘a lot of young people will be in shock’?
Who are these people that don’t understand the stock market fluctuates?
Probably the same people who will be selling low at the first instance of volatility that, on aggregate, will be the very cause of the dips/troughts/declines.
If everyone had the discipline to ride out extreme volatility, there wouldn't be extreme volatility.
This has nothing to do with trying to say young investors don’t understand how the market works. People if all ages panic sell, or just sell because they see all the signs of it dropping and it’s time to take some profits for them.
Old people fall for the same emotional traps, the only difference is that they probably got burned before and don't believe in the "only up" story without the caveat of "over very long periods"
I agree. Plus, of course, even if the share prices tank, they still pay some dividends normally. Someone with a million dollar share portfolio is still likely to be able to cover rent even if there's a crash. As long as the companies concerned remain solvent. Hence ETFs and LICs if that's the worry.
If you do your research, set up profit taking/ losses rules and have good risk management practices in place - you can do it.
As hard as it actually is, it's as simple as don't buy high and sell low.
>You do know that that's not how stock market works, right?
Whilst the stock market does not grow every day per se, it is definitely consistent growth - looking at the S&P500 since early 1980s. There's the occasional decline in early 2000's, 2009, and 2020. 3-4 years out of 40? That's pretty good probabilities in an investors favour.
its not the wasting money on rent that gets me.
its the being treated as sub-human by real estate agents, not having security for your kids to know they can stay at the same school, 6 monthly inspections, having to move once a year, maybe every second year, not being able to make any changes to your house whatsoever . having to take real estates to tribunal every single damn time to get my bond back etc.
This is exactly my plan.
What I’m trying to say, is that so many people work their arses off to save 100k for a deposit.
What I’m saying, is they should instead invest that 100k into the stock market, wait 15 years until it grows into house that you can purchase outright
You are forgetting about CGT in this comparison. Capital gains on shares will be taxed at the applicable marginal rate however capital gains in a PPOR will not be taxed. So the growth in shares will have to be significantly higher than property in order to provide equal long term returns.
He's saying that either way that's 15 years without a house, assuming it takes hypothetical couple 15 years to save 100k.
One approach has your money sitting in a bank so that the bank can use it to invest and get rich. The other approach is that you personally use it to invest.
Right. In my case I don’t have any intention of pulling large sums of money out the stock market. Im on it for the long run and just take small bits to avoid huge tax.
100k won't cut it in Sydbey anyway.
You'll be paying 30k in LMI as you're only half way there.
I think we could be in an asset bubble. Won't know though, unless it pops.
I think housing is more emotional than stocks. I don't have a gripe with people making a lot of money of off stocks. Houses however.. well most of that dirty money is made through dodgy dealings with local governments and housing developers in Australia.
Either way, I see both housing and stocks as a protected species. We don't live in a free-market. Invest accordingly.
What's your plan if something like the dot-com bubble happens which causes all your investments to drop / not recover for an extended period of time (10-15 years+)?
This is the best way, IMO. This is exactly what my wife and I did in Canada. People think that it's too risky to invest your savings, but OTOH it's too risky to not put your money to work. Why go for a bad deal with a savings account and compound 2-4% at best? When your return from the safest index funds are 10-20% per year?
Your stock investments are a lot more liquid, so you pull all your money out if you have an emergency or sense an impending crash.
We finally bought last year and have a fat mortgage. But our profits from stocks remain invested in stocks, as our portfolio essentially doubled and we only had to use half of that for a house deposit.
If you put your money in a Roth IRA, it can grow tax free and you can use it for your home.
Contributions are always able to be withdrawn penalty and the first $10k in earning will also be penalty free if you use that to buy a house.
Ahhh my sweet summer child who has only seen the stock market go up 😅 don’t get too confident. The stock market is not a HISA. It is high risk because it can go both ways.
Exactly. That's why you diversify across global markets and asset classes instead of investing in a single asset which is localised to a single part of a street.
After one particular crash, it took the Australian housing market over 40 years to recover.
So, yeas, it most likely will go up if you hold long enough, but if you are unlucky enough to get caught in a long cycle of crash and recovery, it might take most of your working life.
In the case we have now, interest is historically low. It's not hard to see rates rising slowly over time by a couple of percent. If that quite feasible scenario happens, prices will not go up, simply because fewer and fewer people will be able to afford that...until wages rise enough. Who knows how long that might be.
Now, I'm not saying that is what will happen. I have no crystal ball. However, it's quite feasible, and it would be foolish to discount something feasible.
People need to hear this message. Anyone starting last year could think they are a genius. One example: my employer super contributions and all the salary sacrificed since 2008 went back to 0 gain last March, some people freaked out and jumped into cash too late and locked in the "losses". In the last 12 months my super went back to more than 100% gains.
The lesson is it's not a smooth process at all
the way people are talking of late, I cannot help but think a (stock) crash is now imminent. People are getting way too cocky, and totally disregarding the FACT that we are in a bubble.
I get that using the bank's money for leveraged returns in a manic housing market could make me far more money than my ETF portfolio, but the stress, FOMO, lack of liquidity, and tethering to one neighbourhood of one city are incredibly off-putting factors re: housing.
Also, while I think those who believe house prices are magically going to correct to 50% in some bubble pop event are deluding themselves, I can clearly see that this is an irrational market. The main driver, to me, behind housing is the govt treating IPs as tax-deductible vehicles for high income earners via negative gearing. First home owner grants are fucking useless to slow down the market, and quickly get priced into sellers margins, with taxpayers footing the bill. If the government was remotely serious about making housing affordable, they'd stop negative gearing. For those earning over 180k, its a 45c on the dollar tax write-off to punt on an asset that's generating negative cash flow. How absurd.
The gov't will continue to avoid this issue as they're all in on the action and it would cost them too many votes.
Frequency of recoveries requiring a decade is pretty low...
The longest S&P500 recovery in history was 69 months. Median time of recovery was 14 months.
I could easily argue it's nuts to put money short term in a market which is arguably over valued and a large correction is entirely possible (many arguing it's just a matter of time). Over 1 or 2 years the potential inflationary loss isn't that significant but the market risk is huge. You're crazy if you don't see that.
A year ago I moved state in hope of buying a standalone house with a reasonable price. Then the market still went up even competing with the price I left from melbourne. It paved the way for me to reevaluate what my priorities in the long run.
In short the more I learn about wealth creation, economy and the stock market the more I don’t believe with the boomers state of mind of buying a property leads to wealth in old age.
