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Are people really losing money on their properties?

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  1. #31

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    Quote Originally Posted by Liebling:
    Yes, I was assuming self use, but the model can be used for investment rental also. To do this I benchmark the property against a safe corporate bond, usually giving between 3-5%.
    Seems to me the calculation applies equally to self use, if you weren't living in your own place you would presumably be paying rent somewhere.

    Quote Originally Posted by Liebling:
    The rental yield figure is misleading, a 4% figure does not mean a 4% return. After factoring vacancy, routine repairs, and rental income taxes, the return is more like 2-2.5%.
    Indeed.

    Quote Originally Posted by Liebling:
    In reality, the rental income is important from a cash flow perspective, but does not make or break the investment. In hong kong property, the big swings in wealth are determined by appreciation/depreciation.
    That doesn't make any sense to me, your target appreciation of 3% is your own figure and is approximately what you would expect to get from rental yield. If your investment brings in, for example, 3% a year from capital growth and 3% from income yield that's a total of 6% a year. I see no reason why you would ignore half of the return on your investment because the money is paid to you in a slightly different way, particularly if the purpose of your calculation is to compare it to another investment vehicle.

    Generally speaking, not particularly with property, I don't understand why people treat income and capital growth as fundamentally different things for investment purposes, it's all just money it seems to me. If, for example, your investment brings in 6% capital growth and no income and you take out half of your capital growth as income, or your investment brings in 6% income and no capital growth and you reinvest half of your income, or your investment brings in 3% capital growth and 3% income then they all seem to me to be essentially the same, the only issue being perhaps liquidity, depending on the nature of the investment. I'm happy to be corrected by some of the people on the forum with more expertise in this area if I have misunderstood however.
    Mat likes this.

  2. #32

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    You can also reinvest the rental income for said 25 years in case you paid cash on your property and you look at it like an investment vehicle. HK$ 10 million invested in a safe corporate bond, or HK$ 10 million cash in a property.

    If you are talking about taking a loan for your property and the only cash investment is the down-payment, then the comparison of bond vs. property wouldn't work anyway, would it?

    To be fair, you could also re-invest rental income even if you took out a loan, but I am not sure if those type of loans (maturity loan) are available in HK.

    Last edited by 100LL; 21-03-2012 at 10:45 AM.

  3. #33

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    I think its all a scam, lol. You can argue this is safe and what not but look at the people who have no retirement. Blame the people, right, for their choices, but we are arguing what investments are good for us.

    Corporate bonds can and do fail. Stocks tank. Logistically it sounds all great, buy low and sell high, but does this happen on reality. Who has the time to play the markets on top of their full time job. Yes it is fun. But I can say that I have invested in the markets for over 10 years and I did a great job then had a mistake. My eggs were not in one basket but it takes your profits away. In the end, I guess I can only thank luck for success. Considering all of the stress, time and risk involved, was it worth it? Well I think not.

    With that being said, I dont like the markets. Housing is different as you can borrow the money and you can live in it. But I dont think you can argue capital growth because its like if I sold my stock on the highest day then I would be very high, but that day has come and gone and not to return. Once you realize your profit, then you can calculate your return. Until then, its all speculation.


  4. #34

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    high...happy...as you like. stupid autocorrect and big fingers on small mobile.


  5. #35

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    Quote Originally Posted by dipper:

    That doesn't make any sense to me, your target appreciation of 3% is your own figure and is approximately what you would expect to get from rental yield. If your investment brings in, for example, 3% a year from capital growth and 3% from income yield that's a total of 6% a year. I see no reason why you would ignore half of the return on your investment because the money is paid to you in a slightly different way, particularly if the purpose of your calculation is to compare it to another investment vehicle.

    Generally speaking, not particularly with property, I don't understand why people treat income and capital growth as fundamentally different things for investment purposes, it's all just money it seems to me. If, for example, your investment brings in 6% capital growth and no income and you take out half of your capital growth as income, or your investment brings in 6% income and no capital growth and you reinvest half of your income, or your investment brings in 3% capital growth and 3% income then they all seem to me to be essentially the same, the only issue being perhaps liquidity, depending on the nature of the investment. I'm happy to be corrected by some of the people on the forum with more expertise in this area if I have misunderstood however.

    The big difference between capital appreciation and rental income is the risk involved in speculating future events. The risk in predicting if the market will go up/down in the future is far greater than the risk involved in renting out a flat today, therefore the market shift is the driving factor for profit. Re: rental income, you can reasonably assume you will be able to rent it out within a couple months, at or close to market rate. Unless you get a really bad tenant, renting out a flat is basically a known quantity, especially so in hong kong where property is highly fungible. You can make a pretty good guestimate at the profit.

    Future market swings however, are impossible to accurately predict, and therefore carry far greater risk/profit. If the market goes up, then capital appreciation rises immediately, and rental yield will rise potentially when the lease is up(the opposite is true for depreciation). Your conclusion is correct that half the profit/loss is derived from rental income, but in fact capital appreciation/depreciation is the driving force behind profitability of property deals. Rental income is an important but relatively predictable component of any deal.
    TheBrit likes this.

  6. #36

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    Sure, but I see no reason why the relative predictability of the rental component of the return on investment would be a reason to ignore it. It is what it is.

    Mat likes this.

  7. #37

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    Quote Originally Posted by booth:
    high...happy...as you like. stupid autocorrect and big fingers on small mobile.
    If I sold all my stocks at the highest peak and made a large profit, I would be very high as well. And yes, I meant HIGH

  8. #38

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    I guess the only black-and-white way of calculating loss is whether the property, if sold, would receive a lower figure than it was purchased for. Other than that a match-up against having put the deposit into a Building Society or bank deposit account with interest reinvested the next best thing. For the type of property I am/have been interested in the question is a no-brainer.


  9. #39

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    Quote Originally Posted by dipper:
    Sure, but I see no reason why the relative predictability of the rental component of the return on investment would be a reason to ignore it. It is what it is.
    I am ignoring it in this case because i don't think it bears much relevance to the OP question "are people losing money on their properties".

    In simple terms I see the equation like this:

    I have a chunk of savings I want to invest (Principal cash).

    I can put this money into a property, reliably earning 3-5% from renting it out, and possibly earning/losing money in capital appreciation.

    vs.

    take my chunk of savings and buy a corporate bond/dividend yielding stock, reliably earning between 3-5% from coupon/dividend, and possibly earning/losing money depending on how bond/stock markets perform.

    The salient issue is the unknown factor of how property/bond/stock markets will perform. I assume the rental income/coupon/dividend as a relatively risk free forgone conclusion, and therefore not central to the answering the OP's question.

    I have left leverage out of the above equation for the sake of simplicity, but it doesn't change the equation regardless.

  10. #40

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    i've lost count of the number of people that have told me they are 100% out of HK property in their portfolio and comparing this point in time to SARs and 97 and waiting for the bust before buying up big.

    I personally don't own anything but will be very interesting to see how some of the crystal-ballers on here have fared in the short term

    Last edited by jw1701; 09-07-2012 at 02:40 PM.

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