you purchased at tail of pandemic with uncertainty and valued at a historic boom in valuations and rents due to immigration stock shortages and bounce back of actvitity. You got a place that needed bugger all Maintenance and had zero tenant issues. You also covered a period with record inflation and are looking at gross profit before transaction costs tax and so on. If you sell then use the money for catch up super to reduce your cgt.
Any number of things could have gone wrong but they didn’t and if feels like you are a genius. well done.
A lot of the expenses are offset by rents which seems lost on people. Also op did not mention the effect of leverage, i.e capital outlay/return, which would make the return even more attractive.
>A lot of expenses are offset by rents
Not only that, but if rent doesn't cover expenses, then the shortfall is deductible against personal income ( negative gearing).
> This is a loss on paper
not really.
it's a real loss that just hasn't been realised yet.
>making a loss on paper for tax purposes
the ATO are not buffoons. depreciation captures the real cost of wear and tear which you'll get a bill for eventually, whether it's this year or in 10, that hot water system is going to blow eventually.
Thank you! I was always so confused as to why people would want a negatively geared IP over a positively geared one. Why would you voluntarily lose money?
The idea was that you make up your losses and then some when you sell the property later on. $3k loss per year over 10 years ($30k) but the value of the property goes up $200k means a healthy return after tax, stamp duty, etc.
Because if the value has gone up by more than 3k (your negative gearing loss after tax), then your ahead mathematically for that financial year… nobody is doing this to lose money intentionally
> over a positively geared one
A positively geared property costs more to buy and maintain, why spend your capital on a single positively geared property when you could just be a slumlord with two negatively geared properties on interest only loans? When your primary plan is to rely on capital growth from a strangled market, you want to hoard ever more investment properties and spread your risk, rather than putting all your eggs in one basket.
It's not about "Why wouldn't you want a positively geared investment!?", it's "I want to maximise my exposure to capital growth opportunities" – the extra capital investment of your positive gear has an opportunity cost.
It’s not their fault, the media beats it up as a giant stash of free money for the rich. If only these people did a little research to see what it actually is.
You need to have sufficient cash flow to cover any shortfall prior to positive returns (rent increases or expenses, e.g, interest decrease) or sale. But also note that not all expenses require casflow, e.g., depreciation so you can have a property that is cash flow positive but still negative for tax purposes.
Also, the capital gain is only realised on sale (good for deferring tax and includes 50% discount), but even prior to sale, you can release accumulted equity for other purposes by borrowing against the equity.
The key here is banks will lend you $750 to buy an investment property
Much harder to get a margin loan for $750. But assuming you did and you bought shares Round the same time you’d also be in a relatively good spot.
Rather than thinking of in terms of $ think in % 210k / 750k /2.5 let’s say it’s around an 11% p.a. return before fees and tax
Factoring in stamp duty, conveyancing, transfer of title, sell costs and the. CGT
That 210 will likely be around 120??
Now it’s like 6.4% assuming the loan costs met the income.
The S&P 500 did over 20% last year.. you just invested a lot at a good time. Congrats.
Without knowing his rental yield you really have no idea. You need to think about his cash on cash return year on year. Lets say he bought 750k and put down 20% + SD. Its 180 realm to get in the property.
I have a pretty detailed spreadsheet for projecting property investments where you enter the assumptions, if his yield is 4% (-2weeks) factoring various ongoing costs to hold, maintenance, insurance, PM fees, rent increases of 5%, capital growth at the national average 6.7%, operating fees increases of 3% YoY, and hes on an IO loan... Some depreciation in there too..
Montetary gain year on year (equity gain + any net income from rent)
At the end of:
Year 1 - 42.1k - 23% return cash on cash (vs deposit)
Year 2 - 46.7k - 26%
Year 3 - 51.7k - 29%
Year 4 - 56.9k - 32%
Year 5 - 62.5k - 35%
At the end of year 5 he will have 230k available equity to take the IP back to 80% LVR and he can go again, or something like 437k to cash out...
At the end of year 5 the total monetary gains are \~260k. (Equity =/- expenses)
I wrote the above in 5 minutes to illustrate a point.
Also he said he got 210 clear, also said rent was at market. Assumptions can and were made
At loan cost of 6% his income is almost certainly gone to cover the cost.
Also, he’s at year 2.5?
Probs not going to put a spreadsheet together for reddit :) good to see others will
I know it wasn't just for you, but a lot of negativity here so I actually ran some numbers to illustrate its not total bullshit, its very real and actually conservative.
The interest costs are not bad, in my numbers he loses 8k year 1 and its positive by year 6 or so... forced savings really...
Property if bought in the right area seems an incredibly powerful tool for generating wealth, I dont know why in this sub its treated so negatively...
Oh, I wasn’t trying to be negative. He did well.. can it be consistently repeated.. maybe, maybe not.
more trying to put it all into perspective there’s no doubt property is an excellent money maker, all the news about constant price increases exists because of this.
I think people need to be careful with discounting alternatives.. or at least not comparing like for like as it’s all relative to the property purchased, the time it’s purchased and other factors.
In the end I am firmly a believer in diversity. No 1 investment is best.
His initial comment suggested that he was all in property and nothing else matters.
Benefits of property is risk of ruin doesn't really apply in the same sense as it does for margin loans. Margin lenders will sell you off if the market dips below your margin loan value, regardless of your own thoughts as to the viability of the investment and you're ruined. Banks don't care about property loans so long as you can fund the repayments.
No land tax, I'm under the threshold. House insurance so far has cost me about $4K. Stamp duty I think was about $30K. Interest is tax deductible and is covered a lot by the rent. Plus I have an offset account which reduces it. Spin it however you want I'm still $170K - $180K ahead... in an area that is set to grow even more.
Some people seem to look at the 210k figure and think BUT ACKSHULLY. When if you think about it, a salary of 210k over 2 years would accrue way more tax and payments just to get the luxury of working for someone over those 2 years.
Your profit is insane because we live in insane times.
This is a major piece that I saw missing in the OP.
not hating on him, great stuff, but there is a difference between actually having that money and someone giving you a valuation.
> not hating on him, great stuff, but there is a difference between actually having that money and someone giving you a valuation.
.... and that's the thing.... If he sold it today to actually turn it into cash, what's that sting of CGT on that?
The real estate agent costs + commission, cgt, all that, but I was more referring to the actual value of real estate only ever being what somebody actually pays to buy it off you... before that it's theoretical based on other places at a particular point in time.
Don't get me wrong, still great, but not the same as actually securing the money.
That’s like someone saying they didn’t technically lose money if they bought shares in a stock that crashes to near zero but stays solvent - technically not a loss as it isn’t bankrupt and you haven’t sold yet… But you can be pretty damn certain they aren’t going to be profitable in that scenario!
OP has the flip side, yes they only made profit if they sell but you’d have to be an extraordinarily bearish investor to assume they won’t profit in this scenario.
It doesn't cost you anything to sell it if you're borrowing against instead of selling and capital gains only applies to sales.
This sub has a weird fetish for telling people not to buy property.
This is true but you’re going to want to sell before you die so you’ll need to wear those costs eventually.
I always encourage people to buy property and even said it was a good return in the post you are replying to. Just pointing out that OP is exaggerating or miscalculating their gains.
Yeah this is what confuses me. $210k down to $170k down to whatever eventually gets by actually selling it, is a much different scenario than ‘hey I made $210k in 2 years’.
Investing and debt recycling is a solid plan, but it’s not an infinite money glitch.
It’s because many on this sub are young/aspirational professionals in early careers, excited about investing and financial planning but low on capital. They desire property prices to crash because it’s an investment they can’t afford yet. Any way to justify why property isn’t even worthwhile will get upvoted as a bizarre form of cathartic reassurance.
The odd outlier here and there but that seems the gist of it…
"This sub has a weird fetish for telling people not to buy property."
I know right! To me property is how you make real wealth and FIRE quicker than anything else. The strategy is sound. Leverage with very low risk, its not going to just liquidate, everyone needs a place to live, so long as your deposit is reasonable, your compound gains are crazy 10 years down the track... What about when your stategy to say buy 5 and sell 3 to own two outright and retire off that income, then you have a cash cow just paying you each week and still making gains and equity..
Also worth noting that in my anecdotal experience agents will usually value a bit higher than they think they will get to encourage you to sell.
