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DM
1n 1996 you would have been paying about 11% interest (Source RBNZ) on your mortgage so your weekly interest bill on a $128k mortgage was $271
According to the 1996 census the average weekly rent in Papakura was $183.48
(if we use your technique you would need to put in $95,000 in cash to keep your mortgage to $67,000 of which the $183 rent would pay the interest plus rates and R&M)
Continuing with the $34k deposit, you are loosing $88 cash a week which you have to fund. Over a year this is $4,576. You will also have to fund say $1,000 in rates plus, say $300 in insurance. So you are having to find $5,876 a year.
What’s repairs and maintenance and capital improvements worth – say $1,000 a year? So all up lets say you are putting in $7,000 a year or $70,000 over the 10 years. Your $185k now gets reduced to $115,000 + plus your initial $34k = $149k all up.
Alternatively you could have out your $34k into the bank and cleared $50,000 (4% net compounding) after 10 years. Add to this the $70 you could have saved by not spending it on the rental you would end up with $120k.
So the easy low risk route clears you $120k and the other way gives you $149k –assuming the property is rented out 100% of the year.
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Thanks for the link RMB. I ran a report on my place with QVNZ valuing it at 15% more than I would have. It also shows a downward trend in average sale values since the beginning of 2005. But values have increased at 4.5% a year for 10 years.
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quote: Originally posted by minimoke
Thanks for the link RMB. I ran a report on my place with QVNZ valuing it at 15% more than I would have. It also shows a downward trend in average sale values since the beginning of 2005. But values have increased at 4.5% a year for 10 years.
You're welcome.
Please add it to our capital gain sample.
\"The overweening conceit which the greater part of men have of their own abilities [and] their absurd presumption in their own good fortune.\" - <b>Adam Smith</b> - <i>The Wealth of Nations</i>
The information you have is not the information you want.
The information you want is not the information you need.
The information you need is not the information you can obtain.
The informaton you can obtain costs more than you want to pay.
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quote: Originally posted by duncan macgregor
RMBBRAVE, What you overlook is the fact that most people borrow to live in a house. The fact that you live in the house must be taken into account against renting some where else. The rent that you save paying against the capital gain is no different than collecting rent from a tenant. I have borrowed heaps to buy property, but would never borrow to buy shares. Property as a business must be run with the banks money for maximum gain. Property versus shares, property wins every time for the average joe blow. If you own a property, it only takes three or four years to refinance, then get all your initial deposit back, pay yourself the rent. You can then have a capital gain with none of your initial deposit money involved in the house.
The price of the average house in the area you mentioned doubled in the last eight years according to the REINZ. Next eight years who knows might stall a bit then surge up. MACDUNK
Having never borrowed form a bank - I have a question.
Do you have to be getting a salary to get a loan from a bank?
If I had say $850,000 in cash and shares and wasn't working could I get a loan from a bank for 90% of the value a $300,000 house using only the house as collateral?
\"The overweening conceit which the greater part of men have of their own abilities [and] their absurd presumption in their own good fortune.\" - <b>Adam Smith</b> - <i>The Wealth of Nations</i>
The information you have is not the information you want.
The information you want is not the information you need.
The information you need is not the information you can obtain.
The informaton you can obtain costs more than you want to pay.
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quote: Originally posted by rmbbrave
Having never borrowed form a bank - I have a question.
Do you have to be getting a salary to get a loan from a bank?
If I had say $850,000 in cash and shares and wasn't working could I get a loan from a bank for 90% of the value a $300,000 house using only the house as collateral?
With enough collatoral you could but the house alone at 90% unlikely. Many banks will happily lend 80% on the assumnption that it's an investment property. A friend of mine who was only recently self employed and looking to refinance nominated his home as an investment property after getting a wink from his relationship manager at the bank. They lent 80% without any need to verify his income.
