I am not trying to knock Property Investors as I hold property investments myself, but alot of your posts here knock the share market saying it is to risky, while making out property is solid as a rock.
I believe the property market is just as risky as the stock market, for many different reasons and that the perception of security is a bit of a myth,
MYTH 1- "property prices don't drop in value like the stock market",
Fact- yes they do, you may not notice it because your property value is not updated every 20mins or quoted in the daily paper and it takes months for the infomation on sales to be correlated and reported, and even if you do get bad news on house prices nobody believes it relates to their investment,…. also the share market may drop quickly but it also can recover quickly, when property drops it is down for the count for some months or years add to this the holding costs of you investment on an 80% lend and the loss is ballooned, so your actual return on your investment of 20% deposit might be a 200% loss.
MYTH 2- "I Haven't really lost any money because I am not planning on selling"
Fact- yes you have, If your property is neg geared you are loseing money every week, And if this statement is really how you feel well you haven't lost money if you weren't planning on selling your shares either,
MYTH 3- "property Is safe because people will always need some where to live"
Fact- well it's true, but they won't always need to live in your house or suburb and they will also need to buy milk, electricity, Petrol, and a million other goods and services provided by companies listed on the stock market, just because shares prices drop doesn't mean that the factories, shops, gas piplines, power plants, trucks etc etc etc stop making money it's just that the prices investors are willing to pay for them on that particular day has droped as long as the company keeps producing income and growing the share price will always recover.
MYTH 4- "The company I invest in could go broke and I would lose every thing"
Fact- Possibly, But what if no tenant wanted to move into your house, atleast with the stock market you have the ability to spread even a small amount of investment dollars accross many different companies, and sectors and countries with property you have to lump hundreds of thousands of dollars on one street address,
And finally remember an investor makes his choices based on risk and reward, property only doubles once in 7 – 10 years companies can double many many times in 7-10 years, so if you held a portfiolio of 15 companies over 7-10 years 1 might drop in value 3-4 may only move slighlty but the rest would probally have big gains some may even be star performers doubling 20 or 30 times.
love to here other investors thoughts on this topic
Im not sure either way but i think property is just familiar. How many people in Australia want to own there own home?
It would certainly be the majority. For this reason people learn about property by default therefore they are familiar with it and it isnt as scary as shares…
Shares on the other hand are pretty well foreign territory. I believe people have to go out of there way to find out about them. The terms are not used in everyday conversations. It is like a new language (more than PPOR, IP, IO…) to learn even before you start on the strategies.i am interested in shares but im not really sure where to start. I have the asx link in my favourites and plan on doing some of the free tutorials there.
looking forward to other peoples opinions
Have to agree with you birddog. Three months ago i went out and bought 3 books on trading shares and they were pretty much for beginners, my god i think i forgot most of it in the morning (and that was just the first 2 chapters).
Property does seem easier as most people need to purchase one to live in so it is familiar territory. I can't just ring a stock broker and pick their brains for free on which stocks to buy or sell. I'm a bit dissapointed in myself really for putting the stockmarket books down, but it really was like a second language to me!
Without doing a costly course, can I really learn to trade basics from a book and then learn as i go?
Tysonboss, i'm sure there are many people here who would love to start but don't know how. I have looked at the same website as birddog and how funny have it in my favourites as well, but hmmmm still not sure. Can you offer an avenue we should take to start out? I don't mind the hard work even if it took me a year before my first trade.
You're wrong…sorry.
Handy Andy wrote:You're wrong…sorry.About what,….. share your opinion.
G'day Bird and Beanie,
I read my first Share market book when I was 15, It was called "How the share market really Works" By Martin Roth, It is basically a nuts and bolts book about everything you need to know before you start,
Another Book that I recommend for everybody that wants to learn more about different companies comes out every year and is called "TOP STOCKS 2007" Its also by Martin Roth he picks about 100 shares each year to put in the book and writes a page on each one which includes a discription of the company, latest business results, outlook, risks, a 5 year graph and a table of data.
these two books pretty much got me started in investing, after I read these books and learned what all the ratio's and stuff meant I pretty much just read the business section of the paper and the financel reveiw, and reseached companies I thought were interesting on the internet and downloaded annual reports and company announcments and stuff,
remember you don't have to be an active trader buying and selling all the time to make money, you can use similar stratergies to that of property investing, such as buy and hold companies that are paying good dividends or have good growth, I like to have about 10 companies that I think will perform in the long term, and I put aside a certain $$$ amount each month and regularly buy shares in which ever company out of my 10 that I feel is the best value at that time, and if the share market does drop and you know that your companies are good companies then use it as an opportunity to build up your holdings.
