I have been a full time share trader for 5 years. Also hold Diploma of Finance and Diploma of Financial Advising.
I have always wondered if property strategies could be used the same way in the sharemarket. Shares have no stamp duty, no agents fees, no long settlements, and more. You cant sell off a bedroom when you need money, but you can sell a few shares.
I have a broker who will lend me UNLIMITED funds at 95% LVR. The interest rate is 5.75%. There are some shares that pay a dividend yield of more than 7%.
Invest $5,000
Loan $95,000
Total $100,000
interest -$5,750
dividends +$7,000
profit $1,250 or 25%This return can further be improved by writing call options on the stock, which will add $25,000. This will require more funding though, but a realistic return is 40% all things considered. Then theres likely capital growth on top. Another advantage is that equity is unlocked in real-time. You dont have to apply for a new loan.
Possible problems:
– stock falls sharply. unlikely when div yield is very high. diversifying will solve this problem.
– interest rates rise. at some point it will become uneconomical to continue. no different to property.
– dividends paid every 6 months, not weekly. buying prior to a dividend means you get a 6 month head start, otherwise you have a shortfall.Not trying to convert anyone away from property, just saying positive gearing can also be done with shares.
So let me get this right, you have a broker that will lend to you to purchase shares at %95 LVR? Thats strange because most margin facilities will only lend up to %70 LVR.
Please let me know where you are sourcing such cheap funds then we will all be in for it.. are you sure you are not just using a home loan LOC to fund this purchase?
I would be interested to know the who is your broker?
Hi all, I have been reading many posts on this site with much interest but this is my first post. Thanks for sharing your experiences it allows begginers like me to make informed decisions.
Like crashy I too am geared into the share market, whilst I don’t use a broker, I do get 95% LVR on my funds. I use a derivative product called Contract For Difference (CFDs). The service is offered by http://www.dealforfree.com and all dealings take place on-line hence reducing costs. I consider myself a novice/intermediate trader so I have been taking it slowly and educating myself along the way. With my initial $3K investment my account is now up to $7.5 a 150% ROI in only 4 weeks! Best part is I can keep gearing against my profits. Like crashy I pay interest of roughly 5.25% on funds borrowed and you can also short sell. I will continue to use this product as I believe the share market provides significant oppurtunities for growth in the near future. Sure there are negatives but it’s like any type of investment, research and knowledge are the key!
So why am I on this site well I want to diversify my investment interests, I don’t like the idea of having all of my eggs in the share market basket. I have no IP’s as yet but hope to start climbing the property ladder very soon. I am 26 and the goal is to retire before 40!
Richo.
Richo is on the ball.
Ive got nothing against property, but if wealth can be built quicker, easier and cheaper in shares why muck around?
History shows shares return 13% p.a while property returns 9%. A no brainer. Plus there are large costs and delays when investing in property. It is now possible to invest in shares at NO COST. Why waste 10% or more of your money in transaction costs?
Property has one major advantage….regular income.Think back 3 or 4 years. Do you wish you had bought property when everyone was buying tech stocks? Rental yields were high then right?
Well stock yields are high now. In 3 or 4 years there will be a share mania, and everyone will be saying…”gee I wish I had bought back in 2003 when every man and his dog were jumping into property!”
Dont buy for a few weeks yet, the market is about to drop sharply.
Lets hope I soon publish a book: “0 to $1m shares in 3.5 months” lol
This is however a property investing site, and a lot of you will be biased, so I will shut up now….
Hi crusty
your figures are out of date
Property has outperformed shares according to the most recent figures.
Also i don’t believe you
it is not possible to get 95% finance on shares unless you are offering a house as security and i don’t delieve you about the finance of 5.75% on shares.
if you can you guys have got a great product, but hey they wont be around for long because giving 95% finance to inexperienced investors will send them broke.
westanmy figures are out of date? they will never be out of date. They are based on 350 years of HISTORY. Any idiot can look at the returns over the last 5 years and say property has done better in that period, its not rocket science is it.
