Investopoly

A few months ago, a reader of this blog asked me to analyse two options. Option one is to borrow more money to fund an upgrade of your family home and consequently enjoy tax-free capital gains. The second option is to invest in property. The reader wanted to know which is the best option, net of all taxes such as capital gains and land tax?Widen the scope of the questionI’d like to widen the scope of this question and add one more option – investing in shares. I have concerns with investing large amounts of borrowed funds in the share market, which I will discuss below. However, as an independent financial advisory firm, it is important that we always provide a balanced view – even if some of the options we are comparing are more of an academic comparison, than a practical one.Interest rate assumptionOne of the key assumptions in my financial modelling is interest rates. Normally, I like to adopt a conservative long-term interest rate assumption of 6.5% p.a. However, I realise that this might be less appropriate when interest rates around the world are making their way to zero (or are already there) and central banks are pursuing quantitively easing. It is very likely that interest rates will remain persistently low for an extended period of time. That said, it’s also not impossible that interest rates will rise sometime in the future too.As such, in this analysis I have assumed that the variable interest rate is 3.7% for investment loans and 2.9% p.a. for home loans and will remain at this level for the next 3 years. I have then assumed rates will rise by 3% p.a. over the following decade (on a straight-line basis) and remain at that level.What is most important is that I have used the exact same assumptions when comparing all options.The quantitative analysisI financially modelled three scenarios:Option 1: Borrowing $1 million to fund a home upgrade from $1 million to $2 million. This allows you to move to a superior location thereby enjoying a superior capital growth rate.Option 2: Borrow $1 million to invest in a property that generates gross income of 2% (rental yield before expenses) and capital growth of 7% p.a.Option 3: Borrow $1 million and invest in shares which generate 4.0% p.a. in dividends (40% franked) and 5.Do you have a question? Email: questions@investopoly.com.au or for a faster response, post a comment on the episode's video over on YouTube: https://www.youtube.com/@investopolypodcast/podcasts If you're interested in working with my team and me, discover how we can work together here: https://prosolution.com.au/prospective-client/If this episode resonated with you, please leave a rating on your favourite podcast platform. Subscribe to my weekly blog: https://www.prosolution.com.au/stay-connected/ Buy a one of Stuart's books for ONLY $20 including delivery. Use the discount code blog: https://prosolution.com.au/books/DOWNLOAD our 97-point financial health checklist here: https://prosolution.com.au/download-checklist/IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.

CBA Economics stated last week that property price declines are “inevitable”. It has forecast that prices will fall by circa 10% in Melbourne and Sydney over the next 6 months. It cited many reasons for this forecast including higher unemployment, lower economic activity, lower mortgage volumes, falling rents and fewer overseas buyers.I wanted to take some time to look at this forecast and provide my commentary. This exercise serves as reminder that all forecasts are inherently uncertain and tend to have limited application for investment decisions.Relationship with unemployment and property growthSimple logic would suggest that if less people are employed, fewer people will be able to purchase a property and some may need to sell their properties. As such, if demand for property falls, prices may follow. That’s the basic laws of supply and demand.However, the chart below doesn’t support this hypothesise. We should see the green line (average house price growth for subsequent 3-year period) increase when the blue line (unemployment) falls. That is not always the case. In fact, the data suggests there’s a very weak relationship between property growth and unemployment.CWhat happened during the last recession?Let’s look at Australia’s last recession as an example (i.e. the “recession we had to have”). Between 1990 and 1992, unemployment rose from 5.85% to 11.2%. During this period, the subsequent rolling 3-year annual property growth ranged between 1.1% p.a. and 3.4% p.a. Inflation was circa 1.5% p.a. during this period, so in real terms, property prices were flat.What happened was there was very strong price growth between 1985 and 1988 (i.e. over 20% p.a.) and property prices started falling from early 1989. Unemployment started to rise in early 1990. Therefore, property price falls actually proceeded a rise in unemployment, not the other way around.Why might there be a weak link between unemployment and price growth?I can’t offer a definitive answer, of course. But I think a large part of the answer lies in two factors being (1) the fact we all need somewhere to live and (2) the housing market is close to equilibrium in terms of demand and supply i.e. most Australian’s have somewhere to live.Do you have a question? Email: questions@investopoly.com.au or for a faster response, post a comment on the episode's video over on YouTube: https://www.youtube.com/@investopolypodcast/podcasts If you're interested in working with my team and me, discover how we can work together here: https://prosolution.com.au/prospective-client/If this episode resonated with you, please leave a rating on your favourite podcast platform. Subscribe to my weekly blog: https://www.prosolution.com.au/stay-connected/ Buy a one of Stuart's books for ONLY $20 including delivery. Use the discount code blog: https://prosolution.com.au/books/DOWNLOAD our 97-point financial health checklist here: https://prosolution.com.au/download-checklist/IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.