After you have been investing for a while in some solid companies and have a growing portfiolio you might even like to invest a little in a couple of speculative investments, such as small companies that have a lot of growth potential, it can be quite fun to research some of these companies although they do carry more risk the reward can be massive, never hold more than 10% of my portfolio in speculative investments though,
One of the speculative investments I have been building up at the moment is a company called "Agri Energy"( do not buy into this company on my recomendation alone, do your own research) Its is currently valued at $0.27 / share, watch this one grow over the next 3 months, keeping in mind it only has to rise 3cents to acheive over 10% growth, i think by xmas it should be trading at nearly 50cents / share.
"I am not trying to knock Property Investors as I hold property investments myself, but alot of your posts here knock the share market saying it is to risky, while making out property is solid as a rock."
If you a buy a standard, well positioned, good quality average family house in an average established suburb, make sure it is properly insured, using a standard P&I, fixed rate or I.O loan, you will never wake up in the morning and find out it is worth zero.
You will always find a tenant, you can always repair any damage, you can always add value. These sorts of houses, if bought at fair market value and held for the immediate to long term, always go up in value. Of course; they may not go up value very quickly, but they always have and all ways will.
There are many horror stories of people who have lost money in property, but this is usually bad decisions by the owner – they buy too high, over-extend themselves financially, maybe have to sell for some unexpected reason and now they have to sell at a loss. Or maybe they got caught in a two-tier marketing scam. It is still their fault; they should have researched the local values properly, checked the cashflows to make sure they could addord the repayments if a prolonged vacancy occured, or maybe they didn't insure the property and it burnt down, or the tenants trashed it.
With shares, there is no scope to insure against loss, you can't add value, you can't increase the dividends (as you can with rent, you can't be in the board room looking over the financial reports with the company execs trying to decide which direction to take the company. You have no control. I know there are numerous strategies to buy shares – puts, call, warrants etc, which can protect the investor (if they are knowledgeable enough) from a downturn.
But if we are talking about a straight-out purchase as in the case with buying a standard 3 x 2 suburban house, then there is very little you can do to protect your share from disappearing to zero overnight. I know there are many who will say "oh, but that is unlikely to happen".Well, the reality is it could happen, and has happened. Think Emron, WorldCom etc. These were supposedly "blue chip" companies.
If you have bought shares directly, and the market tanks over-night, you may not have a buyer to save you before the share reaches zero value. With property, no matter what the market is like, you can still sell it for something. So, if we are talking about only risk, and no other mitigating factor, then property is the winner.
…. and here I am naively making hundreds of thousands of dollars on the stockmarket over the years, blissfully unaware that I am only one day away from disaster. You reckon I should stop it? Seriously?
What about Gates and Buffett, they have so much to lose. I better email them this thread so they can sell up and save themselves! Maybe get a few regional pos cashflow properties instead.
Come on guys … just because you ar ignorant of something is no reason to write it off. Why not cede controle to an expert? I reckon the CEO of Woolworths and ANZ knows more about making money in business than you and I do about property put together!
Either learn about the sharemarket then make a decision or stick to what you know – and admit it. Taking a middle ground and publicly arguing it just makes you look a fool
Quoting Enron, HIH etc is just picking out solitary examples to prove a sweeping generalisation. I might argue that going to the beach is courting death because I read about the guy in South Australia who was taken by a shark! Doesn't prove a rule my friends.
For those that want to learn – go to http://www.asx.com.au and find some wonderful education resources. Buying shares is not a whole lot different to property. Do your due diligence, make an offer, settle the deal, hold them until your goal is achieved and sell for a profit or sit back and enjoy a strongly growing rental income. You don't have to make it harder than that.
By the way a lot of value can be added to shares without ever picking up a paintbrush, ripping up a carpet or picking up a shovel. Can double your money without even getting off your bum!