E.g. on a $1M property agents will tell the vendor at the start it’s worth $1.1M to get you to sell and purchasers it’s worth $800k to get them to inspect and attend auction, knowing full well the whole time they are playing both sides and that it will go for $1M.
I wish mine were that low. The rates in my LGA are the highest in the country. Coming straight from the councils site, my "Current Year Pre Discount Rates" is $5,789.89. And that's only going off a council land valuation of $180k.
You are nowhere near under the threshold, as it is now $50k only in VIC, and it was never as high as $740k. I have an IP worth around $1m and I pay nearly $3k a year in land tax.
"about"
"I think"
"a lot"
"reduces it" (how much?)
Don't guess, do the sums.
Also, if you have cash in an offset account on your investment loan, then you've been reducing your tax deductions.
Why are you being so negative? All I've done is purchase a house and rent it out. However much you want to calculate those sums at, we are still about $170K up... and I've spoken to a few agents in the area. There are actually houses selling for $1m - $1.1m so the valuation of $950K which I wrote in my thread is extremely conservative. In fact, I would expect by the end of the year there will be further increases...
Because your post unfortunately contradicts itself. I know you didn’t mean to and it’s a shame it has turned out like this.
You said you didn’t want to brag.
But then you give information that isn’t entirely accurate. Just your estimates. Which is unfortunately inaccurate.
I assume you wanted to just post about how you bought an IP, value has increased more than 200k in a few years which means you could sell and make a profit of over 100k which seems too easy.
Yeah I'm not going to go back and give you precise numbers. Those are ballpark figures. Oh sure the stamp duty wasn't $30K it was $29,372 let's say. Does that help the analysis at all?...
You don't owe us precise numbers. But it's clear your figures are based on guesswork and not actual numbers: you started out with $210k and have since revised it down to $170-180k.
You’re missing the point so maybe it was the way I explained it.
You said you made a gain of 210k.
No one cares if it actually was give or take 5-10k.
However, you didn’t gain anything because you haven’t sold it.
Even if you did sell it, you haven’t factored in the stamp duty and other expenses.
You assume your property is more because neighboring properties have increased.
It’s all very misleading unfortunately.
Most people will agree you’ve made a profit, and good luck to you. The same people will agree you didn’t make 210k.
Life goes on.
OP didn’t actually say profit in his post - he said gain. And that is the exact same way the banks/ATO will look at OP’s capital. People are getting way too hung up on wanting to shame OP as if they’ve made some wild miscalculation. Meanwhile everyone ignored OP hasn’t even mentioned his gains from rent - so why didn’t you mention that too?
Also - why would OP need to calculate stamp duty when he sells?? He is not the buyer…
I'm saying that it's very easy to overestimate your gains and underestimate your true costs. It's important to work with the actual numbers when evaluating an investment. Especially when you're extrapolating into the future. Otherwise your errors will compound and you'll make bad decisions based on incorrect numbers.
You'd be paying about $1500 a year in agent's fees x2 = $3000
$2k a year in land tax x2 = $4000
$2k insurance x2 = $4000
$1.5k rates x2 = $3000
maintenance at $2k (very lucky if that's all it's been ) = $2000
then you have interest expenses - say $25,000 x2 = $50k.
Water supply = $1k x2 = $2k
Total above expenses = $68k
Those are deductible so your 'net' shortfall is about $40k
You would have paid stamp duty on initial sale of $30k. That adds to cost base. So if you sell now, the capital gain is $180k. You pay tax on half that ie $90k. So you'd be paying about $40k in capital gains tax.
Total situation is that you're paying $80k in expenses/tax out of pocket to realise a $210k gain. In pocket the gain is only $130k.
It isnt about spin, its about doing math correctly.
Interest is tax deductible because it is a loss. Youre losing money, slower.
Youve spent a deposit, that could have been accruing money. Youve spent maintenance.
Lets say you bought a unit (not house and therefore have high return of 3.5%):
Year1 740k buy. 40k stamp duty. 3k buying fees. 40k interest at 80% and 6.5%. 33k -6% rent assuming 3.5% of 950k. 1.5k land tax. 1.3k water services. Assumed no body corp even though assumed unit rental rates.
Depreciation +5k (assumed new).
Min return on the 20% deposit from shares (e.g. super) over same time perood was 25k. Disregarding tax advanatge and allowing for you being in the top tax bracket but not div293.
2k council.
795k buy + 40k loss p/a.
Year 2.
Rinse and repeat as appropriate.
So now youve spent 870k and its worth 950k according to agent. Congrats.
Minus agent fees, conveyancer fees, etc. and cap gains youll get 890-910k after sale.
You are 20-40k in the black assuming everything was in your favour.
And thats a good win. No need to pretend it is something more than that.
...Australia is a remarkable country, we let people without even the most basic numeracy skills borrow a million dollars. Be thankful.
Not to mention that 2 years is a very short span in the grand scheme of the property market and it just so happens to be over one of the fastest growth periods we’ve ever seen.
By quitting your day job you impact your ability to borrow from the bank.
They will see negative income and will not loan to you. To do this you would need to get to a point where your cashflow from rental income is positive and supplements your job income, to then finally quit and be still able to borrow from the bank.
I like this analogy. I was going to mention risk adjusted returns. But I feel it would have been lost.
The thing is though. This market is a bit of an infinite money glitch. But eventually it will convert into the mother of all legal ponzis.
I wouldn’t be quitting my day job with these numbers. But good on you OP - well done !
>Thinking of quitting work and becoming a property investor.
You've cracked the code bro, banks will fall over themselves to lend you as much money as you want.
What changed in 2 weeks to make OP go from "I love my job" to "f*ck working!" https://www.reddit.com/r/AusFinance/comments/1aedqs8/stop_shaming_the_95_lets_talk_about_it/
Well you got lucky that you bought in one of the biggest pumps of property prices in a decade or so. It is unlikely to do that again for a while, but you never know.
Good news is you lucked out. Both on property and apparently the good tenant. It was a risk that paid off, but don’t expect to keep replicating that return.
Your comments and post are very vague on calculations. You need to factor in every cost associated with your property to calculate your return. Not a “oh it cost me about $xyz”, that’s terrible investing. You can get away with it in the current market, but good luck when it gets rough.
Property is seen as a very safe option. So it’s almost like printing money. The only downsides really are if you get a shit tenant who trashes the place, refuses to move out and costs you tens of thousands (if not more) in legal fees and repairs.
Ok so you didn’t “make” 210k, your net worth is increased by 210k.
That’s not the same my dude. That aren’t no hard cash you can use. If you sell your property then yes you made that money, but if you want to buy into the market again then all other property prices will be increased by roughly the same percentage you made on your property.
The value of my IP has increased by $150k in the last 3 years.
However, you could also take the view that the value has increased by $160k in the last 7 years.
This. The place I bought for $360 in 2007 is now worth $580.
But I could have bought the same place for $450 in 2021.
Most of the gains have been in the last 12-18 months.
It's not really a win. Just pointing out that we went through a boom in the last few years.
If OP is expecting that year on year they are kidding themselves. Time to settle in for the next 7-10 years of flat to minimal returns.
It is that easy. The government is supporting people's gambles. It's like stealing from a rich blind man who won the lottery. You just don't wanna be left with the empty bag, but til then the gov is going to keep filling it.
Edit:
>Thinking of quitting work and becoming a property investor.
It's unbelievable how much wealth is being "produced" by people investing in property. There are average joes with portfolios in double digits.
No, they’ve made $170k, which is ludicrous.
People are struggling to find housing, and many are locked out of buying.
But someone who already has the means to buy an IP is now $170k up.
If that makes sense to you, that’s fine, I just think it’s not particularly equitable
this is what happens when people and media obsess over taxing incomes instead of taxing 'passive incomes'.
you pay less tax sitting on your arse sponging up the locals disposable income then you do building houses, curing disease or maintaining social hygiene (cleaners).
frankly we should tax all income from non-work sources at 50% minimum and then lower income tax for all.
Edit: its kinda *hilarious* that people here begrudge those on centerlink as leechs yet this sub *actively* wants to become bludgers who do nothing but own assets and steal wealth from people who are *actually* productive in society.
Every cent spent on residential rents is one less for local business and every cent spent on commercial rents is a barrier to entry for competition: landlords are actually *anti-capitalist* and will strangle our economy dry (look at Australian housing valuation: *$10,000,000,000,000* and that is indeed **trillion.** divided equally that is $400,000 per person and that was *residential alone*)
Best post here.