If there is one certainty in life, it’s that there’s always going to be some uncertainty.Of course, there are times in our lives where there’s higher levels of uncertainty, which can be very stressful. But, to a degree, we all have to become comfortable with some level of ‘uncertainty’ and learn how to dance with it.This is especially true with financial decisions. Markets never exhibit zero risk (i.e. no uncertainty). This blog considers how to financially navigate uncertain times, much like we are experiencing today.Uncertainty can exist in three ways being (1) personal circumstances, (2) domestic uncertainty and (3) global uncertainty. Each is different and requires a different approach.Personal uncertaintyPersonal uncertainly relates to your personal financial position. This can include things such as the risk of a change in your income, losing your job, unexpected bills, relationships and so on.How to deal with personal uncertaintyWhen it comes to personal uncertainty, the best thing is to put all material financial decision making on hold. Typically, the uncertainty resolves itself within a few months or possibly a year. That is, your fears are either realised, or the risk evaporates. Either way, it is likely that sometime in the near future you will be able to resume normal decision making (management).Remember, investing and building wealth is a marathon, not a sprint. There’s no need to put yourself under any undue time pressure. Instead, you must make deliberate and well thought out decisions – there’s no need to rush. However, of course, at the same time, you must consciously avoid unnecessarily procrastinating too.It is possible (although rare), that the passage of time does not in fact eliminate the uncertainty. An example of this is when one of my clients was facing the prospect of his employer cancelling his project (i.e. redundancy) for many years. In this situation, we just had to accept this higher risk and proceed with implementing his financial plan. We held larger than usual cash buffers to mitigate some of these risks. In the end, the redundancy did eventuate, but not for many years.Domestic uncertaintyDomestic uncertainty relates to matters that are unique to Australia. These can include things such as changes to taxation rules or economic health. A recent example of domestic uncertainty arose dDo you have a question? Email: questions@investopoly.com.au or for a faster response, post a comment on the episode's video over on YouTube: https://www.youtube.com/@investopolypodcast/podcasts If you're interested in working with my team and me, discover how we can work together here: https://prosolution.com.au/prospective-client/If this episode resonated with you, please leave a rating on your favourite podcast platform. Subscribe to my weekly blog: https://www.prosolution.com.au/stay-connected/ Buy a one of Stuart's books for ONLY $20 including delivery. Use the discount code blog: https://prosolution.com.au/books/DOWNLOAD our 97-point financial health checklist here: https://prosolution.com.au/download-checklist/IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.

