Let's do an exercise .. now that we're in the property bubble.
A typical house in Melbourne starts off with a 4% gross return let's say (but probably less in your well heeled suburbs). So after allowing for regular maintenance, and budgeting for eventual replacement of wear and tear items and repairs (ducted heating, spouting, painting, fence,electrical, termite damage etc..) you'd probably net 2% of that.
Also Let's say for the sake of this exercise - you had $150,000 cash sitting in the bank earning you 6% interest. - that gives you an income of $9,000 per annum where you're not doing anything. Plus interest rates are likely to go up !
Now if you were to use that $150,000 instead as a deposit for a house .. and borrow $250,000 from the bank. - you end up with a $400,000 house now that gives you a 2% net return (budgeting for all the likely repairs and maintenance and replacement as above). So 2% nett.. means you earn $8,000 net per annum from the $400,000 property.
But the $250,000 borrowed at 8% = a $20,000 per annum interest bill... so you're $12,000 in the red ($8,000 nett income - your $20,000 per annum interest bill).
So you've gone from a position where your $150,000 was earning you $9,000 worry free interest in the bank to a situation where you've used this original $150,000 as a deposit and borrowed $250,000 to buy a house - that results in a $12,000 per annum loss.
i.e. you're worse off $21,000 per annum doing that - so what is the motivation of buying a property right now ?