You already know a lot about some shares. Woolworths, Telstra, ANZ, NAB, Coles, etc etc You know what strengths and weaknesses these companies have. It doesn't have to be much harder than that!
All the best to those of you who have open minds,
L.A Aussie wrote:
If you a buy a standard, well positioned, good quality average family house in an average established suburb, make sure it is properly insured, using a standard P&I, fixed rate or I.O loan, you will never wake up in the morning and find out it is worth zero.I am sorry to disagree but you can, if you buy a property for $200,000 with a 10% deposit and six months latter it is valued at $180,000 then your investment of $20,000 is now worth nothing and not to mention the $600/month neg cashflow you may have been losing + rates + management fees+ Vacancy period,……. then add any legal fees and stamp duty you incurred during the sale,….. and your going to lose 3% of your sale price to agents commisson…… offcoarse people will say the market will eventually correct itself and you will make back these losses, but this is true with the sharemarket also, If you really want to talk about horror stories what if there was a high profile gruesome murder in your property, what would it be worth then, what would the rent be like after that, would it have a tenant in it next week,
With property you are also open to alot of risks that are out of your control, such as goverment rulings, tax rulings(what if the ato canned neg gearing benefits), council planning, interest rates.
People might mention horror share market stories,… but if you hold 15 well picked stocks in strong companies you are not going to wake up in the morning with nothing any more so than you will with property investments. yes your investments will move with the tide of the market, but so do all investments, even property and Bonds.
Remember when professials talk about risk ,.. they are not talking about the possiabilty of losing it all or making a million( we are investing not playing black jack),.. they are talking about the possiblty of having a nil or negative return in that particular year,
most share investors accept that their portfoilio as a whole May have a nil return or negative return 1 out of 5 years,…. Most property investors accept that they will have a Garanteed negative return in the first few years,… then a nil or negative return every 4 out of 7 years after that, think of the property clock, during the down and flat periods ( which is two thirds of the time) most property investors are taking losses.“If you a buy a standard, well positioned, good quality average family house in an average established suburb, make sure it is properly insured, using a standard P&I, fixed rate or I.O loan, you will never wake up in the morning and find out it is worth zero.”
unless the government has plans for a freeway through your back yard. if you buy a good quality share you will never wake up in the morning and find out it is worth zero.
“These sorts of houses, if bought at fair market value and held for the immediate to long term, always go up in value. Of course; they may not go up value very quickly, but they always have and all ways will.”
and shares dont?
“There are many horror stories of people who have lost money in property, but this is usually bad decisions by the owner – they buy too high, over-extend themselves financially, maybe have to sell for some unexpected reason and now they have to sell at a loss.”
gee, people who buy shares never do any of that right?
“With shares, there is no scope to insure against loss, you can't add value, you can't increase the dividends”
all false statements.
“there is very little you can do to protect your share from disappearing to zero overnight. I know there are many who will say "oh, but that is unlikely to happen".
Well, the reality is it could happen, and has happened. Think Emron, WorldCom etc. These were supposedly "blue chip" companies.”
wow. you found 2 companies that went bust out of the 70 million companies on the planet. firstly, they didnt go bust overnight. second, its ENRON, not emron. a little knowledge is dangerous. thirdly, ok, sometimes companies go bust. But, how many houses triple in value overnight? this often happens with shares and easily offsets your argument.
“If you have bought shares directly, and the market tanks over-night, you may not have a buyer to save you before the share reaches zero value.”
what rubbish.
” With property, no matter what the market is like, you can still sell it for something.”
really? So all the houses listed 3-4 months with no offers are a figment of our imaginations?
Now just because I have blown LA’s argument to bits doesnt mean I think shares are better. I think they have the same risk when ALL factors are considered by EDUCATED investors who walk the walk instead of regurgitating the talk.
I'm not keen to try to make a comprehensive argument here either way, but I will make one point. In some ways share investing is lower risk than property investing. I could buy today shares in one of the world's largest telecommunications companies and be sure to get an annual return of around 6.5% fully franked. This is a high-quality investment. Capital gains however, are not guaranteed, nor is the value of the invested capital. But this also is true of investments in rental properties. The difference is, a net yield of 6.5% is not available on high quality residential real estate.