We provide answers to a number of frequently asked questions below. We will continue to add new questions and update our answers as events and government announcements unfold.Questions about pausing loan repaymentsHow does the loan repayment pause work?Banks are offering customers the ability to pause residential loan repayments for up to 6 months if they have been impacted financially by coronavirus. I provided links to each lender’s relevant webpage at the bottom of this blog post.It is important to note that banks are not offering an interest-free period. Interest in respect to your loan will continue to accrue and be added onto your loan balance.For example, if your interest only loan is $100,000 and your interest rate is 3% p.a. then your monthly interest bill is $250. If you request the bank to pause repayments for 6 months then at the end of this period, your loan balance will be $101,500 (being the original balance plus 6 monthly payments of $250).Most lenders have confirmed that they will not charge interest on the unpaid interest amount (e.g. the $250 per month) during the loan repayment pause period.Should I pause my loan repayments?If you are unable to continue to make your loan repayments on time due to financial hardship, then pausing your loan repayments is a good solution.However, if you do have alternative means of making repayments e.g. from cash savings, redraw, etc. then my advice would be to utilise those other mechanisms first, before you pause your loan repayments.Should I pause my repayments if I’m concerned about losing your job in the future?No. If your income has not yet been impacted by the coronavirus then our advice would be to continue making normal loan repayments. If your financial situation is adversely impacted in the future, then you may consider pausing repayments at that time. We anticipate that lenders will allow borrowers to do this at any time over the next six months.Will pausing repayments affect my credit rating?No. The Australian Banking Association has confirmed that borrowers that take advantage of the repayment pause option will have any impact on their credit rating – see Do you have a question? Email: questions@investopoly.com.au or for a faster response, post a comment on the episode's video over on YouTube: https://www.youtube.com/@investopolypodcast/podcasts If you're interested in working with my team and me, discover how we can work together here: https://prosolution.com.au/prospective-client/If this episode resonated with you, please leave a rating on your favourite podcast platform. Subscribe to my weekly blog: https://www.prosolution.com.au/stay-connected/ Buy a one of Stuart's books for ONLY $20 including delivery. Use the discount code blog: https://prosolution.com.au/books/DOWNLOAD our 97-point financial health checklist here: https://prosolution.com.au/download-checklist/IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.

With most people being required by their employer to work from home, I thought it would be timely to update you on what deductions you can claim and what evidence you need as substantiation.Start keeping record nowRemember, the onus of proof is on the taxpayer to substantiate any deductions they claim. If you use a tax agent, you probably won’t have to lodge this year’s income tax return until March 2021. How likely is it that you will remember everything you did and all the purchases you made in March 2020, one year from now? Unlikely right. Therefore, its best to start keeping records now.Expenses you may be entitled to claimHere’s a list of expenses you can typically claim.Running costsThese expenses include heating, cooling, lighting, cleaning, and so on. There are two methods you can use to calculate this deduction:1. Fixed rate - You can claim a deduction of 52 cents for each hour you work from home instead of recording all of your actual expenses for heating, cooling, lighting, cleaning and the decline in value of furniture. You can either keep a record of the number of hours you have worked from home during the coronavirus period. Or, if you regularly work from home, you can keep a diary for a representative 4 weeks; or2. Actual costs – You can use this method if you have a dedicated workspace and you can accurately apportion costs such as power, heating, cleaning and depreciation. You still need to keep a 4-week diary or actual record of hours worked to support your calculations.Obviously, for most people, the fixed rate option is the simplest. More information is available on the ATO’s website here.ConsumablesItems such as software subscriptions, stationery, paper for your printer and printer ink can be tax deductible. You must retain receipts as evidence.Mobile phone & internet expensesThere are two methods available to use to determine your tax deduction for mobile phone usage:1. A total deduction of $50 with limited documentation required. This method is appropriate when your device usage is incidental; or2. Claim a proportion of actual expenses. To work out the actual work-related proportion, you need to consider the amount of usage solely for work cDo you have a question? Email: questions@investopoly.com.au or for a faster response, post a comment on the episode's video over on YouTube: https://www.youtube.com/@investopolypodcast/podcasts If you're interested in working with my team and me, discover how we can work together here: https://prosolution.com.au/prospective-client/If this episode resonated with you, please leave a rating on your favourite podcast platform. Subscribe to my weekly blog: https://www.prosolution.com.au/stay-connected/ Buy a one of Stuart's books for ONLY $20 including delivery. Use the discount code blog: https://prosolution.com.au/books/DOWNLOAD our 97-point financial health checklist here: https://prosolution.com.au/download-checklist/IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.

