See, my point exactly.
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Lets do this by the numbers, please correct my maths and we'll get there.
Mike is an investor, he buys a home for $400,000 that rents for $500 pw
Tim is a home buyer, he buys a home for $400,000 next door
Assumptions for the market: 5% bank rate, 80% LVR (just to make it easy on me).
Property costs for both: $1500 pa rates, $1000 insurance, $1250 upkeep, $500 water
Extra for Mike: 50 weeks occupancy, 9% all up management
Lets say they both do an interest only loan because it makes the math easier and we'll only look at one year, also principal is post-tax money.
Year 1 Mike numbers:
- $25,000 rent income
- $6,500 in non-lending costs
- $16,000 interest
- Gross CF $2,500
- Net CF $1,750
Tim numbers:
- $16000 interest
- $4,250 other costs
- $20,250 annual costs
Mike has to live somewhere also, lets assume to keep it really simple he has a young family and they also spend $500 pw in rent or $26,000 a year. My non-accounting brain starts to hurt here but this is post-tax money so I'll deduct it from the net CF and Mike comes out at -$24,250.
That is a really simple example and ignores some things. Mike also has to hire an accountant, say $750 per year so now $25K in the red. Tim's maintenance spend may be lower as he lives there but I'll ignore that.
So Hype's point of the value of living in the house is valid.
Now, if Mike already owns a home or lives with others and then buys a rental then he seems to get an overall advantage because if he's already done hard work and secured his own dwelling then he is starting from a different situation than Tim.Free online Property Investment Course from iFindProperty, a residential investment property agency.
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Originally posted by Bobsyouruncle View PostAn investor will pay based on criteria of known value and return.
A home owner will pay as much as they can afford for the house they fall in love with, which will almost always be a lot more than the investor.
An investor will pay based on some criteria they have decided on - may be based on return or some other value.
A home owner will pay as much as they can afford for the house they fall in love with, which will almost always be a lot more than the investor.
Subtle but Investors may apply a 'strategic' value to a purchase.
They may also have a FOMO and pay more than another investor who is more patient.
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NickG - good effort with the numbers! Although I think they are all correct, I don't think that some of the factors are reasonable to include.
For instance... I do my own management, so I save on that. Also, I don't think that Mike's own living costs or financial situation should be included when deciding whether or not there is a tax advantage over a home buyer for Mike buying the same (or an equivalent ) property. Mike could be a 70 year old, debt free, multi-millionaire or a 21 year old student who eats lettuce and mayo sandwiches to save money. The cost of acquiring and holding the same property is what counts.
Originally posted by Wayne View PostOf course Tim doesn't have to pay rent (he has to live somewhere) so subtract $25k and the house 'costs' him -$4750.
He is nearly $5k better off owning.
Based on that he can 'afford' to pay more for the house.
Originally posted by Bobsyouruncle View PostAn investor will pay based on criteria of known value and return.
A home owner will pay as much as they can afford for the house they fall in love with, which will almost always be a lot more than the investor.You can find me at: Energise Web Design
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Originally posted by Don't believe the Hype View PostNow I'm conflicted... Is this guy an evil property investor or proof that FHB's can and do buy house if they can sort out their needs from their wants?
http://www.stuff.co.nz/life-style/ho...since-he-was-7
What's really sad is the nastiness shown in the comments. I know we've always been known for our 'tall poppy' syndrome, but when did people get so mean-spirited and vindictive?My blog. From personal experience.
http://statehousinginnz.wordpress.com/
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Originally posted by sidinz View PostWhat's really sad is the nastiness shown in the comments. I know we've always been known for our 'tall poppy' syndrome, but when did people get so mean-spirited and vindictive?
I think it's driven by people being told all the way through their education these days there are no winners and losers it's about participating... Then when you get to the real world there is competition for everything jobs, houses etc and you find out there actually is winners and losers.
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Originally posted by sidinz View PostWhat's really sad is the nastiness shown in the comments. I know we've always been known for our 'tall poppy' syndrome, but when did people get so mean-spirited and vindictive?Free online Property Investment Course from iFindProperty, a residential investment property agency.
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Drelly, can you please point to one example of anyone else (other than you) comparing property investors to home owners and saying that property investors do not have tax advantages. This is the premise you are trying to disprove here, and you refer to hearing it elsewhere. Can you please post a link or two?
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Originally posted by Bob Kane View PostIf the investor doesn't have a mortgage then he pays tax on the rent/income. How is that a tax advantage?
Originally posted by Judge View PostDrelly, can you please point to one example of anyone else (other than you) comparing property investors to home owners and saying that property investors do not have tax advantages. This is the premise you are trying to disprove here, and you refer to hearing it elsewhere. Can you please post a link or two?
I am saying they DO have tax advantages over home owners. I could show you other people who agree. As you will be aware, it's been in the media plenty of times. But what does that prove? It's either true or it isn't. A vote on it won't change the facts. Investors can claim things that home owners can't... ergo, they have a tax advantage over a home owner. I don't really understand why this is even up for debate.
However, if you're saying that no one else is saying this, then I think you're right in a sense. However, I think that the debate over "tax advantages" is raging over two completely different concepts. When The media (Hickey etc) say "tax advantages", they mean over home owners, as I'm stating. When the PI's say they don't have tax advantages, it's a statement that we are just like any other business, which is true but perhaps wilfully ignorant of what the other side is saying and where the real issue lies. Does that make sense?Last edited by drelly; 30-07-2016, 01:52 PM.You can find me at: Energise Web Design
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