i’m a beginner here on what i’m about to bring up and all i know is theory about this subject BUT is it reasonable for me to ask why does someone invest so much in property as poperty requires alot of money (compared to shares) ?
a very good return can be achieved through shares or bonds (not really lol), options, warrants… there are so many cheaper varieties of investment… why property?however i will present my “view” (no experience yet) on property and why invest in them is that for once i found the share market extremely boring and very unpredictable on a short-term (options). while i find property an intresting subject and it seems more “real” opposed to shares and bonds, as you can touch and see your house.
however the amount of time and management that goes into property… doesn’t it outweight the profit? opposed to other investments?i’m just curious on this fact, however i do prefer property but only because i find it much more interesting to read about and research.
what about everyone else?ps- i do also know that every portfolio should consist of a variety of different investments, but for not many people can start investing in everything. they either cant afford too or don’t have enough knowledge on all different options.
i’d appreciate everyone’s views on this, as personally i find it very intriguing.
cheers guys, i hope everyone becomes a success.
Hi,
What it largely comes down to is two concepts:
1. Leverage
2. Liquidity
3. Ease of entry(ok 3 concepts and probably more, but hey!)
1. Leverage
Property being, as you say, perceived as more tangible generally inspires confidence in lenders to lend on higher LVR (up to 106% in some cases). What this means is that for $10,000 (excluding closing costs, see point 3 below) I can buy an asset worth $50,000 (LVR 80) and earn rent and CG off that. I can also better take advantage of discrepancies in market values; eg renovate at low cost for high return. Shares generally allow only up to 70% LVR (sometimes 75) so that same $10,000 would only get me $33,000 asset and there is greater risk (due to market forces acting more rapidly).2. Liquidity.
Shares are vastly more liquid than property. This has great bearing on purpose and effort of investing. That is to say, in building a retirement nest egg the price stability of property (due to low liquidity and government backing of ownership rights and so on) makes it attractive for long term investment with low interaction cost. Shares are very liquid so lend themselves to use as temporary or only medium term investments (people, please I’m generalsing here). They are more volatile and require more attention (which costs).3. Ease of entry. (and tax benefits)
Property is something everyone has at least a basic grasp on if only because it’s where we live. Since each of us individually represents some portion of the market we usually feel more able to evaluate property. Also, we usually feel we should own our own home at some point so most people will sooner or later make at least one property purchase. This makes the education requirement and evaluation requirement easy for entry to property. That’s not to say it’s easy to be successful! There is a huge industry built up around getting warm bodies in houses. this industry has made lots of services available that turns the process into simply signing on the dotted line and voila a huge asset. However shares have much much lower closing costs. I personally pay $25 to make a trade and the land I just bought I paid $3,000 to make the trade. So shares are monetarily cheap to buy but require more perceived brain work. To generalise I’d say most people see brain work as being more expensive than money (I don’t see it that way, but I’ve always been wierd).In summary:
People like property because:
1. it is perceived as real and attracts a good LVR so small amounts invested are leveraged against a relativley large asset.
2. Low liquidity of houses generally equals price stability. This makes people feel comfortable and also implies less personal involvment with the investment.
3. We are lead throughout our life toward the belief we must each own a house. We each also live in houses (or units or whatever) so it is easier for us to understand them (or think we do) and the associated market. This leads lots of people into property investing as they don’t feel they need any additional education to do it.Anyway, that’s my take on the situation and why property investing is seen as good.
Ironically it is because of the masses of people blindly buying houses without education that makes houses such a good investment for people who do have the education. If everyone was equally well informed and involved in property investing the market would be a very different place indeed![worried]
I would also like to add one more key concept:
Control of investment.
With investment like shares, options or futures, you can’t alter the share price or the dividend as it is subject not only to the company’s peformance but also market sentiment, neither of which you can control unless you’re a major shareholder.
With property, you can improve on income and capital growth to a certain extent by doing things like renovating, redevelopment or lease negotiation which is one of the reasons why people invest in property – it gives them greater control over their investments.
Martin
Risk profiles and education play a huge part. Some people cannot go near shares, etc because it makes them freak out. Property, on the other hand, is considering a much safer and easier to understand investment.
I think if people actually looked at the real returns on property, they would not go near them in many cases!
Robert Bou-Hamdan
Mortgage Adviser
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