Author and property investor, Michal Yardney says “real estate investing is a game of finance with some houses thrown in the middle”.People think that the scarce resource is investment-grade property. But the scarce resource is actually borrowing capacity – as everyone has a limit to how much they can and should borrow.In a normal market, investors that seek professional advice from a buyers’ agent will eventually be able to identify and acquire a quality asset. And if you had an unlimited borrowing capacity, theoretically, you could keep buying property. However, the reality is that everyone has a limit to what they can borrow. Safely maximising that limit allows you to invest more and build personal wealth. That’s why investing is a game of lending, not investing.My recent experience is case in pointMy wife and I recently refinanced some loans from Westpac to ANZ. Most of these loans were established at Westpac in the past 3 to 5 years. One loan was established as a result of an unexpected, but advantageous, property acquisition in late 2016. To get the loan approved, we had to agree to making accelerated (additional) loan repayments to reduce debt.However, over the past 3 years, our loan to value ratio has reduce significantly and our overall financial position has materially strengthened. Plus, we have been making substantial loan repayments thereby reducing our debt.As such, I approached Westpac to (1) restructure our loans and (2) access some equity. In short, they said no! Whilst this was frustrating (and frankly nonsensical), it reminded me how important it is to know the rules of the lending game. You need to know when to push and when to walk. And most importantly, whether a ‘no’ is really a ‘no’ – maybe you are either talking to the wrong person at your existing bank or need to go to a different bank.The short story is that we refinanced to ANZ, obtained a lower interest rate, almost all debt on interest only repayments (only one loan on P&I because we requested it, not the bank) and we obtained access to a large amount of equity.To win at the game of investing, you need to first win the game of lendingI have always counselled my clients to do two things. Firstly, always borrow more money than you think you need (large buffer). Secondly, the best timeDo you have a question? Email: questions@investopoly.com.au or for a faster response, post a comment on the episode's video over on YouTube: https://www.youtube.com/@investopolypodcast/podcasts If you're interested in working with my team and me, discover how we can work together here: https://prosolution.com.au/prospective-client/If this episode resonated with you, please leave a rating on your favourite podcast platform. Subscribe to my weekly blog: https://www.prosolution.com.au/stay-connected/ Buy a one of Stuart's books for ONLY $20 including delivery. Use the discount code blog: https://prosolution.com.au/books/DOWNLOAD our 97-point financial health checklist here: https://prosolution.com.au/download-checklist/IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.

Given many people are worried about the unknown consequences of the Coronavirus, I thought it was timely for me to share my thoughts and advice. Like in all ‘crises’, it is important to not let emotion or fear drive your responses. ‘A steady hand on the tiller’ is the best approach when navigating any storm.I acknowledge that the Coronavirus may have caused significant emotional and heath distress to people around the world. I fully empathise and understand this situation and do not seek to downplay its impact. But it is important for me to stipulate that my comments below are only about the financial impacts and considerations, not any health concerns.We’ve heard it all before! Don’t get sucked in.Financial markets are closed.All banks are going bust.The way we conduct global business has changed forever and will never be the same again.Property markets will take decades to recover.I heard all of the above statements during 2008 and 2009 when I was glued to the TV late at night throughout the GFC. They are all alarmist predictions and have all been proven to be wrong.The human race (and economy) is incredibly resilient and innovative. We have faced many challenges and prevailed. This will be no different. In respect to the financial impact on the vast majority of people in the long run, just like with the GFC, I suspect it won’t be that significant.Once the coronavirus risk passes, I’m sure Australian’s will start spending again to get the economy back to its normal level. I anticipate that our spending decisions will be directed towards the most effected industries such as hospitality and tourism, with the same community mindedness that was evident during the recent bushfires.Our lives are filled with predictions and usually most extreme ones get the most airtime. Try not to get sucked in. The best approach is to carefully avoid the mainstream media. Worrying has never made any problem better.Short term thinking creates anxietyWhen it comes to money and investing, short term thinking has always created anxiety. This is even more true when markets are volatile. Short term thinking does not serve you well. It promotes you to either be too greedy (when markets are high) or too fearful (when markets are low).Instead, a faDo you have a question? Email: questions@investopoly.com.au or for a faster response, post a comment on the episode's video over on YouTube: https://www.youtube.com/@investopolypodcast/podcasts If you're interested in working with my team and me, discover how we can work together here: https://prosolution.com.au/prospective-client/If this episode resonated with you, please leave a rating on your favourite podcast platform. Subscribe to my weekly blog: https://www.prosolution.com.au/stay-connected/ Buy a one of Stuart's books for ONLY $20 including delivery. Use the discount code blog: https://prosolution.com.au/books/DOWNLOAD our 97-point financial health checklist here: https://prosolution.com.au/download-checklist/IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.