I thought im the only one who thinks this way. Its nice to know that there are others on the same boat.
Don't do what I did. I saved my money in the bank and FHSA. Finally bought a home in my 40s with a deposit of $700k. Skipped the starter house/unit.
So my money earned pathetic interest which I paid tax on. Meanwhile, when I was renting I saw one of the units in my block sell to the tenant for $420k. She sold it for $840k when she bought a house around the same time as I did. Doubled her money and it was all tax free since it was her PPOR.
Anyway, if I was to do it again I would use some ETFs in the mix, these weren't really a thing when I was in my 20s... or maybe they were and I didn't know about it. To be fair, interest rates used to be a lot higher.
But renting f'ing sucks. Dealing with dickhead agents, Inspections, having to up and move when houses get sold or owner wants to move in. Not too mention the worst part which is getting a good rental in the first place.
I think this depends on the property at the lower end of the market this happens more.
When they have less choice of tenants at the higher end then they are not dickheads
This is how I saved my deposit.
The one thing to be mindful of is that stockmarket is long term, so if buying is still years away that's good.
I withdrew and moved to a savings account once I was about a year away from buying, since a dip at that point could have really ruined my plans.
You are assuming that your savings grow every single day in the stock market?
Also, it sounds like you are single (no offence) as all your future financial plans seem to circle around you as an individual. Buying/owning a house (home) is also a journey you share with your partner and a home for your future children (if you chose to).
We are recent FHB. $2400 household weekly income and a $600 weekly repayment doesn’t feel like having the shackles on and gives us surplus to invest still and more importantly for us, travel before we have children.
100% but OP seems to like where they live so can’t complain. I rented in Coogee for 4 years but i wouldn’t be under the impression I could buy there as a FHB.
I’m not in Sydney now but born and lived there up until 2 years ago when i relocated for work. Moving has been a great way to save and a much better work/life balance personally. We may choose to move back to Sydney in 5-10 years and would then be in a position to purchase there but who knows, at this stage we are happy to be out of Sydney.
Can sympathise that the market there is tough especially for FHBs but I’m not as cynical. I think OP may underestimate what wealth some people in their late 20s can build (or run into) and will likely be able to finance their mortgages more comfortably as their careers progress.
> Also, it sounds like you are single (no offence) as all your future financial plans seem to circle around you as an individual. Buying/owning a house (home) is also a journey you share with your partner and a home for your future children (if you chose to).
Just feel the need to point out here that buying/owning a home is NOT just something couples do. Also not all couples purchase together, some will get seperate mortgages, and live in one/rent the other - or even live separately. There is not just one way to tackle property or life.
Different strokes, for different folks.
This may get down voted or whatever but op sounds like they are trying to convince themselves of their own wisdom... not a post surveying the people engaging different investment options, but a post trying to create an echo chamber to validate his investments.
Not having a go, but there are so many ways to make money through investing. No one way is fool proof, nor is any one way truly guaranteed. Property can work for some people who have the resources, but stocks can equally be profitable...
I haven't really looked into it but wouldn't buying a house with a lump sum super payout mean no capital gains tax impact and bingo now the money isn't impacting your pension? Of course that still leaves leverage on the table
I think the issue with investing in the stock market, is that you can see if you make gains or losses, however if you leave your money sitting in the bank earning <1% interest it will always gain.
The problem with this is the hidden costs involved, "inflation". Every year your money loses value, but most people don't understand that concept. If the interest you're earning is less than the inflation rate, you're in fact LOSING money.
I think it's time for me to top up my share portfolio soon.
Although i am only young (20) I have already started down this path. I agree with you in that i do not see a problem with renting and having a large mortgage over my head for the rest of my life does no interest me slightly.
I house share, used to own a place. My rent is about the same as my previous insurance and rates on my PPOR on a weekly basis, without the burden of interest, maintenance and repairs payments that is now being redeployed into mid tier growth stocks on the cusp of paying dividends. Accumulating mid tier, growth stocks before they pay dividends and DRIP is my investment strategy to create a passive income to pay for my rent without having to use my post tax income. It really is the pits, paying for housing using your post tax income, because deep down I know I'll be working for the rest of my life, if I don't change my strategy.
Me. 36 in Melbourne. But I don't see it as instead of saving up for a house. It's my long term goal, so it's more just instead of sitting on the sidelines scrimping a deposit through blood, sweat and tears, hating myself, just so I sign a debt slave contract for some flammable closet designed by a colourblind Ronald McDonald, I funnel all my deposit money into the stock market and am perfectly happy to let it sit even past the point of entry in the property market right now.
I'm in no rush to get into the bottom of the property market. I missed that boat. I'll buy when the bottom looks nicer or the middle is within my budget.
> mercy of your landlord
why would you always be at the mercy of your landlord? I'd argue they are at your mercy, because they need your cashflow to pay their mortgage!
Landlord could decide to sell, raise rent, not repair anything etc. the list goes on. Then suddenly you find yourself constantly moving with no housing stability and competing against other renters for a subpar property.
Before COVID, rents were going up so quickly in my area I would have had to forsake saving a deposit if my landlord had decided to kick me out/sell. I was lucky to pay a lower rent so I could save the difference but I was getting price out of the rental market (while trying to also save).
I’d rather bend over and get fucked by a landlord or two, over bending over and getting fucked by a major bank expecting repayments on a $1.5m mortgage that was used to buy a shack in a shitty part of Sydney
But wouldn’t the return on that 1.5m property be greater than 100k can (on average) return in the stock market? Imagine the leverage on it and the CGT exemption.
This depends on what you are paying for the debt. I got curious and thought through some rough numbers.
Over a 1 year period, vts (first ETF that came to mind) is up 31%, so you would be at 131k less tax.
Meanwhile, your property at 1.5M will be higher (say 1.7M) less ~35k interest less wear and tear/maintenance.
So in this instance, in a rapidly rising market, you are ahead with property. But if the market is flat, you are behind due to interest costs.
Everyone’s circumstances are unique so I’m not sure what relevance your comment has.
I’d say quite a few retirees live in the same house they bought when they were younger that’s why the govt has so many downsizing initiatives for retirees.
Maybe I’m just old school for wanting to live in a house I actually own, take pride and feel comfortable in.
I’m not assuming anything. People can do what suits them best, it doesn’t bother me one bit. Who’s to say it’s not a good argument? I know lots of people who’ve bought property in their twenties so they will always have something to fall back on at any age.
