Houses don't appreciate any faster than the level of inflation over the long term, so forget about buying a home and put your savings into stocks

http://articles.moneycentral.msn.com/Ba ... x?page=all

I totally agree, South.

I had my tax return done yesterday (yep, nothing like leaving it till the last minute) and I can give a very good, rough example.

I own a house which I'm renting out. It's worth around $300K, has no mortgage and hasn't needed much maintenance or repairs in that 12 month period. After paying management fees, rates etc, I earnt about $6K.

I also have a portfolio of shares, which is currently worth more than $300K, but would have been around that level during the 05-06 tax year. I have a margin loan on part of the portfolio. I earnt $18000 in dividends and distributions AND got to claim the $15K I paid in interest as a tax deduction.

I know I could negatively gear my house or any other investment property, but with such low comparative returns, why would I invest in real estate?

We rent a house (which we live in) because we don't want to invest in any more real estate. The rent we pay is less than a mortgage on a house in the same area, and other than our own living expenses, rent is all we pay. No council rates, maintenance, water rates. That's all the landlord's problem.

Judy , U forgot to mention the capital growrth of your property ...cheers eG

You're right, eG, I didn't. I also didn't mention the capital growth of my shares. And I forgot about the franking credit on the shares.

We tried rental properties and decided shares had a lot of advantages.

Rental houses need painting, the ceiling collapsed on a quite new property in a freak rain storm, one of our tenants didn't seem to understand that no pets actually does mean you can't own a dog, dishwashers seemed to last about a year while our own dishwasher is still going after fifteen years. And if people smoke in a house nothing, absolutely nothing, will get the smell out afterwards. We also had a tenant whose children scribbled all over the walls. She had the hide to tell me that was fair wear and tear. All children write on walls.

Shares don't seem to have any of these problems. I have not yet had one company that needed a repaint.


Cheers

LJ

Around 1997 I attended a gathering where the guest speaker was Peter Switzer (Australian ) .

He was a strong advocate of renting .

Story he related was that he was unable to convince his wife that it was better to sell their home , rent, and purchase shares with the proceeds.

His wife wanted the security of a home, and Peter told her if she did what he wanted when he retired she could live whereever she liked, in the lap of luxury, due to the compounding effect from capital gains and dividends.

Was unable to convince her and still lived in own home, but was able to convince her to "mortgage a room" every time there was a downturn in the market and he saw good value in a share.

By the way he was an excellent and humorous presenter, and well worth listening to if you ever have the chance.

I suppose it depends on how you look at the place where you live. If you like to change things in the house or garden so everything is the way you like and then stay there forever, then you need to own your home.

If you see where you live as a place to sleep and eat and your life revolves around other things, like sport and travel, then renting is financially a better way to go.

It has to be really. Like Judy says, you can rent a place for a lot less than it would cost you to pay off and maintain the same house, so if you then invest the difference you must be better off. You are taking advantage of the fact that people are prepared to rent out houses for less than the real cost of the capital to buy them, just so they can claim tax deductions and get a capital gain later on.

The only drawback to this is that you cannot claim the rent you pay as a tax deduction, but if you own another house that you rent out you have to pay tax on the rent. This can make the comparison a bit complex.


Cheers

LJ

Yep, Lainie, it's all about lifestyle. I don't want to sell the house I own because it's in a great location close to the city, shops, public transport. At some stage I might want to live in it again, or my parents may live in it when they downsize, or one or both of our kids might want to live in it. It's well built and hasn't given me too many problems over the 14 years I've owned it.

But it's too small for 4 of us plus the 2 businesses we run from home to squeeze into, hence the reason we rent a larger place. It's a investment property owned by a couple who live in the area. They are happy to have us as long-term tenants and they are the ones who approach us each year to renew the lease for another 12 months.

It's also about what works for an individual, or family, and what feels right. We're happy doing what we do, but it wouldn't be the right thing for a lot of people.

South , the following figures , published 04/02/2008 by ABS , throws your start of thread into a big question mark !
2007 was a huge year for Adelaide for instance , but check for yourselves gurus ...cheers eG

http://www.abs.gov.au/AUSSTATS/abs@.nsf ... enDocument

Sooner or later if the RBA keeps on increasing the cash rate and/or the banks increase the mortgage rate outside of the RBA variation, things will snap. Always do.

Suggest you get hold of a book "The Land Boomers" (it may be in your local library.) Its about the mania and consequences of land price speculation in the late 1800's in Melbourne. A good read. Nothing to say it cannot happen again.