WIth interest rates on home loans currentky at around 8.07% property needs capital gains of around 9% a year just to break even. This is obviously reduced with rent and tax deductions but only marginally. Why would you invest in property at the moment with such better gains and less fees/expense with stocks? Why would you buy a P.P.O.R when you will obviously be loosing around $15-$20k a year? Discuss….
Because stock markets crash, and crash massively and suddenly. The market is very high right now, and more than one commentator on the state of the US economy has likened the current conditions to 1929 and 1987.
I have a L.O.C at 7.37%, and I am sure there are cheaper. Your figure of 8.07% is not applicable to investing in property; maybe a P&I loan for a PPoR, but you can't compare PPoR's with stock and shares – PPoR's are not an investment vehicle (unless you move out and turn it into an I.P), while stocks and shares are an investment vehicle.
If I had a million tied up in the stock market I would be nervous. If I have a million tied up in property I can sleep like a baby. Why?
Because I know that my properties are totally insured, and they will be there in the morning and still worth what they were last night. I have total control over the investment. A well selected, well positioned and managed/maintained property never goes down in value; even during corrections. There are plenty of properties that lose a stack in value during a correction; you read about them in the papers, but the average house, for the average family, in the average suburb just keeps going up no matter what.It's hard to compare apples with apples too; you can leverage higher with property than with shares if you are using the share or property as the security on the loan to fund the purchase, so this makes comparisons harder.
What are you basing the 'better gains' on with stocks? What index are you using with the stocks, and is it an averaged gain across the whole index? What time-frame are you using to analyse the gains, and what amount of money are you using? By this I mean that you can buy $5k worth of stocks with cash, but you can't buy a property with $5k. So you have to leverage to get into property even at the base level.
So if we use the exact same cash deposit and leverage factor that applies to each investment vehicle (shares and property), which would return the most money, taking into consideration all the aspects of the investment; depreciation, fees, rental income, dividends, averaged cap growth over a given period; say, the last 100 years?
For example, if we have 2 people, both earning $100k gross per year, gave each a $50k cash amount, and said to one invest in property, the other invest in shares, leverage as much as you can to aquire as much as you can using the same bank, using the investments they wish to buy as the security on the loans, then did an analysis after 20 years, and took into account all the costs, fees and returns from rent, tax returns, dividends, cap growth etc.
They re-invest all profits and tax returns and dividends into the loans. My guess is the cash on cash return and the internal return of property will win, and it's safe.
Having said that, I am not averse to shares; I have some equity set aside waiting for the next stock market crash (next 2 years I reckon) so I can buy up a few of the wrecks. You have to take opportunities if they arise.
L.A Aussie wrote:. If I have a million tied up in property I can sleep like a baby. Why?
Because I know that my properties are totally insured, and they will be there in the morning and still worth what they were last night. I have total control over the investment.So you think all the people with super in the event of a stock market 'crash' arnt going to try to offload some property to make up for their massive losses? Dont youthink this would also put downward pressure on that 'totally secured' property investment?
Look at it this way-you are a 50-65 year old who has enjoyed the booming property market and as a result of the times have around 2-5 properties. You also have a significant super fund which due to the 'crash' is now worthless. What would you do? Sell a property? Maybe sell 2? Wouldnt everyone else also start to do this in a pnaick that their life savings has just been slashed? I could imagine an element of panick would set in-people would readily drop prices, your 'secure' investment is suddenly also now worth less….?
Things are'nt as black and white as this.
Many property investors also have a share portfolio and vice versa. In fact most professional investors would have more than just one sector covered.
Of all major crashes in history – all have recovered to new highs. Whilst a CRASH is a scary word a canny investor reads it as OPPORTUNITY. A well managed portfolio is no more risky than a property one.
Higher leverage with property is a fallacy. Shares can be leveraged easier than property and just as high. There really is little difference except that shares have few outgoings and no repairs.
Evry so often this argument raises it's head – it is naive of anyone to ask which is better. Even more naive is to suggest that one indeed is!
Is like me asking you which car should I buy?? Well which one? Quick, answer me??
No sensible answer can be offered without taking several personal factors into account!
For all of you reading this who are convinced that shares are bad then you don't understand them properly. I challenge you to go and learn something new and even make a purchase. You will never regret learning something new about a whole new field of opportunity!
anyone noticed the sharemarket crashing lately?
Yes good isnt it if you have been short for a fortnight.
Richard Taylor | Australia's leading private lender
blogs wrote:L.A Aussie wrote:. If I have a million tied up in property I can sleep like a baby. Why?
