4 ms·

My recommendation is that your first investment should be a home, i.e. a property in which you live in, with the focus of paying it off as soon as possible. Obv

by mythz 5y ago

My recommendation is that your first investment should be a home, i.e. a property in which you live in, with the focus of paying it off as soon as possible. Obviously if you have higher interest debts (e.g. Credit Cards) you should pay that off first before making any investments. Properties lets you leverage debt, i.e. you'll only need to put down a 10-20% deposit and borrow the rest, ideally the mortgage repayments should be lower than rent of an equivalent property. The benefit of leveraged debt is that if your property increases in value, the whole amount of the property increases (i.e. not just your debt), so with rising property value and inflation (i.e. your salary) your debt should become more smaller & manageable over time. If you can, go for an offset account (common in Australia) so your entire savings works to keep the interest down and you don't need to divide your savings across multiple accounts, as your savings is also your emergency fund whose balance is offset against the mortgage to keep the interest down. Once you pay off your house you'll have much lower expenses at which point you'll have more freedom to make more risker decisions like quitting your salaried job to start your own consultancy or startup, where the reward is much higher income, but can also mean your without income at the start of your venture so you'll want to have minimal expenses when making the leap. After you've paid off your home I personally would invest in shares for future investments which in my experience provide greater ROI over property, lower holding costs & less hassles requiring time & resources to resolve. IMO your focus is should primarily be on making more money, i.e. instead of trying to save as much as possible. So even if you have a salary capped job with no career prospects, I'd be putting my efforts into a side-hustle that has the potential to earn enough to replace your job & work on it full-time where you'll have greater earning potential than working for someone else.

prewett 5y ago
Buying a house is tying up money in an asset with a negative dividend (that is, you pay to own it): taxes + repairs. You don't really have any access to that money, unless you sell and move to a cheaper location. In expensive locations this could be problematic: tying up $1 million, which could earn 3% in dividends (say KO or something) and instead pay 1% tax + repairs, I'm not sure that's a great investment. The $30k of dividends would pretty much pay rent on an apartment. Now if you have a family, this calculation might change.
- mythz 5y ago
  You don’t have that 1M to collect dividends on and if you had to borrow it, it would be more than the interest of a capital backed mortgage and that income would be taxable on the top tax bracket on top of your salary whilst your non-taxable rent comes out of after tax income. Property is also the only asset class in which I’ll leverage debt to purchase in order to enter the housing market at a fixed price at my current affordability. I’d only recommend purchasing a home where the mortgage payments + holding expenses is =~ rent (which means lower cost properties), which will improve over time when mortgage gets paid down and rent goes up. You do have access to that capital from paid down mortgage or increased valuation by redrawing it if you need to. So reducing the mortgage would be my highest priority which I’d do with an offset account, so the funds are readily available when needed which otherwise is reducing the interest amount.
- BobbyJo 5y ago
  You're only tying up 10-20% of the price of the home, and doing so at a lower rate than you could ever get for any other purpose. Also you need to factor in the rent trade off, which makes it an easy decision in some markets if you have the cash. I just bought a house last year and my mortgage+instance is 300$ less a month than the cheapest apartment I could find in the same city. 1200$ less than a comparably sized apartment.

by mythz 5y ago

prewett 5y ago

Buying a house is tying up money in an asset with a negative dividend (that is, you pay to own it): taxes + repairs. You don't really have any access to that money, unless you sell and move to a cheaper location. In expensive locations this could be problematic: tying up $1 million, which could earn 3% in dividends (say KO or something) and instead pay 1% tax + repairs, I'm not sure that's a great investment. The $30k of dividends would pretty much pay rent on an apartment. Now if you have a family, this calculation might change.

mythz 5y ago
You don’t have that 1M to collect dividends on and if you had to borrow it, it would be more than the interest of a capital backed mortgage and that income would be taxable on the top tax bracket on top of your salary whilst your non-taxable rent comes out of after tax income. Property is also the only asset class in which I’ll leverage debt to purchase in order to enter the housing market at a fixed price at my current affordability. I’d only recommend purchasing a home where the mortgage payments + holding expenses is =~ rent (which means lower cost properties), which will improve over time when mortgage gets paid down and rent goes up. You do have access to that capital from paid down mortgage or increased valuation by redrawing it if you need to. So reducing the mortgage would be my highest priority which I’d do with an offset account, so the funds are readily available when needed which otherwise is reducing the interest amount.
BobbyJo 5y ago
You're only tying up 10-20% of the price of the home, and doing so at a lower rate than you could ever get for any other purpose. Also you need to factor in the rent trade off, which makes it an easy decision in some markets if you have the cash. I just bought a house last year and my mortgage+instance is 300$ less a month than the cheapest apartment I could find in the same city. 1200$ less than a comparably sized apartment.