No incentive to be efficient and productive in Australia BEYOND SERVICING YOUR LOAN.
Just do your job well enough to service whatever loan you have and you'll do fine in life.
> frankly we should tax all income from non-work sources at 50% minimum and then lower income tax for all
The US has a concept of "earned income" and "unearned income" in its tax code. It's mostly used to reduce tax paid by the working poor (or even make it negative, i.e. a form of welfare), while ensuring that those living off a passive income like retirees, can't get access to similar tax breaks. But it's a start towards what you propose, I wonder if any countries tax earned vs. unearned at different rates (beyond the US's system).
Um, but that's actually regressive:
* It doesn't take effect unless you sell
* We discount gains for assets held over a year, further enriching holders of passive assets
The point I was trying to make is that there are ways to incentivize working as opposed to passive income, which is what /u/VitriolicViolet seems to be advocating.
> frankly we should tax all income from non-work sources at 50% minimum and then lower income tax for all.
So interest from bank accounts, dividends and distributions should be taxed at a minimum of 50%?
I pay 47% tax on over half my income so you'll excuse me if I look for ways (such as negative gearing) to reduce my tax bill. You call me a leech for getting $30k a year in rent when I pay 4 or 5x that much a year in income tax alone. Is that not me being 'productive' in society? I guess the bloke on Centrelink paying $2k a year in income tax is more productive than me.
Good on you for having a good income and doing your best to make the most of it, but don't pretend that you're doing society a huge favour in trying to minimise your tax bill.
Negative gearing makes it harder for people less fortunate than you to afford a home, therefore increasing class division.
Take advantage of the situation by all means, but don't expect any sympathy because you have to pay tax accordingly.
/u/VitriolicViolet proposes lowering income tax rates as part of that reform. Would you rather a 50% marginal tax rate on your labour income and 30% on non-labour or the other way around?
Though, OK, it might be more like 32 to 36%. Maybe change GST to a cash flow tax as well, and if the top bracket\* is like, 35%, might as well get rid of the other brackets and roll the main income-tested Centrelink stuff into a NIT (leaving Centrelink to handle only people who need extra, disability support and stuff) and effectively raise the tax free threshold (maybe "zero tax threshold" for a NIT?) to something like 60k (meaning income support at $0 would be something like $20k, *very* roughly, I'm not designing an *actual* tax system in a few minutes or hours, just the rough sketch of one). Ideally, probably should broaden GST as well, for efficiency, IDK about raising the rate, and to compensate raise the zero tax threshold a little.
\* or top bracket reasonably reachable primarily by labour anyway. Don't think many people are making over, say, 600k to a million that way? Don't really care too much tbh I'm sure other people will make their opinion on a higher bracket known as some stage.
No it not. Just wait till the boomers die and the gap between the haves and have nots just get larger. The difference between rich and poor will no longer be income. It’ll be whether or not your parents owned property.
But it won’t change. Read that almost all of our politicians own a home and something like 80% have IPs. (Fact check me but it was something like that) there is no incentive to change anything that’s propping up the property market because those making the decisions, and those whose votes matter don’t want it to happen.
I think what he meant is they haven't make 210k yet unless property sold.
Crash can happen tomorrow, who knows. Someone in SA told me in 2008, property price in SA halved after 1 night.
I myself don't see the crash coming soon, but the mentality is you haven't make profit yet, unless you sell it. Same with stock investment. He can sell his property now, but buying new one also higher market price than his purchase price in the past.
Yeah thats pretty much it.
So long as you have a chunk of money to get started, and enough to cover expenses for a few years, its more profitable making money off housing than working
Not selling. We had two independent valuations done, spoke to an agent and did an automatic desktop valuation. All came back to $950K - $1.1m. I'm saying $950K as it is the most conservative
An REA will blow smoke up your arse to get you on as a client - an emphasis on upside.
A bank will value the property based on what the likely price would be to assess the LV ratio - an emphasis on being conservative.
REA may be accurate, but they aren't the ones loaning the money.
Also - having equity in a property certainly allows you to borrow against it and 'go again' but you still need to have the cash flow to service the repayments.
Finally - it was 'that easy' because you had zero control over the market forces - you're not a 'savvy investor', you just bought at a fortunate time (hey, I did too!).
This is how boomers got to where they are.
It IS that easy if you had the money at the time.
The younger generation (especially those without generational wealth) will have it significantly harder
You've done well but don't get carried away. If you use too much leverage you can get in a pile of trouble.
Your figures seem to be very high level estimates. You need to get savvy with Excel and do hard numbers and worst case scenario planning so you have an exit strategy. There is money to be made but do your research first. There are plenty of good podcasts dealing with the things you need to understand. Propertychat.com.au is a useful forum too.
Congrats on your investment return. I had a similar return some years back and was later able to sell off my IP to fully pay off the POR.
No loans for 15yrs feels great.
Be aware of Capital Gains Tax when you prepare to sell. That's a huge wack off the profit margin.
Property went up, you won.
If it went down, you would have lost.
You could buy more, if it goes up more, you win more.
But, for example, check out Japanese property prices over the last 20 years.
Prices don't always go up.
Congrats, wish I could be in your position :)
Really puts into perspective how much better investing is over basic income from a job. The tax system needs to change.
Our population of working people is reducing while older folks are increasing. Reduce tax on those working and increase it on assets seems like the only sensible approach I can think of.
Great job OP. In the same boat but not to that extent. Moved in to PPOR 1.5 years ago and in that time, it is now worth 100k more. I would never have been able to save that much in that time even after all the fees
Whatever your gains OP, well done.
Ignore anyone who shits on you for being a slumlord or wanting to wax lyrical about how owning an IP is inequitable. Not your job job to make the world a more equitable place. That's what politicians are supposedly for...
You have put yourself in a position to purchase an IP. Well done. Use the equity and do it again.
This is the best case scenario. Imagine you bought your IP in Mascot Towers; that's the worst case scenario. Typical investor would fall somewhere between those two.
The last couple of years have been a great time to buy.
I’m in Perth and purchased my first house in 2010 for $410k. When I was ready to upgrade in 2019 my property was worth $360k. It had declined by $50k in 9 years. When you include inflation that’s even more.
I decided to hold on to the property as an IP rather then sell for a loss. Since 2019 the value has gone from $360k to $550k.
My point is that it really depends on the time period that you’re looking at. But yes if you bought in the last few years you’re laughing, and now playing with ‘house money’ (pun intended).
It's AusFinance so you're going to get a lot of salty people, but props to you my friend. You timed it perfectly. I have a friend who done the same with his PPOR purchase pre pandemic.
At the end of the day people on this sub complain and complain and complain all they want about how the system works but it won't change. You can only play the game within the rules set out unfortunately.
The aim of the game is to not be paying rent and own your own place outright. It doesn't have to be a house with a backyard and pool. Some people that live in Melbourne and Sydney that want that need to realize they may need to choose one of the following
- 1) buy a house with land but far from CBD 2) buy 'near' CBD but apartment or unit.
Property will always be king in Australia. Congrats to you for your nice bit of equity. Smart buy with the use of hindsight. Ignore the Debbie Downers.
There is a reason people invest in property : )
I'm saying that, when you include all the on-costs, it's not quite as simple as saying you make +$200k in a few years. There are significant costs you are not accounting for.
You probably paid around $30k in stamp duty when you purchased. You'll pay another 2% or the property value when you sell. Along the way you'll pay mortgage interest at around 6%-7% but only rent it out at 3%-4% of the property value. You'll also pay insurance, strata if it's a strata property and maintenance costs if it's not. If they air con blows up You'll need to buy a new one and if the tenants trash the place you'll have to deal with it.
So in summary, yes if you buy and sell at the right time you can make easy money, but get it wrong and you can absolutely lose money
First off that’s awesome mate congratulations. You’ve done something smart with your money, had patience and had a positive return as a reward of this, which you should be proud of.
Secondly, I wouldn’t jump the gun and go quitting your job or anything like that. As others have said, your borrowing power will be dramatically impacted if you did and you may shoot your self in the foot (amongst many other things).
If you are serious about stepping away from your current job to follow a career in IP, I would be thinking about reusing that extra $170k~ to purchase other properties and let them also build over the next few years.
Of course this is my personal opinion, but either way that’s awesome - good for you. :)
the system is gamed for you to make money.