An investment that relies on uncertain future capital growth to achieve a decent gain is inherently more risky than one that relies only upon its relatively certain future profit flows.
Cheers, F. [cowboy2]
Disclaimer: I am not a financial advisor. Don't read the above as advice and please don't try to sue me if your investment strategy doesn't work out.
Disclosure: I currently own no shares outside of my superannuation fund. I sold up last year in expectation of a serious and broad-reaching downturn in sharemarkets. Despite the recent turmoil and ~7% market shakedown, the All Ords index is still 11% above my sell-level.Hi Tyson,
I think I covered the scenarios that can affect the performance of the standard property in my first post.You're assuming I would buy a $200k property in an area that is likely to go down in value, and has a neg cashflow. I don't do that.
If I buy a $200k property, I am buying it with cap growth factors covered, the ability to add value in cap growth and rent return, and pos cashflow (including 4 weeks vacancy per year). See my 1st post on the thread: "What's your Criteria?"
The key factor is to identify areas that have strong cap growth factors, rent demand, buyer demand (purchase price in relation to the median and the average wages for that area), and buy there so that a decrease in price is unlikely.
Based on that criteria, there is never a reason to sell, and the Landlord's insurance covers any protracted vacancy period over my 4 week allowance in the holding costs.
I agree, a murder will affect it's sale price, but it will still sell. It is not worth nothing, and even if there was a murder, there is not necessarily a reason to sell the property.There was a case in Sydney a couple of years ago where this occurred. The house was sold eventually. It still had value, albeit much less. The worst case scenario for that property would be to bulldoze the house and rebuild from scratch. Then you get rid of the stigma and have a lovely Depreciation "on-paper" deduction to boot.
The govt did abolish neg gearing benefits in the '80's and it caused an enormous exodus from the market (by neg geared investors). This triggered a huge shortage of I.P's, so rents skyrocketed. For those investors who were pos cashflowed and didn't need to sell this was a lovely time. But the properties were still worth something. The govt re-instated the neg gearing benefits soon after, I don't think they will make that same mistake again. Of course; they might, but if all the bases are covered and the properties are pos cashflowed then there is no problem.
Council planning, interest rates, govt and tax rulings are controllable factors in-as-much as they are part of the due diligence. For example; I wouldn't buy a property on a street that has any likelihood (or future planning) for a freeway extension, or a road widening, or a commercial zoning. I wouldn'y buy a property for subdivision plans without making sure that the zoning definitely allowed for that to occur. I admit there could be changes by the ATO on tax deductions, but I believe these would have to go thru legislation, and as I mentioned, the govt are loath to fiddle with the incentives for investors too much now after the '80's, and a pos cashflow property will hedge against these problems to a large degree. In any event; the average property in the average area will still be worth a lot (probably no drop in price at all) as it will be in an area of high demand by renters and buyers. Part of the criteria.
Hey Simon,
I don't know if your post was directed at me? No drama if it was; I'm a big boy, but I am not ignorant to the sharemarket. I do have a few shares, but it is not my passion or "strong suit". I agree with you; you can make lots of money from the share market. That was not the question that Tyson asked, and I did not "write it off". I do have an open mind to shares, and I reckon most investors do, otherwise they wouldn't be investors. The only people who have a closed mind are people who do nothing.The question Tyson asked was the relative risk of shares to property. I identified what I believe are the risks, based on past history, compared to the risks in property. Anyone who chooses to ignore that history is less open minded than someone who identifies the risks and plans accordingly.
Two quotes from Warren Buffet which are a good mindset for the stock market:
"I buy my straw hats in the winter".
"I made a fortune out of buying too late and selling too early".Simon, one last thing; I come on this forum and share in detail how to invest in property with very little risk and maximum return, based on my experience. It's what I know best (I don't know it all). I do it for free and am happy to impart my (limited) knowledge to help others. I have no agenda, other than to help others learn and learn myself.
I identify what I believe the risks are in shares (and property) because people ask, and I believe it is my responsibility to make people aware of the pitfalls of investing. But I don't offer tips on how to do invest in shares successfully because I am not that knowledgeable about it.
