Wednesday, December 21, 2011

Cash or Property?

This story has been submitted by a reader:

"Read with interest your story “Property or Shares”. I know many people who are equally dismayed at the negative return and decimation of their super fund accounts. I know some people who were intending to retire in 2012 but now say they will have to work for years, but now are soon to be made redundant.  Where does a person of retirement age with a successful white collar job history get a job.  Impossible they say. Meanwhile, their super funds continue to get chewed up. I feel very sorry for them.  They were well off, nice, generous people, now they are bitter and angry and getting poorer and are looking at selling their house in a declining market and downsizing to a granny type flat and will have little money to live out their retirement years.    

To add to your  “Property or Shares” post,  I’ll give you a similar actual for “Cash or Property”.  I owned (no mortgage) a PPR property in a very good Brisbane West suburb bought in 2004 for $285,000 inc stamps.  I sold it in Jan 2010 just at the final ring of bell of the top end of the market for $1,100,000. For certain reasons, I also paid CGT of about $60,000 out of the proceeds leaving me with $1,040,000. At the time of sale, it was impossible to get a similar house in that street under $1,000.000, though those days were quickly coming to an end as the GFC MK-1 took hold and I took the risk to unload and rent.  I felt at the time those houses were way over valued. People would pay anything to live in that street.  I used to attend auctions as a spectator sport in that street and watch them go mad. They’d pay anything.  I told myself they were mad and decided to sell, the bell is about to ring.  Not by accident, I was right.

I’ve had that cash on deposit with the banks and have been getting between 7.75% and 6.05% distributed across several online savings accounts approximately averaging in rough figures $66,000 p.a. To date, approx $120,000 in interest, compounding,  with absolutely no risk, bank guaranteed, calculated daily, paid 1st of the following month every month with cash funds available in just seconds.

Meanwhile, that house and all houses in that street have depreciated in value and are now selling for $680,000 to $775,000. Just recently, a house of almost identical age, design, appearance , condition, size and land size directly across the road from my old house sold for $750,000. I’m awfully glad I sold out. I’m now renting at an absolute riverside location, a 2brm unit for $24,000 per year.  I reckon I’m  $350,000 ahead in CASH than if I’d held on in the property market and still owned that property today."   

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