Because I know that my properties are totally insured, and they will be there in the morning and still worth what they were last night. I have total control over the investment.So you think all the people with super in the event of a stock market 'crash' arnt going to try to offload some property to make up for their massive losses? Dont youthink this would also put downward pressure on that 'totally secured' property investment?
Look at it this way-you are a 50-65 year old who has enjoyed the booming property market and as a result of the times have around 2-5 properties. You also have a significant super fund which due to the 'crash' is now worthless. What would you do? Sell a property? Maybe sell 2? Wouldnt everyone else also start to do this in a pnaick that their life savings has just been slashed? I could imagine an element of panick would set in-people would readily drop prices, your 'secure' investment is suddenly also now worth less….?
As I said; well selected, well positioned property that the average family, in the average suburb lives in will never goes down. They have to live somewhere; it is a basic necessity. The demand for average housing by the majority of the population is always there, whether it be for rental purposes or to buy.
However, to answer your question – would they off-load some property to offset the stock losses, and would it have a downward pressure on the "totally secured" property investment?; I suppose it would depend on whether they are receiving a passive income from the property or not at the time, and whether there are many others who need to sell their properties at that time as well. You are assuming that there are a good number of retirees with I.P's – there aren't. There aren't even a good number of retirees with shares or substantial super.
The recent stats on super pay-outs were terrible; something like an average of only $70k or so per person (Denys Correll, N.E.D, Council of The Ageing) ; hardly a fortune, which means these people are not losing much wealth in the event of a crash, more than likely don't have many, if any shares or property and probably take a part pension in retirement.
Personally, I wouldn't (and don't) put a lot of money into super as it is heavily linked to the stock market and the money is locked away until after you retire. There is no control. If there is a crash, all you can do is sit by and watch the wreck happen. Super losses are only "on-paper" losses until you retire anyway so they may bounce back before you need to take the pay-out, so those who are not retired would have no need to sell their properties as they haven't had a realised loss from the super yet. But most people who invest in super don't tend to invest in any other type of investment vehicle. The scenario you mention would only apply to people who have already retired and are trying to live off their super pay-out.
I think that the majority of investors around the country are predominately in shares, mutual funds, property trusts or super and not directly in property (this is certainly the case in the US), so if the scenario you mention occurs, the volume of people having to sell their properties to offset the share market and super collapse would not have much of an impact on the housing market anway. I think the percentage of property owned by investors in Aus is only around 25%?, and the chances of even half of those needing to sell if the share market crashes would be very small.
Ask yourself this; how many people in your circle of friends or aquaintances own an I.P? In mine there are 2 other than me – they both own one other property – a holiday home (not even an I.P). That's why I'm on this forum annoying all you guys – no mates to talk property investing with!
People don't tend to sell their properties during a slump unless they need to; the rent is still coming in, so if you don't sell there is no problem. If my property portfolio halved in value overnight (has this ever happened?) I would still have the same rent coming in.
Many people with shares, however, have their wealth linked to the cap growth of the shares and the dividends are linked to the value and company earnings, so if the value drops so does the income, or they sell off a few parcels of shares now and then to get some cash to live off. They can't afford for a drop in the stock market to occur in this situation. I played golf today with two retirees who have some direct stocks, mutual funds and tradeable mutual funds (can't remember the exact name of those). They live off the income from these investments, and in this last week their portfolio has dropped 20% in value. They are bleeding, getting nervous and are cashing out; holding a good chunk of their wealth in cash now, looking for a good high interest cash account. Good luck. They own no property other than their PPoR, which I guess they wouldn't sell.
So, no; the properties are pretty secure.
I remember someone saying to me a couple of years ago a company they had shares in had bad news. They panicked and sold, but by the time they did prices had already dropped. I think the company had recovered in its share price when they were talking to me a few weeks later. At least with an IP you've got time to rethink selling once you put it on the market.
L.A Aussie wrote:and in this last week their portfolio has dropped 20% in valuebolony!
market has dropped about 6% in the last week
Okays both Property and shares are equally safe! Yes if you trade property short term you are subject to massive volatility, just like if you trade shares.
If you hold both for the long term both have less volatility. The main difference is shares give you market value every second of every day. Should you look at this? Hell no if you are in it for the long term. You cant do the same with property, even if your neighbours house sold for a poor value you would find reasons as to why their house is worth less than yours. None of that on the stock market. You get the facts and you get it instantly (short term data).
A crash occurs over 1day to 1 month. That is SHORT TERM. So if you hold shares for the long term (like property) you would ignore this.
Be sure you understand your investment strategy and stick to it diligently.