You, on the other hand, are very knowledgeable about shares, but never put forward some ideas and tips for the readers on how to be successful at it and minimise risk. You only put forward opinions about shares when someone makes a contrary opinion to yours. That is not doing the readers on this forum any good.
So come on, do the readers a service and be proactive about the topic. Don't just sit there and take pot-shots and tell people to "go and learn" – tell them a few "hows". I for one would certainly love to know more. If the share market is not as risky as you say, tell us how this is so and how to avoid the risks. I know this is a property forum, but shares is discussed very regularly, and people would like to know how to do it.
Who knows; you may even drum up a few more customers for your business by throwing a few tid-bits our way.
G'day Marc,
Yes in a down turn your property would still be worth something but your investment wont, The piont I was trying to get at is that when you invest in property,… say you use $20,000 of your own money or equity for a $200,000 house ,… after two years of neg cash flow, stamp duty on purchase if your property is still only worth $200,000, your investment of the $20,000 deposit may have been eroded to nothing,
For example I found a house that I was looking at buying a few months ago, The person bought it in 2003 for $212,000,… for them to break even on the deal they would mave to sell it for over $250,000 to make back the interest they have paid, stamp duty, maintance, neg cash flow during that time and the 3% sales commission, and the amount that they have to sell it at to break even is growing every day as they incurr cash flow losses, this property is only valued at $230,000 at the most so their investment of the $30,000 deposit has decreased by over $20,000 thats a negative 66% return.
L.A you keep mentioning that you will always be able to sell your property for somthing so you will never lose money,. but that is untrue you have to work out your profit and loss on the total amount returned minus the total amount you put in,
Capital gains are not happening at a steady rate they come and go, so your property investment could have been sold for $200k last week, this week $210K next month $195K, you won't know offcoarse because your property values aren't listed in the paper,
you also said that you don't buy unless all your capital growth factors are covered, Impossible you can not garantee that a property will have capital growth from day one, If you make an investment and their is no capital growth for 12 months then you have made a loss, simply as that, you might say that you havn't sold it so you havn't lost anything but that is flawed thinking, you have incurred a loss year, just as I explained share investors accept the risk of 1 loss year in 5.
there
You know it wasn't aimed at you specifically. Was more a knee jerk reaction I have to everyone who believes shares are inherently dangerous. An atitude that is usually fostered by a well meaning parent who knew someone who speculated once out of greed and got burnt. It is an attitude that gets reinforced daily in forums like this. I would never say that shares are better than property or vice versa. Only that they are a perfectly valid avenue in themselves. If anyone believes they are "risky" and akin to "gambling" then they should reasses where that belief comes from and be honest with themselves.
When I fist started borrowing to buy shares my peers thought I was insane. They knew what borrowing was for – it was for buying cars and going on holidays. Even whitegoods etc. But not to blow on a share that might go down in value.
What if I lost money they asked?I must admit that when I first read your comment that I fail to help people I thought it lacked a bit of recognition to the effort I put into this forum and I felt bad. I reckon I give advice within my area of expertise and qualifications quite a bit. Possibly more so by email. Helps a disabled fellow like myself to feel useful and passes the time
But I reckon you weren't referring to that stuff I do – rather that I can be relied upon to comment whenever anyone trots out the old chestnut that shares are risky. I get your point that I don't offer any examples so here is one.
In 1994 I bought my first shares in the Woolworths float. I bought $2000 worth which was a lot of money to me then and I don't mind admitting it caused some marital friction. Now a decent house could have been had in Melbourne (where I lived at the time) for $100K. Had I the guts to buy $100K worth of Woolworths now where would I be?
Would now be worth $1.1M. it would be paying me a annual dividend worth $27K pa. This dividend would be fully franked as the company has paid 30% tax on it already. So I get that tax credit. Compared to my initial price I am earning 27% on my outlay with tax credits and that grows every year!
If I had elected to join a Dividend Reinvestment Program (DRP) where I can take additional shares instead of cash then it would be worth quite a multiple of that. I don't know how to calculate it. I am guessing as least three times as much? Quite likely more.
What has it cost me? well an interest bill of $8550 pa assuming I had never paid any principal.