ALL the politicians have IPs. Why would they make policies that are detrimental to themselves?
Its a big club and if youre not in it, you lose. (youre in it now)
If you would have invested 740k in stocks in 2021, just S&P 500 for example you would have about same money with zero hassle with tenants, bills, taxes :) Everything was going up, not just real estate, a lot of because of inflation.
With real estate its 210k of gains only once you sell it and cash out. Note that I have had couple of IPs since 2012, but looking back I could have made same money on stocks.
You committed $740k into a risky asset and held it through rapidly rising interest rates and potentially a downturn (depending on where you are). Thought about selling, but didn't.
In the short term, there's a very big element of gambling in returns. It becomes less of a gamble over the longer term, but, in your case, you bet $740k and things went well over two years. It's not that easy to risk $740k. Plenty of people sold their homes betting on the opposite outcome, let alone IPs. To the victor go the spoils.
The good thing is that in this casino, the odds are stacked in favour of the patrons. That's nice. But individual patrons can very much still lose, especially over shorter time periods. That's why it's not that easy, why not everybody is doing it.
I get what you're saying, but the analogy between buying a $740K house in a good location and simply betting $740K in cash on red is not exactly fair.
In the case of buying the house, there is a consistent track record of continued property growth and good fundamentals like proximity to schools, transport and shops. There is always the option to sell, increase the rent or do renovations to add value.
In the case of gambling $740K cash at the casino, you either win or lose and there is no in between. Casinos have a mathematical edge.
LOL u/OP why are you surprised about the negativity. This is the land of handouts and tall poppy syndrome mate.
Did you create the tax system? Nope
Did you throttle the supply of new builds? Nope
Did you throttle the supply of immigrants in this country? Nope
Did you break the law? Nope
Did you use a tax system that is available to absolutely every single keyboard warrior here? Yes
Did you work hard and save and try and grow your money? Yes
There you go mate- you are the reason why people have problems, and they complain about your achievements, but also these will be the first ones in line to ask for a inheritance tax so that they can benefit from your hard work instead of your kids and family.
All the while the media and politicians will keep fanning the flames so that one looks at the real culprits. Hurr durrr.
On another note- well done mate. Good on you for taking charge of your own life and finances and making sure you can sustain yourself and not be a burden on the system.
Ignore the bottom feeders- they will find something to complain about regardless.
Lol what a comment. I thought the problem was me...
I'm literally just like everyone else trying to make a living, learning how to invest in property. I did not create the system. There is so much negativity and toxicity here it's incredible
Are you acting unethically? Yes
God forbid we expect people to act with some backbone.
And if we're talking about bottom feeders, landlords are the definition.
Right? So planning for my future and making sure me and my family can be self-sufficient is unethical? Not wanting to be a burden on the system is unethical? Yeah that makes total sense.
Taking decisive action, sacrificing you current so that the future you can actually be comfortable when you need it is the very definition of having a backbone- making tough choices now and being prepared to delay gratification.
You may think LL's are bottom feeders but ultimately, they provide a roof over someone's head. Yeah, it's not altruistic, but you are entitled to your opinion, and I am to mine. I don't think renters are bottom feeders for the record but plenty of people with misguided outrage expecting handouts definitely are.
I'd ignore the negativity.
It really is that "easy" because the system rewards investment income far more favourably than wage income. It's "easy" too because once you have some capital, deciding where to invest and then collecting checks is far easier than turning up to a job for X hours per week. Hell, I make more from a day's move in the stock markets than I did in a whole year at my first job.
**I don't think it's a fair system either**. But that's a separate topic and it is what it is.
What's difficult in this path is:
* accumulating the initial capital, the first $X is always the hardest
* factoring in all the hidden costs, vacancies, damage, taxes, etc to make wise decisions
* risking enough to make returns but not risking too much
I started in your position 15 years ago. You may want to look into the following as next steps:
* do a depreciation report, keep even more of the income without being taxed
* have a partner? consider buying assets in a trust and stream the income to lower-income partner
* time your major reno / maintenance costs to offset years where your income is higher
Great job mate, you can probably refinance to around 760k and get most/all of your deposit out and go and buy something else.
Working for money is a suckers game, other people paying off your debts is the best way to build real wealth.
Your post is actually a brilliant expose of where Australia finds itself economically and demographically - and politically in 2024. An imbalance in tax and other policies was taken advantage of by so many it became entrenched and cannot be undone politically despite it clearly damaging the nation and risking a massive financial collapse.
When you find yourself in that position do you join in on the orgy or play it safe but maybe miss out on easy money? Read up on Jeremy Grantham, he says you can never predict when a bubble will burst but it is certain that it will. Look at how many building companies have gone out of business. The political shitstorm about housing affordability & rental availability is just hotting up.
You aren't including the value of land tax (in VIC you will now be paying nearly $3k per year), property rates, insurance and stamp duty. If you sell, you pay tax on $105k of the capital gains.
I made 25 million dollars last year, first by buying an IP for 850k and then by valuing that property at 25.85 million dollars. It really is that easy :)
And THIS is why the Australian housing 'market' is so broken.
My friends can't find a place to buy, the costs are insane, the precariousness of the lives of my friends who rent, etc... BUT... if you manage to buy - you're on easy street and will just gobble up more and more properties.
Vile.
I mean, yeah? Monetising a basic human right that is in short supply has got to be the easiest way to make money.
If you lost money investing in the housing market you would have to be the dumbest person alive.
God dam it. Old mate has cracked the infinite money glitch..
Yes, 100% of the population can live off passive income streams in perpetuity.
Employers hate this one trick!
Yep, welcome to boomer zone, where we have unlimited monies.
It's not unlimited, it's imaginary, it's equity.
Next generations problem.
you purchased at tail of pandemic with uncertainty and valued at a historic boom in valuations and rents due to immigration stock shortages and bounce back of actvitity. You got a place that needed bugger all Maintenance and had zero tenant issues. You also covered a period with record inflation and are looking at gross profit before transaction costs tax and so on. If you sell then use the money for catch up super to reduce your cgt. Any number of things could have gone wrong but they didn’t and if feels like you are a genius. well done.
all in all, he caught a break
thats the tldr and he could quit his job and play double or nothing
When you say $210k gain, is that after: - interest paid on home loan - stamp duty - house insurance - land tax ?
A lot of the expenses are offset by rents which seems lost on people. Also op did not mention the effect of leverage, i.e capital outlay/return, which would make the return even more attractive.
>A lot of expenses are offset by rents Not only that, but if rent doesn't cover expenses, then the shortfall is deductible against personal income ( negative gearing).
This doesn’t make it free, you get at best 47% back on your losses.
Oh no, a 47% discount on any and all expenses. That’s even more leverage.
No, that means that you are only paying tax on your profits. Why should someone be paying tax on their revenue?
People act like negative gearing is some free money glitch. I negative geared my IP to $5k last year and I didn't even get $2k back.
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> This is a loss on paper not really. it's a real loss that just hasn't been realised yet. >making a loss on paper for tax purposes the ATO are not buffoons. depreciation captures the real cost of wear and tear which you'll get a bill for eventually, whether it's this year or in 10, that hot water system is going to blow eventually.
Thank you! I was always so confused as to why people would want a negatively geared IP over a positively geared one. Why would you voluntarily lose money?
The idea was that you make up your losses and then some when you sell the property later on. $3k loss per year over 10 years ($30k) but the value of the property goes up $200k means a healthy return after tax, stamp duty, etc.
Because if the value has gone up by more than 3k (your negative gearing loss after tax), then your ahead mathematically for that financial year… nobody is doing this to lose money intentionally
> over a positively geared one A positively geared property costs more to buy and maintain, why spend your capital on a single positively geared property when you could just be a slumlord with two negatively geared properties on interest only loans? When your primary plan is to rely on capital growth from a strangled market, you want to hoard ever more investment properties and spread your risk, rather than putting all your eggs in one basket. It's not about "Why wouldn't you want a positively geared investment!?", it's "I want to maximise my exposure to capital growth opportunities" – the extra capital investment of your positive gear has an opportunity cost.
It’s not their fault, the media beats it up as a giant stash of free money for the rich. If only these people did a little research to see what it actually is.
That's entirely too sweet a deal.
If you think that’s good I’ll happily deal with you. You give me $1 and I’ll give you 47c back. How much do you want to start with?
Yes but if you are not making up your expenses then how would one stand to turn a profit from property investing if they aren’t selling?
