As Safe as Bricks and Mortar.

The latest RP Data residential housing report is out.

http://www.rpdata.com/images/stories/content/pressreleases/rp_data_rismark_home_value_index_jun_30.pdf

Prices.

Yields.

So who is going out to borrow $400,000 ($100,000 deposit) for a $500,000 investment property in Brisbane?

Investor A.
a. Loan Repayment on $400,000 borrowed is $37,000 (interest rate 8% over 25 years)
b. Gross Income (rental yield) $22,500 (4.5% from above chart).

c. Negative Annual Cashflow (a - b) $14,500.
d. Current Annual Capital Loss of Underlying Asset (house prices falling @ 5.9% ) $29,500

e. Total Annual Loss Before Tax (c + d) $44,000.
f. Negative Gearing Tax Refund of  $2,790 (30% marginal tax rate on Interest paid minus Rental income)

g. Nett Loss (e - f) $41,210 (without accounting for management fees, rates, insurance, stamp duty etc)

Investor B.
Puts $100,000 deposit in a Term Deposit @ 6.5%.

a. Earns $6,500 Before Tax.
b. Tax on Interest $1950. (30% marginal assumed).

c. Net Gain (a - b) $4,550

So $100K to invest (Brisbane Real Estate vs a TD). A $41,210 loss or a  $4,550 gain?

So who is going out to borrow $400,000 ($100,000 deposit) for a $500,000 investment property in Sydney?  It went UP 1% in 12 months right!

Investor A.
a. Loan Repayment on $400,000 borrowed is $37,000 (interest rate 8% over 25 years)
b. Gross Income (rental yield) $21,500 (4.3% from above chart).

c. Negative Annual Cashflow (a - b) $15,500.
d. Current Annual Capital Gain of Underlying Asset (house prices rising @ 5.9% ) $5,000

e. Total Annual Loss Before Tax (c - d) $10,500.
f. Negative Gearing Tax Refund of  $3,093 (30% marginal tax rate on Interest paid minus Rental income)

g. Nett Loss (e - f) $7,407 (without accounting for management fees, rates, insurance, stamp duty etc)

Investor B.
Puts $100,000 deposit in a Term Deposit @ 6.5%.

a. Earns $6,500 Before Tax.
b. Tax on Interest $1950. (30% marginal assumed).

c. Net Gain (a - b) $4,550

So $100K to invest (Sydney Real Estate vs a TD). A $7,407 loss or a  $4,550 gain?

Perth? $100K to invest in a $500,000 property (Perth Real Estate vs a TD). A $55,907 loss or a  $4,550 gain?

Hobart? $100K to invest in a $500,000 property (Hobart Real Estate vs a TD). A $25,107 loss or a  $4,550 gain?

Its not...