Why I decided to become a real estate investor


For most of my journalistic career – almost 17 years now – I spoke out against the inequalities in our housing system. The way tax breaks drive up demand for housing, inflate prices and put it out of reach for many young Australians – at least, those unlucky enough to have access to mom and dad’s bank .

For the record, I am still in favor of abolishing negative debt on property, reducing the reduction in capital gains tax and finding a way to tax the capital gains. -values ​​on principal residences – or, at least, to include part of it in the test of resources for the old-age pension. .

Hell, I would even be willing to make some sort of rule to limit how many houses you can own, because housing should be just that – shelter.

I am still scathing at the Labor Party for abandoning its policy reforms aimed at reducing land tax concessions. And I can’t understand how the Morrison government can get away without having a political response to one of the defining public policy crises of our time: housing affordability.

On some level, I hate the idea of ​​taking a house from a young family who might otherwise buy it to live there. But if economics teaches us anything, it’s that incentives matter. So, I find myself on the verge of responding to the incentives at hand, as so many others have done before me.

If you can’t beat them join them I guess.

It’s important to note that owning isn’t the only investment choice I can make. Earlier this year, I explored the idea of ​​borrowing to invest in stocks. But I just can’t stand the idea of ​​“margin calls” – where you have to tip extra if the value of the shares drops below a certain amount, or if they are forcibly sold on your behalf.

There is one product on the market – NAB Equity Builder – that does not have margin calls.

But overwhelmingly, banks are happier to lend – and for much larger amounts – if they are secured by property. Unlike dividend income from stocks, they are happy to include rental income from the property when assessing your ability to repay the loan, allowing you to borrow more.

And leverage (debt) is what guarantees you ownership of an asset much earlier in the coin, on which you can profit from supercharged capital gains (or losses).

Consider this scenario. If I use my monthly ‘investing surplus’ (income minus living expenses) of around $ 2,000 to buy stocks directly, as I have been doing for the past few months, I can take advantage of portfolio returns starting at $ 1. $ 500 and possibly reaching $ 24,000 by the end of the year.

However, if I spend the same monthly excess servicing the costs of an investment loan on, say, a $ 500,000 property, I can enjoy capital gains (or losses) on that full amount from day one.

Yes, it is more risky. But it also brings the potential for higher returns (or losses, of course).

Look, there is a possibility that we are on the verge of fixing the soaring real estate prices and my investment is not paying much. It seems plausible to me that we need to get closer to the point where record interest rates cannot fuel house price growth much more.

Cheap debt is the main driver of rising prices these days, given the way it allows people to borrow more and cover the costs of borrowing from a given income.

It’s a risk I’m about to take, I guess.

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I just reread this column from a first-time buyer perspective and agree: I would hate myself too. I hope that at least by being honest I can highlight some of the injustices in our system.

As always, I’ll let you know how I’m doing.

  • The advice given in this article is general in nature and is not intended to influence readers’ decisions regarding investments or financial products. They should always seek their own professional advice that takes their personal circumstances into account before making financial decisions.

You can follow Jess’ more Money Adventures on Instagram @moneywithjess and sign up to receive her weekly newsletter via The Age here or The Sydney Morning Herald here.

About Kristina McManus

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