Not a single cent extra. No land rates, insurances, repairs, land tax, nothing. I can read an annual report if I choose but that is the full extent of it.
Now I guess you are thinking that I chose an example to prove my point. Do the sums with any of the banks. CBA would have been a good float to get in on… CSL – wow that was something special. Doesn't even need to be a float. I bought NAB for $10K and sold a few days later for $14K. A 40% profit and I thought myself pretty clever but do you think I wish I had kept them today? Not just the price but the growing dividend yield! In fact I suggest that a growing dividend is of as much importanceto the buy and hold investor as capital growth.
I am sorry I cannot make a suggestion as to a share that has the potential to do that today. This is a property forum. We are not licensed to discuss specific shares etc. I am not a financial advisor and am neither licensed nor insured to give such advice. As a Moderator I would delete such a post and you would be right to suspect the motives of anyone who does ramp up a specific share publicly.
But if you wish to discuss generalised investment strategies I am happy to do so. Perhaps a better place to do so is another forum? Here is a thread where I contributed as a fellow investor and I would welcome your input there on any of the threads. Some of you might even find it as useful a site as this one and I hope I am not breaking any unwritten rules by suggesting another website
.I hope you understand my position.
Do I think shares are better than property?
Nope. They complement each other well and with the different boom cycles it allows you considerably more rising market opportunities.
Good luck to you all.
Tysonboss1 wrote:For example I found a house that I was looking at buying a few months ago, The person bought it in 2003 for $212,000,… for them to break even on the deal they would mave to sell it for over $250,000 to make back the interest they have paid, stamp duty, maintance, neg cash flow during that time and the 3% sales commission, and the amount that they have to sell it at to break even is growing every day as they incurr cash flow losses, this property is only valued at $230,000 at the most so their investment of the $30,000 deposit has decreased by over $20,000 thats a negative 66% return.
Finally someone with half a brain thatcan actually see just because a house has gone up $30k doesnt mean you have made $30k, as Ive said before people LOVE to brag about how their property has gone up by x amount but ALWAYS forget to mention how much it has cost them………..
blogs wrote:Tysonboss1 wrote:For example I found a house that I was looking at buying a few months ago, The person bought it in 2003 for $212,000,… for them to break even on the deal they would mave to sell it for over $250,000 to make back the interest they have paid, stamp duty, maintance, neg cash flow during that time and the 3% sales commission, and the amount that they have to sell it at to break even is growing every day as they incurr cash flow losses, this property is only valued at $230,000 at the most so their investment of the $30,000 deposit has decreased by over $20,000 thats a negative 66% return.
Finally someone with half a brain thatcan actually see just because a house has gone up $30k doesnt mean you have made $30k, as Ive said before people LOVE to brag about how their property has gone up by x amount but ALWAYS forget to mention how much it has cost them………..
In 2 years and 162 posts you have finally found a person with half a brain here?
Why do you keep coming back all this time?
Hey just got me thinking, we are always talking about whats the less risky or what is the better performing investment…
What is the most risky, dangerous things that poeple possibly invest/speculate in?
Worst Im thinking people who beleive betting on horses. Or gambling. Then maybe prospecting companies searching for gold, oil? What else are bad ideas we should stay away from???
Change of subject I know…
mathewc73 wrote:What is the most risky, dangerous things that poeple possibly invest/speculate in?Naked CFDs with borrowed money. Massive upside potential, practically unlimited loss potential.
Which is not to say that a calculated and informed risk, with losses fully limited and with cash to cover all potential losses might not pay very well, just that there is a right way and a wrong way to play the game. At least with casino betting you can know your odds…
Mortgage Hunter wrote:In 2 years and 162 posts you have finally found a person with half a brain here?Why do you keep coming back all this time?
Cos Im hoping to find at least one more to complete the other half?
foundation wrote:mathewc73 wrote:What is the most risky, dangerous things that poeple possibly invest/speculate in?Naked CFDs with borrowed money. Massive upside potential, practically unlimited loss potential.
Which is not to say that a calculated and informed risk, with losses fully limited and with cash to cover all potential losses might not pay very well, just that there is a right way and a wrong way to play the game. At least with casino betting you can know your odds…
and in the casino your loss is limited to what you lay on the table…
What if I lost money they asked?
.
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