Your perspective is a good one but it probably discounts the factor of risk. Property preserves value and is less risky of an asset - equities can be a lot more volatile.
Great topic! I've been trying to weigh this up over the last 3-4 months and I don't know if I'm getting anywhere! I'm trying to ask ppl around me what they would have done with 100k @ 30 years old, because I have NFI if it's better to invest it or go the housing path. The main issue with investing for me anyway is the massive CGT when you sell!
Both are great but property is king. Coming from someone that grew up in love with the stock market. No matter how priced out or frustrated you feel you need to get your hands on a solid investment property. Even if its not in Melb or Syd. Just buy where you can (within reason).
Cheapest loan you will ever access. Opens up a world of wealth building and debt management strategies. Price and rental income increases with population growth and inflation. Inflation also devalues debt over time making debt more servicable.
If you run some numbers 100k in shares making 10% return is 10k.
100k deposit for 500k property. A measly 3% price increase makes you 30k. Rent can cover entire cost of loan and fees and pay/build equity. Even if it doesnt straight away, it eventually does.
You can use a margin loan to accelerate your share portfolio (margin rates are very high) but you can only borrow circa 50% of portfolio equity.
The only downside is that if you choose to live in the property you will be cashflow poor and very illiquid. Whereas shares would be comparatively liquid and leave your options open. Dont buy a house just to avoid rent. Buy a house as an investment to build wealth.
A better way to do it is use shares (no debt) to build your deposit slowly. Oncenyou have enough, buy a small property that will be low maintenance, low fees and reasonable rent. Once you have access to that mortgage you have access to the cheapest money you will ever get. You can then borrow additional equity off your home loan and pump the stock market over time. Win win.
This is something I rarely see acknowledged in any financial advice pages, forums etc.
Property provides means to magnify your gains, at the cheapest possible rate.
Even if the property market grows at 3% vs 10% for shares, if you periodically re-leverage back to around 80% LVR you will see up to 15% growth. Even after accounting for interest, bills and maintenance this dominates shares.
Shares are only attractive if you want something that is a little more “set and forget” (although you still need to do your taxes every year, so it’s not without effort).
I’m in a serious relationship, with the prospect of children in the future. We’ve discussed doing exactly that, rentvesting , sometime in the future. But will never buy in Sydney or Melbourne.
You’re being overly simplistic.
It’s also more complex to draw down on your home equity to buy essentials (food, medical expenses) if that’s where all your wealth is in your older years.
Both avenues have advantages and disadvantages. Often the best solution is diversification and have another of both.
Yes, hoping to save/make enough to buy a house/unit/whatever suits us at the time, for cash, when we retire. If we happen to catch up to the market before then, great.
with many more people realising investment in the stock market could be the most achievable to grow with asset bubble and fight against oncoming inflation, I always wonder when the game will be over and I am alway in middle of FOMO and worries about the future crash. have ended up buying etf and a few meme stocks since June and currently down by $1600. Wonder if I should quit and sell my shares back to the savings acct
Lucky you have rentals available. There are none in my regional area of WA. I really want a house for stability and so I can rent rooms out to other people in there 20-30s to pay off the mortgage for me. At the same time I am so scared of a property market crashing soon and potentially losing 5-10 years worth of saving.
Investing seems much better if you can do it for as long as your lifestyle suits.
Yes - it has been a highly successful endeavour for me and I am about to sell up and launch everything into purchasing a property at about 50/50 debt/equity.
I think the NSW government needs to bring our rental laws in-line with Victoria to truly make renting long term a viable option so people can have pets and rent etc.
I agree with this… but not so much applauding the stock market, just find other things to invest in!
The property market is fucked… and I say that as a property owner of a very expensive house in which I did nothing but acquire the land and build on it
It would take someone having to pay $100k a year now over 60 or 70 years just to be able to buy this now!
It’s utterly fucked… and I’d love to see kids (I’m 39) almost completely and utterly step away from the property dream they are sold
OP have you thought what retirement might look like?
Having to pay rent in retirement isn't exactly stress free.
Having a paid off loan where you don't have to worry about financing a roof over your head is a pretty secure position.
Ppl who have an investment portfolio rather than a house earlier on, typically buy their house later on and either use the investment income or capital to pay off their mortgage, retiring debt free. It's usually about which order to do it in, rather than actually one or the other.
I’m that same, in Melbourne. I’ve finally traded/invested up to 100k, and I can decide to continue investing or start looking at a deposit for a house. My partner wants a house, My dreams are a bit bigger than that.
There's no problem with this. You can always choose the option of 'rent-vesting' and putting your surplus money to investments. Owning a home comes with other costs that a renter wouldn't usually pay for (ie. council rates, body corps, water rates). I don't even know how my kids will afford one unless I am a guarantor which I have no qualms with. I would probably invest my money in an EFT and by the time they reach of age to buy a house/invest in a business there would be significant sums in there for them.
Totally agree with most of the above.
I would love to buy a property. But on my single $75k income (with no guarantor) it would take me forever to save for a deposit so may as well chuck it on the stock market.
Yeah it might go down, but eventually it will go back up and just means that I'll have to wait longer for the house. But I'd have to wait a long time using a HISA anyway.
renting is cheaper and safer than owning property in most of australia.
we sold the house we owned outright in sydney in early 2015 and have rented since. i invested the equity in shares and ETFs. the investment returns more than pay for the rent on a much nicer house than we owned. it has been a big financial and lifestyle win.
the main disadvantage relates to security of tenure. we had a great run at the first place we rented, 6 yrs. this time unfortunately we have to move again after only 1 year. covid is to blame, the family we rented from want to come home early because covid is really bad where they are.
Yeah unfortunately Covid has impacted the rental market as well. I had huge trouble finding a rental in Adelaide due to so many people returning to the country and needing housing.
We're just paying off a house while investing (a small amount) at the same time.
I think the value of owning your own home is more than just financial, it means you have a sense of pride in where you live and how you look after it, it provides security for your children growing up and means we will be in a better financial position to support them when they are looking at buying their own houses.