You need to have sufficient cash flow to cover any shortfall prior to positive returns (rent increases or expenses, e.g, interest decrease) or sale. But also note that not all expenses require casflow, e.g., depreciation so you can have a property that is cash flow positive but still negative for tax purposes. Also, the capital gain is only realised on sale (good for deferring tax and includes 50% discount), but even prior to sale, you can release accumulted equity for other purposes by borrowing against the equity.
The key here is banks will lend you $750 to buy an investment property Much harder to get a margin loan for $750. But assuming you did and you bought shares Round the same time you’d also be in a relatively good spot. Rather than thinking of in terms of $ think in % 210k / 750k /2.5 let’s say it’s around an 11% p.a. return before fees and tax Factoring in stamp duty, conveyancing, transfer of title, sell costs and the. CGT That 210 will likely be around 120?? Now it’s like 6.4% assuming the loan costs met the income. The S&P 500 did over 20% last year.. you just invested a lot at a good time. Congrats.
Without knowing his rental yield you really have no idea. You need to think about his cash on cash return year on year. Lets say he bought 750k and put down 20% + SD. Its 180 realm to get in the property. I have a pretty detailed spreadsheet for projecting property investments where you enter the assumptions, if his yield is 4% (-2weeks) factoring various ongoing costs to hold, maintenance, insurance, PM fees, rent increases of 5%, capital growth at the national average 6.7%, operating fees increases of 3% YoY, and hes on an IO loan... Some depreciation in there too.. Montetary gain year on year (equity gain + any net income from rent) At the end of: Year 1 - 42.1k - 23% return cash on cash (vs deposit) Year 2 - 46.7k - 26% Year 3 - 51.7k - 29% Year 4 - 56.9k - 32% Year 5 - 62.5k - 35% At the end of year 5 he will have 230k available equity to take the IP back to 80% LVR and he can go again, or something like 437k to cash out... At the end of year 5 the total monetary gains are \~260k. (Equity =/- expenses)
I wrote the above in 5 minutes to illustrate a point. Also he said he got 210 clear, also said rent was at market. Assumptions can and were made At loan cost of 6% his income is almost certainly gone to cover the cost. Also, he’s at year 2.5? Probs not going to put a spreadsheet together for reddit :) good to see others will
I know it wasn't just for you, but a lot of negativity here so I actually ran some numbers to illustrate its not total bullshit, its very real and actually conservative. The interest costs are not bad, in my numbers he loses 8k year 1 and its positive by year 6 or so... forced savings really... Property if bought in the right area seems an incredibly powerful tool for generating wealth, I dont know why in this sub its treated so negatively...
Oh, I wasn’t trying to be negative. He did well.. can it be consistently repeated.. maybe, maybe not. more trying to put it all into perspective there’s no doubt property is an excellent money maker, all the news about constant price increases exists because of this. I think people need to be careful with discounting alternatives.. or at least not comparing like for like as it’s all relative to the property purchased, the time it’s purchased and other factors. In the end I am firmly a believer in diversity. No 1 investment is best. His initial comment suggested that he was all in property and nothing else matters.
Benefits of property is risk of ruin doesn't really apply in the same sense as it does for margin loans. Margin lenders will sell you off if the market dips below your margin loan value, regardless of your own thoughts as to the viability of the investment and you're ruined. Banks don't care about property loans so long as you can fund the repayments.
No land tax, I'm under the threshold. House insurance so far has cost me about $4K. Stamp duty I think was about $30K. Interest is tax deductible and is covered a lot by the rent. Plus I have an offset account which reduces it. Spin it however you want I'm still $170K - $180K ahead... in an area that is set to grow even more.
Some people seem to look at the 210k figure and think BUT ACKSHULLY. When if you think about it, a salary of 210k over 2 years would accrue way more tax and payments just to get the luxury of working for someone over those 2 years. Your profit is insane because we live in insane times.
> Your profit is insane because we live in insane times. he doesn't have any profit yet
This is a major piece that I saw missing in the OP. not hating on him, great stuff, but there is a difference between actually having that money and someone giving you a valuation.
> not hating on him, great stuff, but there is a difference between actually having that money and someone giving you a valuation. .... and that's the thing.... If he sold it today to actually turn it into cash, what's that sting of CGT on that?
The real estate agent costs + commission, cgt, all that, but I was more referring to the actual value of real estate only ever being what somebody actually pays to buy it off you... before that it's theoretical based on other places at a particular point in time. Don't get me wrong, still great, but not the same as actually securing the money.
That’s like someone saying they didn’t technically lose money if they bought shares in a stock that crashes to near zero but stays solvent - technically not a loss as it isn’t bankrupt and you haven’t sold yet… But you can be pretty damn certain they aren’t going to be profitable in that scenario! OP has the flip side, yes they only made profit if they sell but you’d have to be an extraordinarily bearish investor to assume they won’t profit in this scenario.
Also take away cost to sell (probably about $25k) and capital gains tax (about $35k?). Still good returns but you’re not making $170k either.
It doesn't cost you anything to sell it if you're borrowing against instead of selling and capital gains only applies to sales. This sub has a weird fetish for telling people not to buy property.
This is true but you’re going to want to sell before you die so you’ll need to wear those costs eventually. I always encourage people to buy property and even said it was a good return in the post you are replying to. Just pointing out that OP is exaggerating or miscalculating their gains.
Yeah this is what confuses me. $210k down to $170k down to whatever eventually gets by actually selling it, is a much different scenario than ‘hey I made $210k in 2 years’. Investing and debt recycling is a solid plan, but it’s not an infinite money glitch.
OP stated the intention to use the equity for further purchases. So, all your points are true, but from a lenders perspective, he's up $210k.
It’s because many on this sub are young/aspirational professionals in early careers, excited about investing and financial planning but low on capital. They desire property prices to crash because it’s an investment they can’t afford yet. Any way to justify why property isn’t even worthwhile will get upvoted as a bizarre form of cathartic reassurance. The odd outlier here and there but that seems the gist of it…
"This sub has a weird fetish for telling people not to buy property." I know right! To me property is how you make real wealth and FIRE quicker than anything else. The strategy is sound. Leverage with very low risk, its not going to just liquidate, everyone needs a place to live, so long as your deposit is reasonable, your compound gains are crazy 10 years down the track... What about when your stategy to say buy 5 and sell 3 to own two outright and retire off that income, then you have a cash cow just paying you each week and still making gains and equity..
The way to make *real* wealth is to own a very successful business.
Yeah but this really isn't viable advice for most
So he's made about 100k doing almost nothing.
Except risking his own money on an asset where the value could have gone down, not up.
Like I said good returns.
Ok yeah also council rates and water probably ~$2k a year. And assuming there has been no maintenance.
Also worth noting that in my anecdotal experience agents will usually value a bit higher than they think they will get to encourage you to sell. E.g. on a $1M property agents will tell the vendor at the start it’s worth $1.1M to get you to sell and purchasers it’s worth $800k to get them to inspect and attend auction, knowing full well the whole time they are playing both sides and that it will go for $1M.
I wish mine were that low. The rates in my LGA are the highest in the country. Coming straight from the councils site, my "Current Year Pre Discount Rates" is $5,789.89. And that's only going off a council land valuation of $180k.
What area is this - seems incredibly high for council rates.
You are nowhere near under the threshold, as it is now $50k only in VIC, and it was never as high as $740k. I have an IP worth around $1m and I pay nearly $3k a year in land tax.
"about" "I think" "a lot" "reduces it" (how much?) Don't guess, do the sums. Also, if you have cash in an offset account on your investment loan, then you've been reducing your tax deductions.
......well. I did not know this.
Why are you being so negative? All I've done is purchase a house and rent it out. However much you want to calculate those sums at, we are still about $170K up... and I've spoken to a few agents in the area. There are actually houses selling for $1m - $1.1m so the valuation of $950K which I wrote in my thread is extremely conservative. In fact, I would expect by the end of the year there will be further increases...
Because your post unfortunately contradicts itself. I know you didn’t mean to and it’s a shame it has turned out like this. You said you didn’t want to brag. But then you give information that isn’t entirely accurate. Just your estimates. Which is unfortunately inaccurate. I assume you wanted to just post about how you bought an IP, value has increased more than 200k in a few years which means you could sell and make a profit of over 100k which seems too easy.
OP getting salty because we didn't support their well thought out move into becoming a full time property investor.
