ONS- June: +2.3%

DervProf

ukcarper wrote: »

Its a bit to easy isn't it.

To spot that if you take on a mortgage of £190k on a £200K house that appreciates by 6% over 5 years, you don't make a profit of £12K ?

Yes, it is very easy.

And no, Hamish, I didn't "conveniently ignore" anything. You typed "So far so good, right?", so I checked if everything was good so far, and it wasn't.

If you're going to run an example, please try and make it accurate, instead of just carelessly throwing around figures that favour your point.

HAMISH_MCTAVISH

ukcarper wrote: »

Its a bit too easy isn't it.

It sure is....

I think DP has been forced to adopt the "pedantic muddling" method of debate.*




















*Copyright Graham Devon 2012

Generali

HAMISH_MCTAVISH wrote: »

In the last 5 years from today, Gold is up 147%.

So, lets run an example.....

A buyer in Aberdeen in 2007 takes a 10K deposit and buys a 200K house.

Today, that house would be worth £212K. So a profit of £12,000.

Had he instead taken the 10K and bought Gold, that Gold would be worth £24,700. So a profit of £14,700.

So far so good, right?

Except of course, people need a place to live, and you can't live in £10K worth of Gold bullion....... so had he not bought the house, he'd have needed to pay rent.

A 6% rental yield (typical for Aberdeen) on £200,000 for 5 years = £60,000.....

And in that same time he'd have been able to average around 3.0% or so in mortgage interest.

So the gain from buying versus renting is now £42,000.... Which beats the alternative, ie, a £14,700 profit from investing the depsoit in Gold in 2007, hands down.

But, nice try DP, I admire your persistence.;)

Trouble is HM, you're comparing a leveraged investment with a non-leveraged one. If the gold buyer had used a leveraged form of investment such as a future or some types of ETF to the same level of leverage as the house investment they would have made £147,000 profit before costs (ignoring other insignificant things like the chance that the gold buyer would have been stopped out of his volatile investment).

Still it's not a fair comparison as if prices fall, a leveraged investment can lose its entire value and more whereas you only risk your purchase price with the outright buy of an asset.

HAMISH_MCTAVISH

Generali wrote: »

Trouble is HM, you're comparing a leveraged investment with a non-leveraged one..

Well, yes.... As of course DP was inclined to compare Gold and Property.

Now as most people don't have a 6 figure sum sitting around to invest in either, I thought it fair to compare real world likely options.

Still it's not a fair comparison as if prices fall, a leveraged investment can lose its entire value and more whereas you only risk your purchase price with the outright buy of an asset.

You could of course leverage up on Gold through buying on margin... But the volatility of the market is such that even on the way up there were numerous opportunities to get wiped out with just a small miscalculation. Given the risks, best left to professional traders, I reckon.

Whereas with mortgaged residential property, margin calls don't exist. Making buying with leverage an infinitely safer proposition, provided you're in it for the long term.

Generali

HAMISH_MCTAVISH wrote: »

Well, yes.... As of course DP was inclined to compare Gold and Property.

Now as most people don't have a 6 figure sum sitting around to invest in either, I thought it fair to compare real world likely options.



You could of course leverage up on Gold through buying on margin... But the volatility of the market is such that even on the way up there were numerous opportunities to get wiped out with just a small miscalculation. Given the risks, best left to professional traders, I reckon.

Whereas with mortgaged residential property, margin calls don't exist. Making buying with leverage an infinitely safer proposition, provided you're in it for the long term.

You needn't be wiped out with a leveraged gold ETF as you wouldn't get a margin call there either. In fairness you can't get 10x leverage on an ETF but then you can't on a BTL either.

Maximum leverage I can find on a gold ETF is 3x although I didn't look for long. Maximum leverage on a BTL loan is what? 3x or 4x at a guess (ie 33% or 25% deposit).

DervProf

HAMISH_MCTAVISH wrote: »

It sure is....

I think DP has been forced to adopt the "pedantic muddling" method of debate.

I [STRIKE]reckon[/STRIKE] know that Hamish got it wrong, and has adopted the classic "know it all" tactic of not wanting to admit or correct his error, and therefore muddle the issue by making the accusation of "muddling".

It's hardly pedantic Hamish, the clear as day fact is that in your example, you would not have made £12K profit on the property after 5 years.

With a 3.5% repayment mortgage, monthly payments would be about £950. That's £57K over 5 years. The outstanding mortgage would be £164K. That's £48K "profit" on the actual value of the property, but it's cost you £57K, so you are £9K down on the deal. Being "pedantic" might be taking any setup/legal fees on the mortgage, but no need for pedantry if you compare a £12K profit with a £9K loss.

DpchMd

You know you've hit rock bottom when you're arguing with a guy over the internet about precious metals at 2am on a Friday night.

Graham_Devon

DervProf wrote: »

Not really, unless the £190k mortgage is interest free. I know that the base rate is low right now, but I'm sure I haven't seen any base rate - 0.5% deals recently.

Interest fee, fee free, solicitor free, stamp duty free etc.

You get the point. Don't argue with Hamish over housing costs, he doesn't appear to factor in any costs ever in any calculations. And he's only spent £500 on his house since moving in 6 years ago, so apparently everyone else wastes money if they spend more than that.

I think it's fair to say £500 in updates and maintenance isn't very much, and most people would spend more than that over 6 years to keep the place fresh.

DervProf

Graham_Devon wrote: »

Interest fee, fee free, solicitor free, stamp duty free etc.

Indeed.

Not to mention that it might be a tad difficult getting a low rate (I used 3.5% in my example) mortgage with a 5% deposit at the moment. I would have thought that "Big H" would have recognised that, as he is always reminding us about how the banks aren't lending.

I think he is rather rattled that the rise in the value of gold has far outstripped Aberdeen house prices over the past 5 years, and has therefore come up with a half baked example to show that Aberdeen bricks and mortar are the only option.

BTW. I own virtually no gold, nor any gold investments, but I am a homeowner. I therefore have no direct vested interest in the value of gold.

Graham_Devon

HAMISH_MCTAVISH wrote: »

It sure is....

I think DP has been forced to adopt the "pedantic muddling" method of debate.*
copyright Graham Devon 2012

It appears to me so many more people appear to be muddling the debates you find yourself in. It seems to be something you reply with more and more often to more and more posters.

While doing it to one poster who challenges your mathmatics may work, doing it to everyone who challenges you doesn't really work, and just becomes an excuse.

Generali made the best point in Hamish comparing an investment made with your own capital and investment made with loaned capital. The glaring problem with the calculations is that if you had 50k in the banks, you wouldn't be able to make any money on property investment at all without extra loans. However, you could still make the 147% profit on gold.

I don't have any gold. I do have a house, before I get told I'm just a gold bug renting parasite.