If you dont believe us about the finance and gearing, fine. Perhaps you will wait till the market triples, when everyone is jumping on the bandwagon and wants to know how its done.
the U.S economy is being pumped with so much fiscal and monetary stimulus, when it finally blows, it will be huge. company earnings will skyrocket, but shares will move well before they do. this super growth will force interest rates and inflation to skyrocket, so anyone stuck in property and without shares is gonna get hurt. This is not a possibility, it is a CERTAINTY. Only the timing is unknown. When interest rates are 0.75%, and a lot of home buyers have over-extended even on this low rate, plus you have a real estate bubble…….interest rates have only one place to go. There will be defaults on mass. Distressed sellers will flood the market, prices will crash. Investment capital will flow from property to shares, and it builds like a snowball. Nobody will want to invest in property while yields are low, prices are falling and there are more sellers than buyers. They will instead look at the rising stockmarket and invest there. If you are not in shares 6 months before the economy takes off, you miss buying the bottom.
i have some cliches which may help:
– ZIG WHEN THE LEMMINGS ZAG
– BE A SELLER OF HOPE AND A BUYER OF DESPAIR
– WHEN EVERYONE AGREES, NOBODY IS THINKINGIm probably going to hit a wall of denial from property advocates with vested interests and bias.
I was hit by a similar wall of denial 3.5 years ago when I warned tech stock buyers about the coming crash.Thanks for the tip guys. I will check that site out. Can you tell me one thing, when you borrow to buy these shares do they do a credit check? ie does it go on your craa?
And Steve Mcknight himself said at a seminar in 2001 that shares out perform property. (But you could gear property more, so it worked out better after gearing was taken into account)>
Terryw
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi crashy,
Could you send me an email on [email protected] please? I’d like to ask you some questions, but I can’t seem to work out your email address.
Thank you,
Malcrashy
where can you get 95% finance on shares?????????I am a keen stockmarket follower but i’m not as excited about the stockmarket as you. (i’m not all that excited about buying property either at the moment).
But there are Big risks with the market in USA, P/E’s are very high and there is a risk that the market could easily fall 500-1000 points if the long awaited recovery doesn’t eventuate. And if Deflation hits then we are all in trouble, unless you have cash.
the figures i mentioned are for australia for the past 20 years not 5.
who lends 95% finance for shares???
westan“But there are Big risks with the market in USA, P/E’s are very high and there is a risk that the market could easily fall 500-1000 points if the long awaited recovery doesn’t eventuate. And if Deflation hits then we are all in trouble, unless you have cash.”
Obviously you have some knowledge, which is good. I agree the p/e’s are high and a large fall is possible, but market dynamics have changed. The market has had many chances to correct properly, and has failed to do so. To gamble on it happening anytime soon is foolish. I personally wont buy at these levels. I am waiting for a 15-20% drop, at which point I will buy for the long term.
Deflation – most people, including the majority of analysts, dont even know what inflation is. Its one of those words that everyone just knows, so nobody bothers to look up the definition. Everyone thinks inflation is “rising prices”. This is merely a SYMPTOM of inflation.
Here is the textbook definition:
“an increase in the monetary supply, or a decrease in the goods and services which can be purchased with the money supply”
Now if we think about it using that definition, any suggestions of deflation are laughable. The Fed has been injecting liquidity into the economy at record rates. Furthermore, congress has approved many tax cuts. We have inflation in a big way. The problem is that the funds are flowing into the housing sector, instead of consumer spending. This is why we have no symptoms in the form of rising prices, except in property.
westan, the product is deal for free as richo stated.
crashy we shouldn’t be up so late
i quickly checked out the site earlier after your first post. couldn’t see anything about 95% finance.
i’m a stockmarket investor also.
as a financial advisor you as well as anyone should know that inexperienced investors should never be gaining 95% finance for the market. I got out of the market (sold all my margin shares 2-3 yrs ago) made the right decision. sold NCP at $18 etc.
lets do some figures
someone borrows
95k puts in 5k
Market drop 10%. He has lost the lot and still owes 5000.
What if they invested in HIH, Onetel, harris Scarfe. They have lost 5000 and owe 95K.
Most new investors in the market lose, your claims are too wishful, there is no “Certainty” as you claim. I’ve never had a property that went to $0 value, but i have had shares do that.
The sort of properties i would buy are returning 30% return on cash and very little risk. Its getting hard to find these properties today and you are maybe right, soon could be the time to enter the market, i am again but carefully.
Regards westanjust to clarify:
i said stock yields are high right now. some are, but stocks will drop over the next 3-4 weeks and yields will jump. yields right now however are still higher than sydney property. soon they will be back to 7-8% as they were in March.
westan – who said anything about inexperienced investors? they only allow experienced investors to get an account, or at least state they have experience.
margin is 5% for shares and 1% for an index. Thats right….99% LVR. Thats just too much leverage though, I dont do it much.