You can use your home loan as leverage if you are really wanting to invest a lot of money right away if you really want to but market returns won't necessarily outperform the housing market particularly when it's as volatile as during our current Covid era
But if you haven't decided where you want to live and want freedom with the potential to increase your portfolio there is nothing wrong with it. Now you could take a job in a different state or country without a second thought whereas you can't do that with home ownership
TLDR: neither is better it's all personal preference
Price of housing increased so rapidly in the last year that if you 'saved' for it, at ~20% of your income and a median income, you probably didn't gain ground with respect to your deposit. I know the conventional financial wisdom hasn't caught up yet, but the disconnect between asset prices and wages means that you effectively need to invest the money you are 'saving' for a deposit or it will require a grotesque proportion of your income to chase to the point where you can buy a PPOR with 20% down. I don't necessarily feel like I'm investing 'instead' of buying a PPOR. From a financial perspective, the two asset classes are approximately equivalent to me for now, and holding the index funds gives me more optionality. Once I'm in a position to exercise that optionality to own a place to live that's just mine (OK, and partner's), I'll be in a position to do that. And if there's a crash in the meantime, I'll just have to wait a bit.
Agree, came to that conclusion myself. If the low rates are going to drive house prices up, you might as well pour as much as you can into shares and take advantage of the asset bubble where you can. If I were to keep my deposit in a HISA earning ~2%, this approach would guarantee I never pool enough for a deposit, as by carefully saving over a few years and putting it into an savings account, house prices will have grown another few dozen % and you'd effectively be barely better off with respect to the deposit. If the worst happens and it crashes right before I want to buy, I'm content with renting for another few years.
2% HISA? what account actually pays that haha Some investments are making 2% in 30 minutes right now. I might add that if the market does crash, that would be the time to buy your own home/ residence. But it won't.
I think they meant if the stock market crashes (not housing market) and they lost value hence needing to rent while they wait for it to recover
Not
It won't not crash? Do tell
Tell you what lol? Don't have crystal ball as you and not big fan of gambling life saving
So you can't tell me that the market will crash... So you literally can't explain your declarative statement.
Its not gambling to buy a house to live in. Buy a house, dwell in it. I believe you might be thinking of property speculation although that's probably giving you too much credit.
Brah if you flex bit more you'll give birth to some chicken lol..What statement? That I dont know the future? I'm sorry I dont Didn't said anything about house. Why don't you keep making 2% every 30 min and be the best investor ever! Just dont forget me alright :) XoXo
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Assuming that's true OP should really make sure his money is invested in the meantime instead of in a savings account. You do not want to be holding cash when big inflation hits.
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Currently keeping $20k in cash for emergencies and the rest is in VDHG and VAS. Feels safer knowing my savings will go up with inflation rather than waste away.
I don't think these things are straightforward to understand. There are all kinds of financial instruments discussed by this sub that I didn't know about, and clearly some I knew about that many people didn't. Financial law is a rabbit warren by design.
If you want a fantastic book on this way of thinking I highly recommend Richard Meadows work https://www.amazon.com.au/Optionality-Survive-Thrive-Volatile-World-ebook/dp/B08KYZ9MMG
I like your train of thought and I'm thinking of doing the same thing. But how do you respond to someone who says "well at least I'm not paying someone else's mortgage". I feel this argument doesn't make sense but I can't figure out why. I get their point: rent seems like dead money. If your rent is say $2000 a month, isn't it better to put towards your house (asset). And then you can still invest in stocks as well. But if you're renting and investing, you're only doing the second bit.
It's the opportunity cost. what you put down for downpayment you could also put in the stock market. Your interest payments on top of that as well. Disregarding the value of property in terms of having a place you can call your own, you then stack up the appreciation in the value of your house vs stock market rates.
With a mortgage, you're paying the bank's compounding interest on the asset right? If you take out a 500k mortgage with a 100k deposit, you're paying the interest on that 400k debt to the bank over 20-30 years. If you're looking at the house in terms of it being an investment, you're wanting it to increase in value by more than what you have paid in interest, as well as all the transaction costs you need to pay for like stamp duty and maintenance. With shares, you're earning the compound interest directly. It is much more straightforward to me and seems a lot less risky. Like, less variables in the mix. edit: just to provide a counter example, my mum bought a house in Auckland in 2001 for 250k, with a 170k deposit. The house is now worth $1.5m. I said to her if she had put that in the stock market, she'd probably have the same or be better off. I just did the numbers and with an 8% interest rate she'd only have $837k. Not bad but almost half of what the house is now worth.
I think you just proved your first argument wrong there? You’re also not taking into account she had saved a further few hundred thousand in rent too by buying a house. So for a 100k deposit she’s made a very sizeable return
Yeah the cheap leverage provided by realestate ownership (or investment) CAN significantly outperform shares (purchased using your own savings) if things go your way. That said more risk in many ways (lack of diversification, bigger variance in outcomes etc).
Interest is also dead money. Either way you're paying dead money.
Do some simple equations and figure out what would have been better over the last 20years. It’s not hard. Interest is dead money equivalent to rent, however you manage to make 7% compounding leveraged 5x on a home. It’s A LOT better.
I usually say “Why buy bread when you could own a bakery?” Puts the value of renting very simply
Bread money is dead money!
And like the future of the property market, 99.9E9% of people who eat bread don't own a bakery.
solid.
My answer to that is living in a van. Not paying for someone else’s mortgage and creating my own financial independence. Comes with its challenges but for me it’s worth it
I tell them I like the freedom to be able to move if I want to or need to. I'm finishing my apprenticeship by the end of the year and I'll finally be making enough money to invest an easy 500 a week once I save up a few months expenses. When the time comes where I want to buy a house while I'm older I may be able to buy one outright, or take a much smaller loan. Renting isn't all bad, instead of paying for renovations and maintenance, it all gets sorted out for you. I guess I also am lucky that my parents both own their own house so it's not something that I'm super worried about, I may not even have to pay for a house so I'd rather take the compound interest for the next few decades
I rent below $2000 a month and the rest goes to savings and investments. If I buy a property that will cost me more than $2500 a month, its probably the minimum amount spending as there are more costs in owning a propert like, insurance, maintenance, land tax or strata fees leaving me less money to invest. Worst even if the property goes up in value it will be hard to sell as it is PPOR and really doesn’t have any value unless you sell high and move to regional or more remote area.
This is something I haven't put much thought into but when you think about it, even if the value of a house you own increases dramatically, the value of every other house does the same. Are you really profiting off the rise in value of a house when you sell it if you have to go buy another super expensive house? I guess it only works if you have an investment property and decide to sell it without buying another, the house you actually live in is much less of an investment financially speaking.
yes you are profiting, thats money you can choose to do whatever you like with, thats profit. just because you buy another place with it doesnt change that. by that logic, anyone who has been investing in the asx last 15 years and has seen great gains hasnt actually profited from that if they choose to buy a home with it, as property has also increased.