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quote: Originally posted by rmbbrave
quote: Originally posted by duncan macgregor
RMBBRAVE, What you overlook is the fact that most people borrow to live in a house. The fact that you live in the house must be taken into account against renting some where else. The rent that you save paying against the capital gain is no different than collecting rent from a tenant. I have borrowed heaps to buy property, but would never borrow to buy shares. Property as a business must be run with the banks money for maximum gain. Property versus shares, property wins every time for the average joe blow. If you own a property, it only takes three or four years to refinance, then get all your initial deposit back, pay yourself the rent. You can then have a capital gain with none of your initial deposit money involved in the house.
The price of the average house in the area you mentioned doubled in the last eight years according to the REINZ. Next eight years who knows might stall a bit then surge up. MACDUNK
Having never borrowed form a bank - I have a question.
Do you have to be getting a salary to get a loan from a bank?
If I had say $850,000 in cash and shares and wasn't working could I get a loan from a bank for 90% of the value a $300,000 house using only the house as collateral?
Better half works in commercial lending (a lot prop investor situations) - They look at your 'ability' to repay the loan...Usually the required payments should not take up more than 35% of the loan, though in some cases they will do much higher than that... Not sure how you could exclude your cash and shares from the security though, that may not fly...
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[/quote]
Having never borrowed form a bank - I have a question.
Do you have to be getting a salary to get a loan from a bank?
If I had say $850,000 in cash and shares and wasn't working could I get a loan from a bank for 90% of the value a $300,000 house using only the house as collateral?
[/quote]
A $270,000 loan will cost you about $500 a week in repayments. The bank wants to know you have the income to service these repayments plus, rates, insurance, food, power, car running etc.
Your income can come from interest from your cash. You may get to include the income from shares but the banks tend to discount the face value of the shares by 50% when assessing your assets – so I am not sure how they would discount an assumed dividend yield.
The bank will probably want to see some sort of credit history – some ex-pats and new residents can find this a challenge.
$400k in cash at 7% is only going to give you $28,000 a year gross – this won’t be enough to service the loan.
A $60,000 income will give you borrowing power to around a $150,000 mortgage.
“Low Doc” mortgages are something new for those without a financial history and may be an alternative.
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quote: Originally posted by rmbbrave
My Dad bought a brand new house in Manurewa for $258,000 in 1995. QV estimates it's worth at $431,000 in 2006.
That's a gain of 4.8% over the last 12 years. My Dad hasn't added anything to it either. Just a fence and a few trees.
That's certainly not doubling every 10 years ie, 7% . Nor is it doubling every 7 years, ie 10%.
lets look at what your dad did again with a question at the end.
I will presume he placed a deposit on this house and was paying it off like paying rent.
1, do you think he could have saved $173,000 any other way with his deposit.
2 I think he would be hard pressed to acheive that.
His deposit earned him $17,300 pa over ten years the interest on the loan is rent he paid to the bank.
3, His house can be used to borrow money at a cheaper rate for business, or car, or even to play the market.
4, Remember he was paying a loan on a $258,000 house that gets easier to pay back as time goes on.
5, Do you think he made a mistake and risked it all on the share market. macdunk
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quote:
1, do you think he could have saved $173,000 any other way with his deposit.
DM
If I may answer your first question – it is “yes”
Sorry to bore with numbers but heres how:
Back in 1995 it is likely a 25% deposit would have been needed to buy the home.
25% of $258k = $64,500. Put this away and get a 4% net return over 12 years gives you $37,000
Your 75% mortgage ($193,500) would cost $20,300 a year in interest at 11%. But RMB’s dad could have rented a house for say $200 back then. Had he rented he would have had $10,516 in cash extra a year.
By renting he would also have saved $1,000 in rates/ insurance a year.
$11,516 x 12 = $138,192 + $37,000 interest received + $64,500 initial cash = $239,700 equity
With your way he has $431,000 - $193,500 mortgage = $237,500 equity
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To take the sample to 6 and try and compare results
House From To %pa
===== ==== ==== =====
RMB1 1995 2006 4.77%
RMB2 1996 2006 7.91%
Trak 1993 2006 7.39%
PT1 1990 2006 4.87%
PT2 1989 2006 5.13%
MM 1996 2006 4.5%*
* property has had absolutely no capital improvements, indeed maintenance in 30 years which is why I bought it!
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