I also stated that you should gear with HIGH YIELD stocks, not rubbish like DVT HIH ONE et al.You sound like one of these people who is under the misimpression that shares are more risky than property. property prices fell 30% in Melbourne and Sydney during 1990-1. In 1987, the Dow fell 22% in one day, but ended the year HIGHER. Also, that crash was triggered by computers doing stop loss orders, it was not 100% attributable to a panic sell as many believe.
Just because you dont get a property valuation every day, doesnt mean you arent taking the same risks. You can just as easily lose $5k deposit plus $5k more in a $100k property deal, in fact you will lose more due to stamp duty, agents fees etc
ps im up late cos i am trading the S&P
Crashy
Hih was $8 billion dollar stock. Only become trash after it was revealed how bad it was going, no company is immune AMP trade at over $18 for years and is now worth about $5- , Telstra over 9 (BRW said it would get to $20) now under 5.
Hey dont knock DVT i made 600% on that little gem.
bought IGOO last week i like the look of iGO.
put your reputation on the line. You are a trader, what is your favoured stock to buy for a quick profit, say 1 week.
regards westanif you couldnt see anything wrong with the HIH ONE or AMP charts 3 months before they collapsed, visit OPSM. The warning signs were there.
As for a current 1 week pick, risk is inversely proportional to time. I dont make trades like that. Secondly, I am more inclined to short a stock right now than go long, and two I am currently short are WBC and BHP. In a month they will be down 10%.
lol @ DVT. I killed on that also. But hows this, went on holiday at a timeshare and this couple asked me what stock to buy, so I told em DVT @ $2. 2 years later I saw them again and they bitched at me cos they didnt sell at $6 and kept them till they delisted. yeah…im REAL sorry you tripled your money in 2 months and got greedy. sue me. lol
crashy
i’m off to bed, i’ve got a mate whose a trader got him into property 18 months ago, he bought 4, being a trade by nature not an investor he has sold 3 already has covered his share losses for the past year and some cash left over. I’ll check out that web site again tomorrow, it sounded/looked real Dodgy, perhaps i’ve misjudged it? If it does what you say and doesn’t cost 10K plus to get into like a lot of trading packages going around it could be another useful tool.
Regards westanDeal for Free has recently changed a few rules:
– margin on indicies is now 1% (3%) aka 99% LVR
– indicies will soon be accumulation based, ie pay dividends. This is fabulous news. I was going to invest in the aussie index, but when paying 5.75% p.a in interest and getting no dividends, it was negatively geared. Soon it will be like a managed fund, without entry exit or ongoing fees. At 99% LVR the leverage is extreme, and you would want to be VERY careful.It is designed as a trading platform but theres no reason not to use it as an investment platform. You miss out on some tax benefits though, like franking credits. You easily save this amount in costs anyway.
Wow, it’s like watching a game of late night tennis with crashy & westan going at it. Some very good points made on both sides and crashy is obviously a man in the know when it comes to the stock market.
There seems to be some doubt that 95% leverage is not achievable, well I’m here to tell you that it is here and now! westan is right though 95% leverage on shares can be very dangerous, as you would all know by now gearing magnifies gains as well as losses! So yeah they don’t give accounts to anyone, as part of the application process they are obligated to call you and make sure you fully understand the risks. At the end of the day though this is just another wealth creation ‘tool’and like any tool you’d need to assess whether this tool fits your investment profile before persuing it.
Personally with no fees, setup costs, tennant hassles, stamp duty, loan approvals, etc and 95% LVR on my cash I am very comfortable with it. If your interested read the fine print and look through the worked examples on the website. Feel free to ask any questions as I’m sure crashy or myself can help you out.
Having said all that I am aware of the benefits of property investments but don’t know much about them… which is why I am here, to learn.
PS Ahh Davnet, bought at $1.35 saw it climb to $6 and then watched it dive to $0.04 before being taken over by UXC. This was my first share market experience and a very valuable one, I felt every emotion in the one trade and it taught me many lessons all for the bargain price of $1000. Sometimes just doing it and making the mistakes yourself is the best way, just don’t put the house on it!
Trading packages costing $10k?
urgh.
RUN!
Those are black box systems, which claim to tell you when to buy and sell. They dont work, never have, never will. The ONLY way to make money trading is to LEARN it yourself. I have set myself up to school new traders but figured I would need to wait till the bear market ended. I have written a book which I will wait to publish.
If there is enough interest though I may get things moving.
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