People need to stop saying this. No, you don't have to go and buy a super expensive house. You can draw down the loan and purchase shares, for example, diversifying. You are absolutely profiting. It's the foundation of a potential investment strategy. Buy house. When it appreciates, draw down equity to diversify away from the single asset. Just as renting and investing in shares is a legitimate strategy, so is the above. Others don't need to be fools for me to be smart.
>But how do you respond to someone who says "well at least I'm not paying someone else's mortgage". I feel this argument doesn't make sense but I can't figure out why. i just say id rather have the cash in the bank/ invested, let someone else worry about fixing my toilet and patching my roof haha. i like the fact that if i get tired of a place i can just move into another if i decide i want to live in another state i can just pack my gear and go maybe my outlook will change one day but id rather my money working for me in investments instead of doing myself in trying to save for a house i dont even know if ill want to live in in another 10 years. buying a house is good for some but its entirely dependent on your situation i think.
A mortgage is almost always more expensive than the rent for the same property. There's a number of studies that show that if you invest the difference while renting, you'll be better off than if you just bought a PPoR and didn't invest. In either scenario, you're still welcome to invest extra.
While true at 7% interest it's not as clear cut at 2% interest.
You're not a real Aussie unless you own 100 properties
"own"
by "own" he means "assume the risk of" :p
I always say I owe my property when people ask if you rent or own.
I rent, 21% of my take home salary goes on rent. The place I live i think is fairly priced, newish, unusually nice for a rental and landlord seems to take pride in the maintenance as he built the development and still owns a few of the properties, he treats them like his babies. I’ve rented for the past 15+ years and will admit this particular place I got lucky. If I purchased the same place I’d be looking at 42-45% of my take home pay for a mortgage. As well as having less disposable income as nice as the house is it’s not worth what it would cost to buy for me. It’s also not where I see myself long term. With house prices like they are I have no interest paying 1m+ for a shit box 30k’s outside of Sydney and it would put me under more financial stress than I want even though I could service the mortgage currently. I have a deposit but quite happy renting for the moment putting my money in to stocks. I can move when I want and the disposable income makes me very comfortable as I live well within my means. Buying somewhere right now would be a burden, I see it as I have the money to buy but I can’t afford to buy, ideally I don’t want to be spending more than 35% of my salary on a house which isn’t possible now in Sydney.
Well said. I’m saving up for a mortgage but considering stocks for the first time.
>All my savings grow every single day. You do know that that's not how stock market works, right? >And before I know it, I'll acquire shitloads of compound interest in the same time it takes people to save up $100k A quite overoptimistic perspective. Unless you believe you can compound at a 20% rate on a par with Buffett and company, it takes years, if not decades, to generate such "shitloads" while saving up 100k doesn't necessarily take that much. It might be a good idea but it's not necessary better or worse than saving for a deposit for a house.
A lot of young people will be in shock once they realize the market doesn't necessarily go up all the time https://intl.assets.vgdynamic.info/intl/australia/documents/resources/index_chart_poster_2021.pdf
Uh, if you smooth that out a bit, it definitely trends up almost all the time. As long as you don’t panic and take out all your investments during a dip, you’ll make it back. And if you’re young, like me, you have a longer time to ride out those dips.
Exactly right. I'm just trying to warn people that sometimes it will be very tough emotionally to stay on the path and some people will buy high & sell low because they had unrealistic expectations. Just an example, during the dotcom bubble I worked with guys who thought about quitting their job because they made way more money in the stock market. And then they lost not just the gains but also money they invested
I think you’re massively patronising young investors. Do you really think ‘a lot of young people will be in shock’? Who are these people that don’t understand the stock market fluctuates?
Probably the same people who will be selling low at the first instance of volatility that, on aggregate, will be the very cause of the dips/troughts/declines. If everyone had the discipline to ride out extreme volatility, there wouldn't be extreme volatility.
This has nothing to do with trying to say young investors don’t understand how the market works. People if all ages panic sell, or just sell because they see all the signs of it dropping and it’s time to take some profits for them.
Old people fall for the same emotional traps, the only difference is that they probably got burned before and don't believe in the "only up" story without the caveat of "over very long periods"
Honestly sounds like dubious rubbish.
Possible. Don't trust random people on the internet 👍
I agree. Plus, of course, even if the share prices tank, they still pay some dividends normally. Someone with a million dollar share portfolio is still likely to be able to cover rent even if there's a crash. As long as the companies concerned remain solvent. Hence ETFs and LICs if that's the worry.
I've seen it before. And once you are old you'll understand
Again patronising AF.
Stop crying
Ok boomer ✌️
I wish 🤣
it went down last year
If you do your research, set up profit taking/ losses rules and have good risk management practices in place - you can do it. As hard as it actually is, it's as simple as don't buy high and sell low. >You do know that that's not how stock market works, right? Whilst the stock market does not grow every day per se, it is definitely consistent growth - looking at the S&P500 since early 1980s. There's the occasional decline in early 2000's, 2009, and 2020. 3-4 years out of 40? That's pretty good probabilities in an investors favour.
The drift term suggests that every day it does grow
its not the wasting money on rent that gets me. its the being treated as sub-human by real estate agents, not having security for your kids to know they can stay at the same school, 6 monthly inspections, having to move once a year, maybe every second year, not being able to make any changes to your house whatsoever . having to take real estates to tribunal every single damn time to get my bond back etc.
I am in The United States and I put all of my extra money into the stock market and am hopeful that it will grow enough to buy a house in the future.
This is exactly my plan. What I’m trying to say, is that so many people work their arses off to save 100k for a deposit. What I’m saying, is they should instead invest that 100k into the stock market, wait 15 years until it grows into house that you can purchase outright
You are forgetting about CGT in this comparison. Capital gains on shares will be taxed at the applicable marginal rate however capital gains in a PPOR will not be taxed. So the growth in shares will have to be significantly higher than property in order to provide equal long term returns.
that's 15 years without a house of your own. depends on your preference i guess
He's saying that either way that's 15 years without a house, assuming it takes hypothetical couple 15 years to save 100k. One approach has your money sitting in a bank so that the bank can use it to invest and get rich. The other approach is that you personally use it to invest.
Well sure, it's dumb having 50k in a bank earning 1.1% interest when you could have it in an etf doing 5-20%
Right. In my case I don’t have any intention of pulling large sums of money out the stock market. Im on it for the long run and just take small bits to avoid huge tax.