Borrowing to invest, particularly in property, has been a very popular investment strategy in Australia. A mortgage is a wonderful servant but a terrible master. If you use mortgages properly, in a risk adverse way, it can be a very powerful wealth accumulation tool. However, if used poorly, it has the power to destroy more wealth than it creates. After almost 18 years since establishing this firm, I thought it was timely to share some insights and observations about borrowing to invest.Inflation will eventually eat away at the value of debt over time.Interest rates reflect inflationary expectations. That is, when inflation expectations are high, so are interest rates. As such, borrowers are paying for the inflationary cost of debt each year. This is evidenced by the fact that a loan’s amount does not change from year to year. If you borrow $200,000 today and don’t make any principal repayments, in 20 years’ time you will still owe $200,000.But we know that over time, due to the impact of inflation, our purchasing power reduces. A $200,000 loan in the mid-1980’s was a big deal. Today, it is considered a small loan. Whereas a loan for $1 million today is regarded as a big loan. However, in 20 years, a $1 million loan will be equivalent to $670,000 in today’s dollars (assuming an inflation rate of 2% p.a.). And only $550,000 in 30 years.Because interest rates include the cost of inflation, and investors pay for that each year, in real terms, the value of their debt reduces over time.It magnifies your return on equityUsing some borrowings to fund the acquisition of an investment means you can contribute less of your own cash. For example, assuming interest rates are 5% p.a., if you contribute 60% of a property’s price in cash (and borrow the remaining 40%), I estimate the investment will be break-even from a cash flow perspective. That is, the rental income should be enough to pay for the property’s expenses and interest costs.If you retain this $750,000 property for 20 years and it appreciates in value by an average of say 7% p.a., it will be worth circa $2.9 million. I estimate that the investor would crystallise approximately $2.05 million of cash after selling the property (net of costs, repaying the loan and CGT) after 20 years. So, the initial cash contribution of $450k (60% of the purchase price) has grown to $2.05 million after 20 years. That equates to a compounding annual growth rate of 7.9%. Without Do you have a question? Email: questions@investopoly.com.au or for a faster response, post a comment on the episode's video over on YouTube: https://www.youtube.com/@investopolypodcast/podcasts If you're interested in working with my team and me, discover how we can work together here: https://prosolution.com.au/prospective-client/If this episode resonated with you, please leave a rating on your favourite podcast platform. Subscribe to my weekly blog: https://www.prosolution.com.au/stay-connected/ Buy a one of Stuart's books for ONLY $20 including delivery. Use the discount code blog: https://prosolution.com.au/books/DOWNLOAD our 97-point financial health checklist here: https://prosolution.com.au/download-checklist/IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.

