Originally posted by Sapio
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Property in NZ seems to double in value every 7-10 years.
(yeah - I can hear the heartbeats already)
Lets be conservative and stick with every 10 years.
Now let's say you have a negative geared property - and let's be brutal - say you have to pay $200 pw to prop it up. That a $10k loss every year.
Why would you buy such a property - how can you make money when you lose $10k pa?
Now, get ready for some fireworks.
Let's say you bought the property for $100,000.
What happens over 10 years?
After 10 years you have lost (10 x $10,000) $100,000
And the value is now $200,000 - so you gained $100k and lost $100k so you've come out even.
As an aside - it would be quite hard to lose $200pw on a $100k property so maybe this example is a bit unrealistic. Never-the-less, you break even.
Repeat this calculation for a $300,000 property and losing $200pw:
Over 10 years - you lose $100,000
The property doubles in value and is now $600,000 - a gain of $300k.
Deduct the $100k loss and you end up with a gain of $200k.
Here we have a useless investment that is negative geared for 10 years - and we make a gain of $200k.
Ahh, you might be saying.
But property doesn't always double in value every 10 years.
Well, you might be surprised if you look back over the figures.
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