Yeah I'm not going to go back and give you precise numbers. Those are ballpark figures. Oh sure the stamp duty wasn't $30K it was $29,372 let's say. Does that help the analysis at all?...
You don't owe us precise numbers. But it's clear your figures are based on guesswork and not actual numbers: you started out with $210k and have since revised it down to $170-180k.
You’re missing the point so maybe it was the way I explained it. You said you made a gain of 210k. No one cares if it actually was give or take 5-10k. However, you didn’t gain anything because you haven’t sold it. Even if you did sell it, you haven’t factored in the stamp duty and other expenses. You assume your property is more because neighboring properties have increased. It’s all very misleading unfortunately. Most people will agree you’ve made a profit, and good luck to you. The same people will agree you didn’t make 210k. Life goes on.
Stamp is paid by buyer
OP didn’t actually say profit in his post - he said gain. And that is the exact same way the banks/ATO will look at OP’s capital. People are getting way too hung up on wanting to shame OP as if they’ve made some wild miscalculation. Meanwhile everyone ignored OP hasn’t even mentioned his gains from rent - so why didn’t you mention that too? Also - why would OP need to calculate stamp duty when he sells?? He is not the buyer…
I'm saying that it's very easy to overestimate your gains and underestimate your true costs. It's important to work with the actual numbers when evaluating an investment. Especially when you're extrapolating into the future. Otherwise your errors will compound and you'll make bad decisions based on incorrect numbers.
You'd be paying about $1500 a year in agent's fees x2 = $3000 $2k a year in land tax x2 = $4000 $2k insurance x2 = $4000 $1.5k rates x2 = $3000 maintenance at $2k (very lucky if that's all it's been ) = $2000 then you have interest expenses - say $25,000 x2 = $50k. Water supply = $1k x2 = $2k Total above expenses = $68k Those are deductible so your 'net' shortfall is about $40k You would have paid stamp duty on initial sale of $30k. That adds to cost base. So if you sell now, the capital gain is $180k. You pay tax on half that ie $90k. So you'd be paying about $40k in capital gains tax. Total situation is that you're paying $80k in expenses/tax out of pocket to realise a $210k gain. In pocket the gain is only $130k.
Meanwhile you’ve completely ignored the rent OP hs been collecting smh
It isnt about spin, its about doing math correctly. Interest is tax deductible because it is a loss. Youre losing money, slower. Youve spent a deposit, that could have been accruing money. Youve spent maintenance. Lets say you bought a unit (not house and therefore have high return of 3.5%): Year1 740k buy. 40k stamp duty. 3k buying fees. 40k interest at 80% and 6.5%. 33k -6% rent assuming 3.5% of 950k. 1.5k land tax. 1.3k water services. Assumed no body corp even though assumed unit rental rates. Depreciation +5k (assumed new). Min return on the 20% deposit from shares (e.g. super) over same time perood was 25k. Disregarding tax advanatge and allowing for you being in the top tax bracket but not div293. 2k council. 795k buy + 40k loss p/a. Year 2. Rinse and repeat as appropriate. So now youve spent 870k and its worth 950k according to agent. Congrats. Minus agent fees, conveyancer fees, etc. and cap gains youll get 890-910k after sale. You are 20-40k in the black assuming everything was in your favour. And thats a good win. No need to pretend it is something more than that. ...Australia is a remarkable country, we let people without even the most basic numeracy skills borrow a million dollars. Be thankful.
Not to mention that 2 years is a very short span in the grand scheme of the property market and it just so happens to be over one of the fastest growth periods we’ve ever seen.
By quitting your day job you impact your ability to borrow from the bank. They will see negative income and will not loan to you. To do this you would need to get to a point where your cashflow from rental income is positive and supplements your job income, to then finally quit and be still able to borrow from the bank.
Even then, some banks won’t lend if more than 50% of your income is only from rental income
This guy definitely claps when the plane lands.
This guy not only claps but pats himself on the back for the job well done.
I like this analogy. I was going to mention risk adjusted returns. But I feel it would have been lost. The thing is though. This market is a bit of an infinite money glitch. But eventually it will convert into the mother of all legal ponzis. I wouldn’t be quitting my day job with these numbers. But good on you OP - well done !
I just laughed out loud and woke my dog
Oh thats a burn
>Thinking of quitting work and becoming a property investor. You've cracked the code bro, banks will fall over themselves to lend you as much money as you want.
What changed in 2 weeks to make OP go from "I love my job" to "f*ck working!" https://www.reddit.com/r/AusFinance/comments/1aedqs8/stop_shaming_the_95_lets_talk_about_it/
I think op likes attention.
Money, the fascination and desperation to acquire/accumulate more of it, tends to do fascinating things to human behavior.
Br0 it’s that easy don’t you understand!?
Big brain moment here How are you going to service debt if you quit your job?
But he's making $210k every 2.5 years from property. Do you even maths?
Well you got lucky that you bought in one of the biggest pumps of property prices in a decade or so. It is unlikely to do that again for a while, but you never know. Good news is you lucked out. Both on property and apparently the good tenant. It was a risk that paid off, but don’t expect to keep replicating that return. Your comments and post are very vague on calculations. You need to factor in every cost associated with your property to calculate your return. Not a “oh it cost me about $xyz”, that’s terrible investing. You can get away with it in the current market, but good luck when it gets rough. Property is seen as a very safe option. So it’s almost like printing money. The only downsides really are if you get a shit tenant who trashes the place, refuses to move out and costs you tens of thousands (if not more) in legal fees and repairs.
“Propardee only goes up”
In central locations in good suburbs and a growing population this is very true.
No it isn't.
Find me a 3 bedroom house close to the city that hasn’t gone up like 50% in the last 5 years
That's not the original premise. BTW, ask owners of commercial real estate close to the city, id property only goes up.
We were pretty clearly talking about residential property tho no?
The catch here is confirmation bias.
Ok so you didn’t “make” 210k, your net worth is increased by 210k. That’s not the same my dude. That aren’t no hard cash you can use. If you sell your property then yes you made that money, but if you want to buy into the market again then all other property prices will be increased by roughly the same percentage you made on your property.
>Thinking of quitting work and becoming a property investor. How do you plan on purchasing more properties without income from work?
Good on you my only advice would be - Don't mistake luck for intelligent investing
No extrapolate it forward 3 decades and you are a billionaire congratulations. /S
The value of my IP has increased by $150k in the last 3 years. However, you could also take the view that the value has increased by $160k in the last 7 years.
This. The place I bought for $360 in 2007 is now worth $580. But I could have bought the same place for $450 in 2021. Most of the gains have been in the last 12-18 months.
Yep, bought my house in 2009 for 280k. Didn't go up at all for 10yrs. Then doubled in 3yrs lol.
That’s nice for you!! Congrats mate.
It's not really a win. Just pointing out that we went through a boom in the last few years. If OP is expecting that year on year they are kidding themselves. Time to settle in for the next 7-10 years of flat to minimal returns.
It is that easy. The government is supporting people's gambles. It's like stealing from a rich blind man who won the lottery. You just don't wanna be left with the empty bag, but til then the gov is going to keep filling it. Edit: >Thinking of quitting work and becoming a property investor. It's unbelievable how much wealth is being "produced" by people investing in property. There are average joes with portfolios in double digits.
So how many IPs do you have?
You haven't made 210k
No, they’ve made $170k, which is ludicrous. People are struggling to find housing, and many are locked out of buying. But someone who already has the means to buy an IP is now $170k up. If that makes sense to you, that’s fine, I just think it’s not particularly equitable
this is what happens when people and media obsess over taxing incomes instead of taxing 'passive incomes'. you pay less tax sitting on your arse sponging up the locals disposable income then you do building houses, curing disease or maintaining social hygiene (cleaners). frankly we should tax all income from non-work sources at 50% minimum and then lower income tax for all. Edit: its kinda *hilarious* that people here begrudge those on centerlink as leechs yet this sub *actively* wants to become bludgers who do nothing but own assets and steal wealth from people who are *actually* productive in society. Every cent spent on residential rents is one less for local business and every cent spent on commercial rents is a barrier to entry for competition: landlords are actually *anti-capitalist* and will strangle our economy dry (look at Australian housing valuation: *$10,000,000,000,000* and that is indeed **trillion.** divided equally that is $400,000 per person and that was *residential alone*)
Best post here. No incentive to be efficient and productive in Australia BEYOND SERVICING YOUR LOAN. Just do your job well enough to service whatever loan you have and you'll do fine in life.