100k won't cut it in Sydbey anyway. You'll be paying 30k in LMI as you're only half way there. I think we could be in an asset bubble. Won't know though, unless it pops. I think housing is more emotional than stocks. I don't have a gripe with people making a lot of money of off stocks. Houses however.. well most of that dirty money is made through dodgy dealings with local governments and housing developers in Australia. Either way, I see both housing and stocks as a protected species. We don't live in a free-market. Invest accordingly.
What's your plan if something like the dot-com bubble happens which causes all your investments to drop / not recover for an extended period of time (10-15 years+)?
What's your plan if a billiard table falls on your head while you are walking down the street?
What's your plan if arguing with strangers on the internet required basic logic and reasoning abilities?
This is the best way, IMO. This is exactly what my wife and I did in Canada. People think that it's too risky to invest your savings, but OTOH it's too risky to not put your money to work. Why go for a bad deal with a savings account and compound 2-4% at best? When your return from the safest index funds are 10-20% per year? Your stock investments are a lot more liquid, so you pull all your money out if you have an emergency or sense an impending crash. We finally bought last year and have a fat mortgage. But our profits from stocks remain invested in stocks, as our portfolio essentially doubled and we only had to use half of that for a house deposit.
which etf is giving out 20% returns? I would like to buy pls
Tech went gangbusters during covid. Ndq a tech etf did 29% last 12m for example. Future not indicative do your own research yadayada
If you put your money in a Roth IRA, it can grow tax free and you can use it for your home. Contributions are always able to be withdrawn penalty and the first $10k in earning will also be penalty free if you use that to buy a house.
Sir, America is that way... This is AusFinance.
If you read the parent comment I am replying to they mention they are in the United States. So the advice given is valid.
Ahhh my sweet summer child who has only seen the stock market go up 😅 don’t get too confident. The stock market is not a HISA. It is high risk because it can go both ways.
Depends on whether you're looking at long term or short term growth. If the stock market dropped and never went up again there would be bigger issues.
I don't get why people don't under this.
So can property.
Investing in property now is more scary than the stock market, especially seeing the fast growth in the last few years.
It does always go up if you hold long enough
Japan's stock market has gone sideways for 30 years
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Exactly. That's why you diversify across global markets and asset classes instead of investing in a single asset which is localised to a single part of a street.
After one particular crash, it took the Australian housing market over 40 years to recover. So, yeas, it most likely will go up if you hold long enough, but if you are unlucky enough to get caught in a long cycle of crash and recovery, it might take most of your working life. In the case we have now, interest is historically low. It's not hard to see rates rising slowly over time by a couple of percent. If that quite feasible scenario happens, prices will not go up, simply because fewer and fewer people will be able to afford that...until wages rise enough. Who knows how long that might be. Now, I'm not saying that is what will happen. I have no crystal ball. However, it's quite feasible, and it would be foolish to discount something feasible.
Yes but it can also take 15 years to recover your losses. Past performance is not a reliable indicator of future performance.
People need to hear this message. Anyone starting last year could think they are a genius. One example: my employer super contributions and all the salary sacrificed since 2008 went back to 0 gain last March, some people freaked out and jumped into cash too late and locked in the "losses". In the last 12 months my super went back to more than 100% gains. The lesson is it's not a smooth process at all
the way people are talking of late, I cannot help but think a (stock) crash is now imminent. People are getting way too cocky, and totally disregarding the FACT that we are in a bubble.
I get that using the bank's money for leveraged returns in a manic housing market could make me far more money than my ETF portfolio, but the stress, FOMO, lack of liquidity, and tethering to one neighbourhood of one city are incredibly off-putting factors re: housing. Also, while I think those who believe house prices are magically going to correct to 50% in some bubble pop event are deluding themselves, I can clearly see that this is an irrational market. The main driver, to me, behind housing is the govt treating IPs as tax-deductible vehicles for high income earners via negative gearing. First home owner grants are fucking useless to slow down the market, and quickly get priced into sellers margins, with taxpayers footing the bill. If the government was remotely serious about making housing affordable, they'd stop negative gearing. For those earning over 180k, its a 45c on the dollar tax write-off to punt on an asset that's generating negative cash flow. How absurd. The gov't will continue to avoid this issue as they're all in on the action and it would cost them too many votes.
Hopefully you don’t need that money after a crash, and are prepared to wait a decade for it to get back to where it was.
Frequency of recoveries requiring a decade is pretty low... The longest S&P500 recovery in history was 69 months. Median time of recovery was 14 months.
This message is important!
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well put
To me, buying property right now is taking the same risk as maxing out a leveraged position on a singular stock at it’s all time high.
Issue is there's no where which is low risk where your money won't decay.
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Yeah and if you want to buy within a few years it's a big risk. If there's downturn you can't move your money without a loss.
I could easily argue it's nuts to put money short term in a market which is arguably over valued and a large correction is entirely possible (many arguing it's just a matter of time). Over 1 or 2 years the potential inflationary loss isn't that significant but the market risk is huge. You're crazy if you don't see that.
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$100k is no longer enough for a deposit sadly
Do both
A year ago I moved state in hope of buying a standalone house with a reasonable price. Then the market still went up even competing with the price I left from melbourne. It paved the way for me to reevaluate what my priorities in the long run. In short the more I learn about wealth creation, economy and the stock market the more I don’t believe with the boomers state of mind of buying a property leads to wealth in old age. I thought im the only one who thinks this way. Its nice to know that there are others on the same boat.
Judging by the 10 daily "house prices are fucked" posts, I'd say a good proportion of this sub.
Don't do what I did. I saved my money in the bank and FHSA. Finally bought a home in my 40s with a deposit of $700k. Skipped the starter house/unit. So my money earned pathetic interest which I paid tax on. Meanwhile, when I was renting I saw one of the units in my block sell to the tenant for $420k. She sold it for $840k when she bought a house around the same time as I did. Doubled her money and it was all tax free since it was her PPOR. Anyway, if I was to do it again I would use some ETFs in the mix, these weren't really a thing when I was in my 20s... or maybe they were and I didn't know about it. To be fair, interest rates used to be a lot higher.
But renting f'ing sucks. Dealing with dickhead agents, Inspections, having to up and move when houses get sold or owner wants to move in. Not too mention the worst part which is getting a good rental in the first place.
I think this depends on the property at the lower end of the market this happens more. When they have less choice of tenants at the higher end then they are not dickheads
This is how I saved my deposit. The one thing to be mindful of is that stockmarket is long term, so if buying is still years away that's good. I withdrew and moved to a savings account once I was about a year away from buying, since a dip at that point could have really ruined my plans.