Regards,
MathewThis so called crash has bought the All Ord's back to where it was in Feb 07.
Hardly a ripple in the water. There is more to come but this can only be good news as it gives shorting opportunities on the way down and then buying thereafter.
Richard Taylor | Australia's leading private lender
crashy wrote:L.A Aussie wrote:and in this last week their portfolio has dropped 20% in valuebolony! market has dropped about 6% in the last week
Their share portfolio has dropped 20%.
They didn't tell me what markets or what shares they were in.
Was 6% "across the board"?Quote me if I'm wrong about the difference between shares and property, The difference are, risk and value. You can add value to property with a paint job or reno, but u cant with shares. You have control over your property, someone else has
control with your shares. What happens when your shares crash? The word "Crash" is, self explanatory.Just my thoughts between the two.
blueheeler wrote:Quote me if I'm wrong about the difference between shares and property, The difference are, risk and value. You can add value to property with a paint job or reno, but u cant with shares. You have control over your property, someone else has
control with your shares. What happens when your shares crash? The word "Crash" is, self explanatory.Just my thoughts between the two.
What is a crash?
Is a period of opportunity which soon passes as the market reaches a new high.
Any new arguments as to why I should stop creating wealth through shares?
Hey Simon,
you are experienced in both property and shares;
what's your take on the big contest, taking away the mitigating factor of risk?
You know my feelings on this issue; I prefer the safety versus risk of property to shares.You don't see it that way; in your opinion, what is/has been the best return for your money? Are you nervous about the possibilty of a crash that would wipe out the value of your shares?
As a side note; were you in shares during the 1987 "crash", and if so, did it affect you? Are the crashes or corrections localised like property?
The reason why I ask this is we are mainly in property, and only recently, and in a small way, in shares. During the last "correction" of the property market in Aus since 2003 we have only had growth. We have no properties that have experienced a drop in value – quite the opposite thankfully.
I think its a mistake to think property carries more risk than shares. The only difference between the two is that shares change value by the second, whereas property might get revalued once a year at best. If you ran a “house value ticker” updated daily you might be surprised at the volatility.
The other issue, is that all shares in a company are equal. Whereas all houses in a suburb are different. With shares the value is always known by comparing the sale of other shares.
In 2003 I hinted at the possibility of some property values falling by 30% and was laughed out of town. We can now see that many suburbs did in fact fall by that amount.
If shares were revalued once a year 1987 wouldnt register a fall. You must also take into account the issue of liquidity. Shares can be sold @ market value, whereas selling a house you might have to sell 10% or 20% under market to get a quick sale.
A healthy investment portfolio needs Property and paper assets such as shares,
As you develop your investing knowleadge and learn the ins and outs of both asset classes you'll see that you don't have to pick a side use both to your advantage,
at the moment I hold
-3 Investment properties delivering +cashflow,
-A small development project,
-A longterm share portfiolo
-2 parcels of speculative shares
-a holding in an unlisted company
-and a holding in an unlisted property trust.
-and my own company that provides the cashflow that funds my life style,By speading your investment funds accross different investment sectors and assest classes you will get the best growth vs risk out come,
neither shares or property are better than the other, they are just different, it's up to you how you structure your portfiolo that will provide the good or bad results.
One thing that I will say though is property is more "stable" than companies in the long term, but in the long term a good company will grow much, much faster than property, that is why you need both in your portfolio.
would you rather have been gifted $1000 of westfield shares in 1965 or $100,000 of sydney property, I would take the $1000 of westfield shares as they would be valued at close to $200 million today.
Hi Guys,
Do you think it's better to buy a first home now (Sydney), save rent, & use the FHOG now given the current flat (buyers) market or purchase positively geared investment property first and miss out on FHOG? My gut feeling is too hold off , till election , see if FHOG is doubled, and in the meantime explore how to build asset column, and continue to build business (could take 18 months) to assist with servicing own home loan debt down the track.
Do you see house prices falling in Sydney?Interested to get an outside view on this.
Kind Regards,
ChrisAnyone know any good share market forums?
twyfordcc wrote:Hi Guys,
Do you think it's better to buy a first home now (Sydney), save rent, & use the FHOG now given the current flat (buyers) market or purchase positively geared investment property first and miss out on FHOG? My gut feeling is too hold off , till election , see if FHOG is doubled, and in the meantime explore how to build asset column, and continue to build business (could take 18 months) to assist with servicing own home loan debt down the track.
Do you see house prices falling in Sydney?Interested to get an outside view on this.
Kind Regards,
ChrisYou don't lose the FHOG if you first buy an IP. Stamp Duty exemption is another issue.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