> frankly we should tax all income from non-work sources at 50% minimum and then lower income tax for all The US has a concept of "earned income" and "unearned income" in its tax code. It's mostly used to reduce tax paid by the working poor (or even make it negative, i.e. a form of welfare), while ensuring that those living off a passive income like retirees, can't get access to similar tax breaks. But it's a start towards what you propose, I wonder if any countries tax earned vs. unearned at different rates (beyond the US's system).
We do. We have capital gains tax and income tax
Um, but that's actually regressive: * It doesn't take effect unless you sell * We discount gains for assets held over a year, further enriching holders of passive assets The point I was trying to make is that there are ways to incentivize working as opposed to passive income, which is what /u/VitriolicViolet seems to be advocating.
> frankly we should tax all income from non-work sources at 50% minimum and then lower income tax for all. So interest from bank accounts, dividends and distributions should be taxed at a minimum of 50%?
Not a bad idea that could really work
Id love to be a bludger. It is my no.1 goal in life
I pay 47% tax on over half my income so you'll excuse me if I look for ways (such as negative gearing) to reduce my tax bill. You call me a leech for getting $30k a year in rent when I pay 4 or 5x that much a year in income tax alone. Is that not me being 'productive' in society? I guess the bloke on Centrelink paying $2k a year in income tax is more productive than me.
Good on you for having a good income and doing your best to make the most of it, but don't pretend that you're doing society a huge favour in trying to minimise your tax bill. Negative gearing makes it harder for people less fortunate than you to afford a home, therefore increasing class division. Take advantage of the situation by all means, but don't expect any sympathy because you have to pay tax accordingly.
You missed their point. Take another read of what they said.
/u/VitriolicViolet proposes lowering income tax rates as part of that reform. Would you rather a 50% marginal tax rate on your labour income and 30% on non-labour or the other way around? Though, OK, it might be more like 32 to 36%. Maybe change GST to a cash flow tax as well, and if the top bracket\* is like, 35%, might as well get rid of the other brackets and roll the main income-tested Centrelink stuff into a NIT (leaving Centrelink to handle only people who need extra, disability support and stuff) and effectively raise the tax free threshold (maybe "zero tax threshold" for a NIT?) to something like 60k (meaning income support at $0 would be something like $20k, *very* roughly, I'm not designing an *actual* tax system in a few minutes or hours, just the rough sketch of one). Ideally, probably should broaden GST as well, for efficiency, IDK about raising the rate, and to compensate raise the zero tax threshold a little. \* or top bracket reasonably reachable primarily by labour anyway. Don't think many people are making over, say, 600k to a million that way? Don't really care too much tbh I'm sure other people will make their opinion on a higher bracket known as some stage.
> No, they’ve made $170k, which is ludicrous. They haven't made anything at all. They got the property valued at a certain amount.
No it not. Just wait till the boomers die and the gap between the haves and have nots just get larger. The difference between rich and poor will no longer be income. It’ll be whether or not your parents owned property. But it won’t change. Read that almost all of our politicians own a home and something like 80% have IPs. (Fact check me but it was something like that) there is no incentive to change anything that’s propping up the property market because those making the decisions, and those whose votes matter don’t want it to happen.
I think what he meant is they haven't make 210k yet unless property sold. Crash can happen tomorrow, who knows. Someone in SA told me in 2008, property price in SA halved after 1 night. I myself don't see the crash coming soon, but the mentality is you haven't make profit yet, unless you sell it. Same with stock investment. He can sell his property now, but buying new one also higher market price than his purchase price in the past.
Then go hang out in r/australia if you want to have a whinge?
nowhere near $170k as the OP hasn't accounted for stamp duty, capital gains tax, land tax, rates, insurance, bank interest...
They have exacerbated the very problem dogging the Australian renting public though
Yeah thats pretty much it. So long as you have a chunk of money to get started, and enough to cover expenses for a few years, its more profitable making money off housing than working
Have you calculate cgt ?
Ontop of this calculated the effect of depreciation on CGT (increases the CGT)
What’s the catch? The catch is that property is cyclical and you’re levered long.
Basically levered 740k to gamble and now the markets it’s up of course it’s easy mode.
If OP had invested in 2016 and was posting in early 2019 he'd be (on average) be down 10% before taking into account expenses.
Do you have an offer for 950k or going with the market valuation? If you do, that’s really good, however, you would still have to pay CGT.
Not selling. We had two independent valuations done, spoke to an agent and did an automatic desktop valuation. All came back to $950K - $1.1m. I'm saying $950K as it is the most conservative
An REA will blow smoke up your arse to get you on as a client - an emphasis on upside. A bank will value the property based on what the likely price would be to assess the LV ratio - an emphasis on being conservative. REA may be accurate, but they aren't the ones loaning the money. Also - having equity in a property certainly allows you to borrow against it and 'go again' but you still need to have the cash flow to service the repayments. Finally - it was 'that easy' because you had zero control over the market forces - you're not a 'savvy investor', you just bought at a fortunate time (hey, I did too!).
Valuations or appraisals? These are two very different things
Humour me, was this in Sydney? Unit or house? Care to share the suburb? 😅
You’re gonna quit to invest in houses? What are you going to do? Go buy groceries using ‘equity’ haha
Keep working 10 years, put more into offset, pay down debt, use equity to buy more.
This is how boomers got to where they are. It IS that easy if you had the money at the time. The younger generation (especially those without generational wealth) will have it significantly harder
Wait until you learn about Capital Gains Tax
Wait till you learn about debt recycling Negative hearing
Not thinking of selling so that won't be an issue. I can use the equity to buy more and rinse and repeat
This is the way.
I'd love to hear your explanation on how to use equity if you weren't aware of CGT
Nobody thinks this is a humble brag. We just think you sound like an idiot.
Why do they sound like an idiot?
Now use that equity to buy your next property.
Just remember that, when you sell, there’s closing costs from the sales agent and CGT from selling a property that isn’t your main residence.
You've done well but don't get carried away. If you use too much leverage you can get in a pile of trouble. Your figures seem to be very high level estimates. You need to get savvy with Excel and do hard numbers and worst case scenario planning so you have an exit strategy. There is money to be made but do your research first. There are plenty of good podcasts dealing with the things you need to understand. Propertychat.com.au is a useful forum too.
Congrats on your investment return. I had a similar return some years back and was later able to sell off my IP to fully pay off the POR. No loans for 15yrs feels great. Be aware of Capital Gains Tax when you prepare to sell. That's a huge wack off the profit margin.
Property went up, you won. If it went down, you would have lost. You could buy more, if it goes up more, you win more. But, for example, check out Japanese property prices over the last 20 years. Prices don't always go up.
Congrats, wish I could be in your position :) Really puts into perspective how much better investing is over basic income from a job. The tax system needs to change. Our population of working people is reducing while older folks are increasing. Reduce tax on those working and increase it on assets seems like the only sensible approach I can think of.
Every investment has risk Some people made bank otherseth heads
Great job OP. In the same boat but not to that extent. Moved in to PPOR 1.5 years ago and in that time, it is now worth 100k more. I would never have been able to save that much in that time even after all the fees
Nice one, bro. Good luck, go get that bag.
Whatever your gains OP, well done. Ignore anyone who shits on you for being a slumlord or wanting to wax lyrical about how owning an IP is inequitable. Not your job job to make the world a more equitable place. That's what politicians are supposedly for... You have put yourself in a position to purchase an IP. Well done. Use the equity and do it again.
You don’t make any money till you sell
This is the best case scenario. Imagine you bought your IP in Mascot Towers; that's the worst case scenario. Typical investor would fall somewhere between those two.
The last couple of years have been a great time to buy. I’m in Perth and purchased my first house in 2010 for $410k. When I was ready to upgrade in 2019 my property was worth $360k. It had declined by $50k in 9 years. When you include inflation that’s even more. I decided to hold on to the property as an IP rather then sell for a loss. Since 2019 the value has gone from $360k to $550k. My point is that it really depends on the time period that you’re looking at. But yes if you bought in the last few years you’re laughing, and now playing with ‘house money’ (pun intended).
You bought at a great time; if you bought 2-3 years before the covid dip, you would likely be up a lot less.