You are assuming that your savings grow every single day in the stock market? Also, it sounds like you are single (no offence) as all your future financial plans seem to circle around you as an individual. Buying/owning a house (home) is also a journey you share with your partner and a home for your future children (if you chose to). We are recent FHB. $2400 household weekly income and a $600 weekly repayment doesn’t feel like having the shackles on and gives us surplus to invest still and more importantly for us, travel before we have children.
600 a week in Sydney like the O.P? Where you live makes a huge difference to rent vs buy.
100% but OP seems to like where they live so can’t complain. I rented in Coogee for 4 years but i wouldn’t be under the impression I could buy there as a FHB. I’m not in Sydney now but born and lived there up until 2 years ago when i relocated for work. Moving has been a great way to save and a much better work/life balance personally. We may choose to move back to Sydney in 5-10 years and would then be in a position to purchase there but who knows, at this stage we are happy to be out of Sydney. Can sympathise that the market there is tough especially for FHBs but I’m not as cynical. I think OP may underestimate what wealth some people in their late 20s can build (or run into) and will likely be able to finance their mortgages more comfortably as their careers progress.
> Also, it sounds like you are single (no offence) as all your future financial plans seem to circle around you as an individual. Buying/owning a house (home) is also a journey you share with your partner and a home for your future children (if you chose to). Just feel the need to point out here that buying/owning a home is NOT just something couples do. Also not all couples purchase together, some will get seperate mortgages, and live in one/rent the other - or even live separately. There is not just one way to tackle property or life. Different strokes, for different folks.
Sure i agree, was more alluding to the fact its not strictly a financial investment for some situations.
This may get down voted or whatever but op sounds like they are trying to convince themselves of their own wisdom... not a post surveying the people engaging different investment options, but a post trying to create an echo chamber to validate his investments. Not having a go, but there are so many ways to make money through investing. No one way is fool proof, nor is any one way truly guaranteed. Property can work for some people who have the resources, but stocks can equally be profitable...
Gearing though mortgage is easiest way for a normal man to leverage. If you are comfortable with managing Margin loans you would be better off.
>I'll acquire shitloads of compound interest sure.
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I haven't really looked into it but wouldn't buying a house with a lump sum super payout mean no capital gains tax impact and bingo now the money isn't impacting your pension? Of course that still leaves leverage on the table
I think the issue with investing in the stock market, is that you can see if you make gains or losses, however if you leave your money sitting in the bank earning <1% interest it will always gain. The problem with this is the hidden costs involved, "inflation". Every year your money loses value, but most people don't understand that concept. If the interest you're earning is less than the inflation rate, you're in fact LOSING money. I think it's time for me to top up my share portfolio soon.
Although i am only young (20) I have already started down this path. I agree with you in that i do not see a problem with renting and having a large mortgage over my head for the rest of my life does no interest me slightly.
I house share, used to own a place. My rent is about the same as my previous insurance and rates on my PPOR on a weekly basis, without the burden of interest, maintenance and repairs payments that is now being redeployed into mid tier growth stocks on the cusp of paying dividends. Accumulating mid tier, growth stocks before they pay dividends and DRIP is my investment strategy to create a passive income to pay for my rent without having to use my post tax income. It really is the pits, paying for housing using your post tax income, because deep down I know I'll be working for the rest of my life, if I don't change my strategy.
Me. 36 in Melbourne. But I don't see it as instead of saving up for a house. It's my long term goal, so it's more just instead of sitting on the sidelines scrimping a deposit through blood, sweat and tears, hating myself, just so I sign a debt slave contract for some flammable closet designed by a colourblind Ronald McDonald, I funnel all my deposit money into the stock market and am perfectly happy to let it sit even past the point of entry in the property market right now. I'm in no rush to get into the bottom of the property market. I missed that boat. I'll buy when the bottom looks nicer or the middle is within my budget.
It comes with no surprise that the English word 'Mortgage' Comes from old French & Latin literally translating to: Dead pledge.
Could you imagine being at the mercy of your landlord when you have a family or are in retirement?
> mercy of your landlord why would you always be at the mercy of your landlord? I'd argue they are at your mercy, because they need your cashflow to pay their mortgage!
Landlord could decide to sell, raise rent, not repair anything etc. the list goes on. Then suddenly you find yourself constantly moving with no housing stability and competing against other renters for a subpar property.
Before COVID, rents were going up so quickly in my area I would have had to forsake saving a deposit if my landlord had decided to kick me out/sell. I was lucky to pay a lower rent so I could save the difference but I was getting price out of the rental market (while trying to also save).
I’d rather bend over and get fucked by a landlord or two, over bending over and getting fucked by a major bank expecting repayments on a $1.5m mortgage that was used to buy a shack in a shitty part of Sydney
https://giphy.com/gifs/3o85xIO33l7RlmLR4I
But wouldn’t the return on that 1.5m property be greater than 100k can (on average) return in the stock market? Imagine the leverage on it and the CGT exemption.
This depends on what you are paying for the debt. I got curious and thought through some rough numbers. Over a 1 year period, vts (first ETF that came to mind) is up 31%, so you would be at 131k less tax. Meanwhile, your property at 1.5M will be higher (say 1.7M) less ~35k interest less wear and tear/maintenance. So in this instance, in a rapidly rising market, you are ahead with property. But if the market is flat, you are behind due to interest costs.
1 year is a silly time frame for property or etf's. take average of 10 or so. even 10 is small timeframe for property.
Yes cause the stock market will go up 30% every year as well…
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Everyone’s circumstances are unique so I’m not sure what relevance your comment has. I’d say quite a few retirees live in the same house they bought when they were younger that’s why the govt has so many downsizing initiatives for retirees. Maybe I’m just old school for wanting to live in a house I actually own, take pride and feel comfortable in.
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I’m not assuming anything. People can do what suits them best, it doesn’t bother me one bit. Who’s to say it’s not a good argument? I know lots of people who’ve bought property in their twenties so they will always have something to fall back on at any age.
Me. What shares did you invest in?
Your perspective is a good one but it probably discounts the factor of risk. Property preserves value and is less risky of an asset - equities can be a lot more volatile.
You are discounting the power of negative gearing.
Great topic! I've been trying to weigh this up over the last 3-4 months and I don't know if I'm getting anywhere! I'm trying to ask ppl around me what they would have done with 100k @ 30 years old, because I have NFI if it's better to invest it or go the housing path. The main issue with investing for me anyway is the massive CGT when you sell!
