Negative gearing – investing

I’ve been browsing these forums without ever joining up until i read this post cause i felt i just had to say my 2c worth.

For years i was a property man until one of my mates told me about the kind of thing you’re on about. Anyway he went into a syndicate with a few others and they all borrowed the money and put it in shares. So its still negative gearing – same deal really only its not property.

Well i looked at the portfolio and what they have achieved and when i compare that to what my property investments have done i nearly fell over. Also, now thanks to the great state government we have with all the land taxes, agents fees, insurance etc, basically my rental returns are a big fat zero on one of my investments and about 2.0% on the other one.

So i am seriously considering doing exactly what your friend suggested and diversify and finally get a decent tax benefit from neg gearing because apparently you also get tax credits or something from the income you get from a share portfolio.

My mate basically said they are getting income of about 6.5% from the syndicate which pays off most of their loan and they’ve also made over 20% capital growth in the past 12 months and don’t pay any taxes or insurance or have tenancy concerns. Anyway he told me heaps of things that sounded too good to be true until i researched it a bit more.

If you have any specific questions i can ask him and let you know on here because i’m still learning too.

Chipper, 6.5% is a pretty poor return for the last 12 months! I’ve done better than 30%!
And LifeX, yes the overall stockmarket had a flat period while housing was reaching silly heights, but the clever investor could read some pretty simple signs from that and took profit from real estate to invest in shares. Of course, shares will tank at a not too distant point, so the clever investors are starting to shift focus again… any guesses?

well i’ll ask him what theyve done over the past 5 years.

irrepsective, ive seen the graphs that prove the broad australian housing market does not achieve better returns than the broad australian sharemarket.

you might get lucky and buy in the right location or buy in a bad area like it seems i did.

face facts, a real estate agent has been contracted to sell specific properties and of course they are “all great investments” whereas a stockbroker is not contracted to sell BHP over Coles Myer or whatever. he just goes into the market and buys whats appropriate.

ive done some reading on another forum tonight and learnt quite alot.

think about it, for property to increase in value, the business going on inside the property must also be profitable. and its those businesses inside the property that you buy on the stockmarket.

Chipper,

I would be very wary of any quote that states that AMP has risen 132% over any period of time.

I had unloaded my AMP shares 5 years ago for $15.90. Now they are around the $7.50 mark. Multiply those figures by 20,000 and imagine your property, worth $318,000 in 2000, and holding on to that property, only for it to be worth $150,000 today.

This scenario is virtually unheard of in real estate, including all the two-tier marketing horror stories, yet it is common in the share market.

At around the same time (2000), NewsCorp shares were valued at around $28.00, only to fall down to a low of $8.00 since then, and recovering now to the low $20’s. Pretty poor for a blue chip investment !

Also, CBA shares have been hovering around the high $20-low $30 mark in the same time, so I cant see how anyone can claim a CG of 218%, unless of course they are stating those figures since the CBA was actually listed on the stock market, well over 10 years ago.

The most positive thing that I can say about my experiences in share investing, is that it gave me a great appreciation for real estate. So, by all means give it a go – I did ! But treat it more like gambling rather than investing, and only put in what you are prepared to lose. I did, and I did.

looking at what was faxed to me, they bought AMP at $4.50 about a year ago.

also the CBA was bought at the float and they reinvested dividends for the first few years and bought other parcels along the way.

“Virtually unheard of in real estate”? Try telling that to the Japanese who invested in property prior to 1991 or the San Franciscans or Londoners who invested in 1989!

Foundation, would you like to elaborate ? Did the above investors do their due diligence at the time ? Seeing that I dont have a clue about what you are refering to above, I wont even try to speculate.

Or for that matter to anybody who tried to sell houses in regional Vic/NSW/Qld in the mid 1990s.

Name One ! Are you saying that people could not sell their houses, or are you saying that they actually lost 50% of their value, which is what you are implying by quoting me ? Of course, the property market in some regions would have been flat for a very long time, but to have lost half their value ? I’m sure in extreme cases, it has happened, which is why I did write “Virtually unheard of in real estate”, but I was trying to compare blue-chip shares with blue-chip real estate, whilst you seem to be refering to the other end of the property market. You’re not even comparing Apples with Oranges, but Apples with carrots.

I apologise if I always seem negative, but there are some truly ignorant people on this forum who are happy to share their seriously misinformed thoughts.

I have explicitely stated my own experience with the share market, and compared it in fairly generalised terms with the real estate market over the same period to give everyone a different perspective, which is what these forums are all about. How this can be labelled ignorant and seriously misinformed, is beyond me. If you feel the need to dispute this, at least back your comments up with relevent figures, as I have, and save the vitriol for the cat.

If you don’t have a clue what I’m talking about, I would suggest that you yourself have not ‘done your due dilligence’ in relation to property investing.

Sure, some sectors fare better than others in a falling market. Unfortunately most ‘investors’ on this site are looking for cashflow positive properties and where are these found? In small country towns. These same houses were very difficult to shift for many years during the 90s, and those who really needed to sell found that they needed to drop their asking prices – yes, sometimes by 50%.
At the same time, ‘blue-chip’ real estate was also in the dolrums. Let’s take Melbourne for example. In 1989 the median house price was $183,652, in 1996 it was $182,261 (REIV). Sure, that looks like a slight drop in nominal terms, but in real terms it is a drop of around 24.4% (ABS CPI)! During this time, some suburbs actually increased in nominal value, but plenty fared worse, and the more ‘diverse’ the property investments, the closer to that median of 24.4% the loss.

Yes, you explicitly stated your own experience, but you didn’t explicitly state that it was just your own experience.
For what it’s worth, I agree that you can make money buying houses. I have done so myself, but I sold at what I believed was the peak of the market and put a large part of my profit into the undervalued ASX. I have done well from this, and will be moving to the ‘next big thing’ rather soon. Why settle for an average 1.9% above inflation (over the last 30 years, bearing in mind this includes the current bubble!) from property investing or 7% for Australian Shares when with very little effort you can do much better?

1) Yes.
2) Only if the CG on your property is around negative 50%! I can’t see incomes rising by 75% which would be the only way you could see a 75% rent increase given the state of the worldwide economy and Australia’s standing on the international stage.