Coronavirus’ impact on share markets is a hot topic at the moment. We’ve seen global markets fall by over 10% between 21 February and 2 March 2020. It seems that the market’s sentiment shifted literally overnight from a state of being arguably ‘over-optimistic’ to being ‘very fearful’. Some of my clients have voiced their concerns about the impact that coronavirus might have on their investments. I wanted to share my thoughts on this and what actions, if any, you might take.The share market can be a wild ride, you just need close your eyes and hang onWhen the market is running hot, most investors overestimate their tolerance for risk (volatility). Often people say, “I understand that share markets can be volatile, and I’m prepared for it, let’s invest”. However, when the volatility does eventually occur, that is when you really learn about one’s appetite for risk.We must realise that volatility is often short lived. Share markets have a volatility rate of circa 20% p.a. This means, annual returns can vary from the mean (average) return by +/- 20% from year to year. However, in the long run, there’s a strong trend of mean revision – which means investment returns in the long run are more predictable. The chart below provided by global fund manager, Dimensional demonstrates this. Market returns 5 years after a major event (e.g. crashes, terrorist attack, CGF) are positive.And realise that you have to be in it to win itIn the face of uncertainty (i.e. higher volatility), some investors consider selling. The problems with selling is that you will likely miss the recovery. The chart below (again courtesy of Dimensional) demonstrates that your investment return between 2001 and 2018 (more than 4,300 trading days) would reduce from 7.66% p.a. to 1.76% p.a. if you missed the best 25 days over that period. In this case, you would have been better off investing in bonds, not equities.This proves that you need to remain invested throughout good times and bad. The first rule of investing in my bookInvestopoly, is to ‘play the long game’. If you applied this approach when you first invested in the share market (i.e. a diversified portfolio of low-cost, rules-based investments contructed to maximise long term returns), then you must have faith that it will work. And it will, if you’ve Do you have a question? Email: questions@investopoly.com.au or for a faster response, post a comment on the episode's video over on YouTube: https://www.youtube.com/@investopolypodcast/podcasts If you're interested in working with my team and me, discover how we can work together here: https://prosolution.com.au/prospective-client/If this episode resonated with you, please leave a rating on your favourite podcast platform. Subscribe to my weekly blog: https://www.prosolution.com.au/stay-connected/ Buy a one of Stuart's books for ONLY $20 including delivery. Use the discount code blog: https://prosolution.com.au/books/DOWNLOAD our 97-point financial health checklist here: https://prosolution.com.au/download-checklist/IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.

Over the last few weeks, lenders have aggressively cut fixed rates, particularly for investors that borrow on an interest only basis. Three and five year fixed rates now range between 3.18% and 3.40% p.a. This means the cost to hold an investment property is as low as it’s ever been.This doesn’t mean we all should run out and buy an investment property.The cost to hold a median propertyThe graph below charts the annual after-tax holding cost of a median value house (average of Melbourne & Sydney) expressed in today’s dollars. As you can see, a property’s after-tax holding costs have typically ranged between $10,000 and $30,000 per annum over the past 40 years.https://www.prosolution.com.au/wp-content/uploads/2020/02/holding-costs.png?189b78&189b78The red line is the estimated annual after-tax holding costs based on current fixed rates.A $800k apartment will cost $500 per month to holdLet’s look at the cost to hold an $800,000 investment property (apartment) using actual data as an example.https://www.prosolution.com.au/investment-property-holding-costs/Therefore, this property, for example will cost you circa $505 per month (after-tax) to hold.Low rates will likely inflate property valuesIt is a commonly accepted economic principal that lower interest rates typically lead to an increase in asset values (i.e. the value of equities and property rise). The reason being is that the lower cost of debt means higher profits to owners which means assets are worth more.The graph below charts three variables:§ The rolling average capital growth rate over 20 years for median houses in Melbourne and Sydney; and§ The cost to hold an investment property (as charted above). This is calculated as the annual after-tax holding cost of a median house based on prevailing interest rates at that time, expressed in today’s dollars; and§ The average rolling 20 year growth rate between 2000 and end of 2019.https://www.prosolution.coDo you have a question? Email: questions@investopoly.com.au or for a faster response, post a comment on the episode's video over on YouTube: https://www.youtube.com/@investopolypodcast/podcasts If you're interested in working with my team and me, discover how we can work together here: https://prosolution.com.au/prospective-client/If this episode resonated with you, please leave a rating on your favourite podcast platform. Subscribe to my weekly blog: https://www.prosolution.com.au/stay-connected/ Buy a one of Stuart's books for ONLY $20 including delivery. Use the discount code blog: https://prosolution.com.au/books/DOWNLOAD our 97-point financial health checklist here: https://prosolution.com.au/download-checklist/IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.