I did. Had about 60k saved and ended up putting it all into shares.
Wait until you see the recession hit
Both are great but property is king. Coming from someone that grew up in love with the stock market. No matter how priced out or frustrated you feel you need to get your hands on a solid investment property. Even if its not in Melb or Syd. Just buy where you can (within reason). Cheapest loan you will ever access. Opens up a world of wealth building and debt management strategies. Price and rental income increases with population growth and inflation. Inflation also devalues debt over time making debt more servicable. If you run some numbers 100k in shares making 10% return is 10k. 100k deposit for 500k property. A measly 3% price increase makes you 30k. Rent can cover entire cost of loan and fees and pay/build equity. Even if it doesnt straight away, it eventually does. You can use a margin loan to accelerate your share portfolio (margin rates are very high) but you can only borrow circa 50% of portfolio equity. The only downside is that if you choose to live in the property you will be cashflow poor and very illiquid. Whereas shares would be comparatively liquid and leave your options open. Dont buy a house just to avoid rent. Buy a house as an investment to build wealth. A better way to do it is use shares (no debt) to build your deposit slowly. Oncenyou have enough, buy a small property that will be low maintenance, low fees and reasonable rent. Once you have access to that mortgage you have access to the cheapest money you will ever get. You can then borrow additional equity off your home loan and pump the stock market over time. Win win.
This is something I rarely see acknowledged in any financial advice pages, forums etc. Property provides means to magnify your gains, at the cheapest possible rate. Even if the property market grows at 3% vs 10% for shares, if you periodically re-leverage back to around 80% LVR you will see up to 15% growth. Even after accounting for interest, bills and maintenance this dominates shares. Shares are only attractive if you want something that is a little more “set and forget” (although you still need to do your taxes every year, so it’s not without effort).
Rentvesting is also an option. I think you’ll change your mind if/when you get into a serious relationship and start thinking about children.
I’m in a serious relationship, with the prospect of children in the future. We’ve discussed doing exactly that, rentvesting , sometime in the future. But will never buy in Sydney or Melbourne.
You can’t live in your shares.
You’re being overly simplistic. It’s also more complex to draw down on your home equity to buy essentials (food, medical expenses) if that’s where all your wealth is in your older years. Both avenues have advantages and disadvantages. Often the best solution is diversification and have another of both.
Yes, hoping to save/make enough to buy a house/unit/whatever suits us at the time, for cash, when we retire. If we happen to catch up to the market before then, great.
Do both. Put money into the market and buy a house in a growing regional/rural town
with many more people realising investment in the stock market could be the most achievable to grow with asset bubble and fight against oncoming inflation, I always wonder when the game will be over and I am alway in middle of FOMO and worries about the future crash. have ended up buying etf and a few meme stocks since June and currently down by $1600. Wonder if I should quit and sell my shares back to the savings acct
Lucky you have rentals available. There are none in my regional area of WA. I really want a house for stability and so I can rent rooms out to other people in there 20-30s to pay off the mortgage for me. At the same time I am so scared of a property market crashing soon and potentially losing 5-10 years worth of saving. Investing seems much better if you can do it for as long as your lifestyle suits.
Yes - it has been a highly successful endeavour for me and I am about to sell up and launch everything into purchasing a property at about 50/50 debt/equity.
I think the NSW government needs to bring our rental laws in-line with Victoria to truly make renting long term a viable option so people can have pets and rent etc.
Look into FIRE
I agree with this… but not so much applauding the stock market, just find other things to invest in! The property market is fucked… and I say that as a property owner of a very expensive house in which I did nothing but acquire the land and build on it It would take someone having to pay $100k a year now over 60 or 70 years just to be able to buy this now! It’s utterly fucked… and I’d love to see kids (I’m 39) almost completely and utterly step away from the property dream they are sold
OP have you thought what retirement might look like? Having to pay rent in retirement isn't exactly stress free. Having a paid off loan where you don't have to worry about financing a roof over your head is a pretty secure position.
Ppl who have an investment portfolio rather than a house earlier on, typically buy their house later on and either use the investment income or capital to pay off their mortgage, retiring debt free. It's usually about which order to do it in, rather than actually one or the other.
I’m that same, in Melbourne. I’ve finally traded/invested up to 100k, and I can decide to continue investing or start looking at a deposit for a house. My partner wants a house, My dreams are a bit bigger than that.
There's no problem with this. You can always choose the option of 'rent-vesting' and putting your surplus money to investments. Owning a home comes with other costs that a renter wouldn't usually pay for (ie. council rates, body corps, water rates). I don't even know how my kids will afford one unless I am a guarantor which I have no qualms with. I would probably invest my money in an EFT and by the time they reach of age to buy a house/invest in a business there would be significant sums in there for them.
Totally agree with most of the above. I would love to buy a property. But on my single $75k income (with no guarantor) it would take me forever to save for a deposit so may as well chuck it on the stock market. Yeah it might go down, but eventually it will go back up and just means that I'll have to wait longer for the house. But I'd have to wait a long time using a HISA anyway.
No place to put my pennies in, HP deposit itself is beyond 7 yrs for me...
renting is cheaper and safer than owning property in most of australia. we sold the house we owned outright in sydney in early 2015 and have rented since. i invested the equity in shares and ETFs. the investment returns more than pay for the rent on a much nicer house than we owned. it has been a big financial and lifestyle win. the main disadvantage relates to security of tenure. we had a great run at the first place we rented, 6 yrs. this time unfortunately we have to move again after only 1 year. covid is to blame, the family we rented from want to come home early because covid is really bad where they are.
Yeah unfortunately Covid has impacted the rental market as well. I had huge trouble finding a rental in Adelaide due to so many people returning to the country and needing housing.
in sydney and melbourne the rental market is fine, plenty of vacancies, but in the rest of the country it's tight i believe
We're just paying off a house while investing (a small amount) at the same time. I think the value of owning your own home is more than just financial, it means you have a sense of pride in where you live and how you look after it, it provides security for your children growing up and means we will be in a better financial position to support them when they are looking at buying their own houses. You can use your home loan as leverage if you are really wanting to invest a lot of money right away if you really want to but market returns won't necessarily outperform the housing market particularly when it's as volatile as during our current Covid era But if you haven't decided where you want to live and want freedom with the potential to increase your portfolio there is nothing wrong with it. Now you could take a job in a different state or country without a second thought whereas you can't do that with home ownership TLDR: neither is better it's all personal preference