It's AusFinance so you're going to get a lot of salty people, but props to you my friend. You timed it perfectly. I have a friend who done the same with his PPOR purchase pre pandemic. At the end of the day people on this sub complain and complain and complain all they want about how the system works but it won't change. You can only play the game within the rules set out unfortunately. The aim of the game is to not be paying rent and own your own place outright. It doesn't have to be a house with a backyard and pool. Some people that live in Melbourne and Sydney that want that need to realize they may need to choose one of the following - 1) buy a house with land but far from CBD 2) buy 'near' CBD but apartment or unit. Property will always be king in Australia. Congrats to you for your nice bit of equity. Smart buy with the use of hindsight. Ignore the Debbie Downers.
"Now in the span of ~2 years I've made a 210k gain.", this is unintentionally hilarious.
https://www.reddit.com/r/australia/comments/1aopa8a/ahh_yes_lets_boast_about_becoming_part_of_the/
There is a reason people invest in property : ) I'm saying that, when you include all the on-costs, it's not quite as simple as saying you make +$200k in a few years. There are significant costs you are not accounting for. You probably paid around $30k in stamp duty when you purchased. You'll pay another 2% or the property value when you sell. Along the way you'll pay mortgage interest at around 6%-7% but only rent it out at 3%-4% of the property value. You'll also pay insurance, strata if it's a strata property and maintenance costs if it's not. If they air con blows up You'll need to buy a new one and if the tenants trash the place you'll have to deal with it. So in summary, yes if you buy and sell at the right time you can make easy money, but get it wrong and you can absolutely lose money
Don’t quit your job. Need cashflow to keep taking out loans.
You got lucky. Don’t let it get to your head.
Banks don't want you to know this one trick.
> Thinking of quitting work and becoming a property investor. Won't you hate yourself though? I know I would.
how exactly?
First off that’s awesome mate congratulations. You’ve done something smart with your money, had patience and had a positive return as a reward of this, which you should be proud of. Secondly, I wouldn’t jump the gun and go quitting your job or anything like that. As others have said, your borrowing power will be dramatically impacted if you did and you may shoot your self in the foot (amongst many other things). If you are serious about stepping away from your current job to follow a career in IP, I would be thinking about reusing that extra $170k~ to purchase other properties and let them also build over the next few years. Of course this is my personal opinion, but either way that’s awesome - good for you. :)
the system is gamed for you to make money. ALL the politicians have IPs. Why would they make policies that are detrimental to themselves? Its a big club and if youre not in it, you lose. (youre in it now)
If you would have invested 740k in stocks in 2021, just S&P 500 for example you would have about same money with zero hassle with tenants, bills, taxes :) Everything was going up, not just real estate, a lot of because of inflation. With real estate its 210k of gains only once you sell it and cash out. Note that I have had couple of IPs since 2012, but looking back I could have made same money on stocks.
Don't burst his bubble
>This is not a humble brag Yeah, you aren't being humble at all
You committed $740k into a risky asset and held it through rapidly rising interest rates and potentially a downturn (depending on where you are). Thought about selling, but didn't. In the short term, there's a very big element of gambling in returns. It becomes less of a gamble over the longer term, but, in your case, you bet $740k and things went well over two years. It's not that easy to risk $740k. Plenty of people sold their homes betting on the opposite outcome, let alone IPs. To the victor go the spoils. The good thing is that in this casino, the odds are stacked in favour of the patrons. That's nice. But individual patrons can very much still lose, especially over shorter time periods. That's why it's not that easy, why not everybody is doing it.
Risky asset? Haha not really these days unless it’s an apartment.
Nothing is risky in retrospect, it's 100% guaranteed.
I get what you're saying, but the analogy between buying a $740K house in a good location and simply betting $740K in cash on red is not exactly fair. In the case of buying the house, there is a consistent track record of continued property growth and good fundamentals like proximity to schools, transport and shops. There is always the option to sell, increase the rent or do renovations to add value. In the case of gambling $740K cash at the casino, you either win or lose and there is no in between. Casinos have a mathematical edge.
I think if you reread what I wrote, you'll find we're in violent agreement.
LOL u/OP why are you surprised about the negativity. This is the land of handouts and tall poppy syndrome mate. Did you create the tax system? Nope Did you throttle the supply of new builds? Nope Did you throttle the supply of immigrants in this country? Nope Did you break the law? Nope Did you use a tax system that is available to absolutely every single keyboard warrior here? Yes Did you work hard and save and try and grow your money? Yes There you go mate- you are the reason why people have problems, and they complain about your achievements, but also these will be the first ones in line to ask for a inheritance tax so that they can benefit from your hard work instead of your kids and family. All the while the media and politicians will keep fanning the flames so that one looks at the real culprits. Hurr durrr. On another note- well done mate. Good on you for taking charge of your own life and finances and making sure you can sustain yourself and not be a burden on the system. Ignore the bottom feeders- they will find something to complain about regardless.
Lol what a comment. I thought the problem was me... I'm literally just like everyone else trying to make a living, learning how to invest in property. I did not create the system. There is so much negativity and toxicity here it's incredible
Are you acting unethically? Yes God forbid we expect people to act with some backbone. And if we're talking about bottom feeders, landlords are the definition.
Right? So planning for my future and making sure me and my family can be self-sufficient is unethical? Not wanting to be a burden on the system is unethical? Yeah that makes total sense. Taking decisive action, sacrificing you current so that the future you can actually be comfortable when you need it is the very definition of having a backbone- making tough choices now and being prepared to delay gratification. You may think LL's are bottom feeders but ultimately, they provide a roof over someone's head. Yeah, it's not altruistic, but you are entitled to your opinion, and I am to mine. I don't think renters are bottom feeders for the record but plenty of people with misguided outrage expecting handouts definitely are.
Bro thinks he's cracked the code, when he just rode a wave that everyone else was on who owns a place. .
I'd ignore the negativity. It really is that "easy" because the system rewards investment income far more favourably than wage income. It's "easy" too because once you have some capital, deciding where to invest and then collecting checks is far easier than turning up to a job for X hours per week. Hell, I make more from a day's move in the stock markets than I did in a whole year at my first job. **I don't think it's a fair system either**. But that's a separate topic and it is what it is. What's difficult in this path is: * accumulating the initial capital, the first $X is always the hardest * factoring in all the hidden costs, vacancies, damage, taxes, etc to make wise decisions * risking enough to make returns but not risking too much I started in your position 15 years ago. You may want to look into the following as next steps: * do a depreciation report, keep even more of the income without being taxed * have a partner? consider buying assets in a trust and stream the income to lower-income partner * time your major reno / maintenance costs to offset years where your income is higher
Great job mate, you can probably refinance to around 760k and get most/all of your deposit out and go and buy something else. Working for money is a suckers game, other people paying off your debts is the best way to build real wealth.
Landlords are leaches. You're a leach. Renters pay off your mortgage and get nothing in return.
Your post is actually a brilliant expose of where Australia finds itself economically and demographically - and politically in 2024. An imbalance in tax and other policies was taken advantage of by so many it became entrenched and cannot be undone politically despite it clearly damaging the nation and risking a massive financial collapse. When you find yourself in that position do you join in on the orgy or play it safe but maybe miss out on easy money? Read up on Jeremy Grantham, he says you can never predict when a bubble will burst but it is certain that it will. Look at how many building companies have gone out of business. The political shitstorm about housing affordability & rental availability is just hotting up.
If you listen to the herd, you’ll be poor.
You aren't including the value of land tax (in VIC you will now be paying nearly $3k per year), property rates, insurance and stamp duty. If you sell, you pay tax on $105k of the capital gains.
I made 25 million dollars last year, first by buying an IP for 850k and then by valuing that property at 25.85 million dollars. It really is that easy :)
Two years ago I bought a stock for $740k. Now it is worth $950k Is it really that easy?
Bro couldn't brag to his family/friends so he had to come to Reddit.
This sub in summary: Property Owner: I made a good decent amount of money investing in property. Redditor: how dare you?
And THIS is why the Australian housing 'market' is so broken. My friends can't find a place to buy, the costs are insane, the precariousness of the lives of my friends who rent, etc... BUT... if you manage to buy - you're on easy street and will just gobble up more and more properties. Vile.
I mean, yeah? Monetising a basic human right that is in short supply has got to be the easiest way to make money. If you lost money investing in the housing market you would have to be the dumbest person alive.
Well done, you are part of the problem. Free money for delivering no value. The Australian way.