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30-07-2008, 07:03 AM
#991
Member
Some people I know went to USA a yr ago to buy a house and ended up
buying two as they were so cheap.
With news that owners are defaulting and walking away, their purchases are
probably worth less now so if I didn't own a house I may wait a yr or two
in case this situation repeats here.
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30-07-2008, 07:40 AM
#992
Originally Posted by George
With news that owners are defaulting and walking away, their purchases are
probably worth less now
Remember – it wasn’t that long ago when banks were offering 105% mortgages. We spoke of the foolishness behind that at the time.
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30-07-2008, 08:25 AM
#993
Originally Posted by Halebop
The 1% real return after tax in the last 12 months
But if you had a mortgage you would have got a 9 – 10% net return for every dollar you paid off. Cashed up people have nowhere so effective to park their spare money.
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30-07-2008, 09:27 AM
#994
Originally Posted by minimoke
But if you had a mortgage you would have got a 9 – 10% net return for every dollar you paid off. Cashed up people have nowhere so effective to park their spare money.
Thats only a 9-10% return if the property goes up in value. If it stays stagnant, you are essentially paying interest costs, which the price of borrowing. Ie. The opportunity cost to use that money. There is no return if your investment stays the same.
Its exactly the same as borrowing money for a stock on the sharemarket, and it doesnt move all year. You pay back the loan, but the stock is still worth the same. There is essentially a loss on your interest paid - an expense.
I fully understand if property is rising at the same rate of borrowing costs - its a bit like compulsory saving.
By the way - it's upside_down, not upside_umop
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30-07-2008, 10:20 AM
#995
Originally Posted by upside_umop
Thats only a 9-10% return if the property goes up in value.
If I have $100 in disposable income I could pay $100 off my mortgage and save my self $10 a year on my interest bill. So I now have $100 extra in equity and gained another $10 to do something with. This means I now have $110 dollars to invest elsewhere.
The same applies if I have borrowed for shares – except a bank won’t lend me so much to buy shares – it prefers property.
If I just put my $100 in a bank account I’d have around $106 to invest elsewhere.
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30-07-2008, 10:38 AM
#996
How is that saving or a return when your underlying asset (house) is still worth the same? Ie, If you liquidate your asset, then you are left with only $100 and an expense over the period amounting to the interest...so your amount returned is a (-) ?
$100 (sale of asset) - $110 (repayments including interest) = $90.
Purely for comparision, even though it doesnt make sense, would be to borrow and put money in the bank.
$106 (money end of period including interest) - $110 (repayments including interest) = $96
By borrowing money, and putting it in the bank you would be better off. Of course, you wouldnt have a roof over your head.
Putting it another way...
If I didnt take out that loan of $100, then my disposable income would automatically be $110 because of no interest costs. My return for the year would be $110*1.06=$116.60 to invest elsewhere. More than your $110 from taking out the loan and paying it off right?
By the way - it's upside_down, not upside_umop
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30-07-2008, 10:55 AM
#997
Originally Posted by upside_umop
H
$100 (sale of asset) - $110 (repayments including interest) = $90.
Assuming house values stay the same then on sale I’d get my $100 back, and in the mean time didn’t have to pay interest on $100. Remember – I’ve changed my asset / Debt ratios. Trying to work formulas around debt interest costs is a lot more complex because this is the cost of having a roof over your head.
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30-07-2008, 11:09 AM
#998
Originally Posted by Halebop
I've had a cash bias for almost two years and been strongly in cash the last 12 months. The 1% real return after tax in the last 12 months has been handily compensated by the 15% to 25% boost to purchasing power it has enjoyed thanks to falls in real estate and equity markets. Going long in falling asset classes hasn't been a compelling argument against low real returns in cash.
At least keep your story consistent Halebop. You've been claiming on this site to be largely or completely cashed up since early 2005.
SEC
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30-07-2008, 12:37 PM
#999
Member
Originally Posted by George
Some people I know went to USA a yr ago to buy a house and ended up
buying two as they were so cheap.
With news that owners are defaulting and walking away, their purchases are
probably worth less now so if I didn't own a house I may wait a yr or two
in case this situation repeats here.
Agreed....patience is still required......some are getting "buck fever".
From a strictly dollars and cents clinical point of view.....I'd wait another 1-2 years or so......in my opinion
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30-07-2008, 01:03 PM
#1000
Originally Posted by SEC
At least keep your story consistent Halebop. You've been claiming on this site to be largely or completely cashed up since early 2005.
SEC
SEC I think you have a bone to pick with me but my story has been quite consistent. In 2005 there was still plenty of trading and a few holds in my activities. In 2006 there was trading only in lower portions and when between trades it was of course converted to cash. From Mid 2007 onwards the cash bias has been very full, with only sporadic trades in smallish portions - although given most of these have been shorts my cash position was technically topping out at around 110% less the short obligation.
I haven't been on the right side of every trade but my contrarian position on cash has so far been beneficial… despite your attempt to characterise me as disingenuous.
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