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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 mo

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.

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.