Correct. Leverage is a huge component of return on investment, and is the main reason people invest in rental property - residential or commercial - over other opportunities.
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nah wasn't mortgaged at that point in time as I had sold off other rentals and paid down the remaining mortgage
But with leverage if the gross yeild is less than the mortgage interest rate, leverage is just gonna make it worse
But yeah, i'm fully aware property i quite in depth to work out ROI, you have leverage, tax breaks, cap gain etc etc. Its not as straight forward as shares.
But given cap gains had gone up so much faster than rents and IMHO market was near the peak, i elected to liquidate my most of my rentals and put the money into other stuff, which happened to be managed funds, etf, private equity, harmoney etc
I own a few properties, I measure their yield on current market value and return on initial investment. Selling off the biggest one as it is mortgage free....doesn’t affect the LVR limit on the others. Money will be better used in other asset classes and providing freedom of choice to us. Many property investors measure yield on their purchase value, something I don’t agree with. And yes, the leverage has been fantastic in this past booming market with the low interest rates and some good timing. Previously I put my share profits back into the mortgage when my LVR was higher, now it doesn’t make sense so I am enjoying letting some more of my shares run rather than securing profits a bit earlier (for mortgage benefit). Shares are far more interesting than property!
it got to the point where I hadn't physically seen a number of mine in 5+ years. It was all on paper pretty much.
I like going into companies and pretending I am the owner of them (technically I am)
"yes and can i please change the potato and gravy for a coleslaw?"
that will be an extra 50c sir..
"hmmm I am a restaurant brands shareholder... i don't think I should have to pay that... can I not pay that.... I'm not gonna pay that"
Interesting discussion and I agree leverage is a huge component. But if one has a lowly mortgaged or a mortgage free investment property, an alternative to selling it to buy managed funds or shares is to simply remortgage it and invest the money in shares. Invest in 2 markets at the same time. I personally feel I am not getting the most out of my equity, including rental properties, if they're mortgaged below 60-65% of market value as I don't "need" the income from them for personal use yet. So I keep topping up the mortgages to invest further.
Exactly. Leverage is great with property cause it amplifies your returns when starting out, and then at the other end of the investment lifecycle you have a credit facility that because its secured on something banks like (property) you get to borrow at low interest rates.
For me starting in property investment in Auckland 15 years ago, and I stress INVESTMENT not speculation... ie yield based where I buying apartments and townhouses weekly rent close to 1/500th capital value - eg a place I got for $188k at panmure I rented it for $360 a week, a studio in Emily place $140k, rented for $320 a week. The golden era of yields.
But over time, capital value growth outpaced rent growth, yields fell, and eventually you get to where you are sitting on a bunch of money and its return is quite low. So I liquidated all but one, paid off the mortgage on that one and on the primary residence. The reason I kept that one, as I figured its not a bad idea to have some exposure to the Auckland property market long term (primary residence doesn't really count).
But yeah having it mortgage free, $650k value with a rent of $600 a week (this was the same place that was originally $188 / $360), I decided to draw down on that equity and throw just over $100k in harmoney (I call it the harmoney experiment), throw some money into PE (milford PE fund 2 and various snowball effect stuff) and random other investments.
Its been good, I still have a whole bunch of equity I could draw down on, I think some debt is good esp with these interest rates, but given 8 years of strong markets, not too much debt... need to remain cautiously optimistic