Property Investing Just as risky as stock market

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, You asked about investment risk, now you're talking about investment return. There is only bad return if you sell. The investment still has value and will never be worth nothing. If I purchase a property with the right criteria, it is never necessary to sell it. With a share, you can do all the due diligence in the world, purchase at the right time, the management seems solid etc, and the business can still go bankrupt overnight. I realise that this is mostly unlikely, but it can happen and has/does. 

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. Why are they selling? They bought at the top of the boom, and are selling in a supposed slump, and they bought a neg geared property – operator error. Having said that, I bought 3 properties in 2003-04 and all have gone up in value by an avergae of 62%, based on current selling prices of similar properties in the respective areas.  Not bragging; just staing a fact. The good news is that in spite of making a bad investment decision, they still have an investment; the properties are still worth something; you're talking about returns again.

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, Ok; since 2003 total input of cash – nil. Pos cashflow and 62% cap growth. R.O.I; infinity. All houses burn down tonight (god forbid) rebuild with insurance. You keep mentioning neg gearing and loss. I haven't had loss, but that's not the point – they won't disappear to zero.

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, Again; returns, and selling to realise the loss/profit. I only ever talked about the risk of the investment disappearing to zero. Also, I never sell; just use equity to keep buying.

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.
Tyson;
we are getting off the track of what my post was about. My post was about the risk of property reducing to zero in the event of a crash, as shares can. This has never happened in property (maybe areas like Pompeii, New Orleans (Katrina), San Francisco (earthquake of '94 – but don't buy there if there is risk of flood etc)).
I did say that property can lose value; but that's all you lose – some value; not all value. A property can lose value, but if it is pos cashflowed from day one, and you never sell, you are still receiving a return on your investment.
I know that there are cycles of cap growth, but the loss if you sell after 1 year of no growth (minus holding and selling/buying costs) only occurs if you sell. I can't guarantee cap growth, but if I do some extensive research on the area, I can all but eliminate the likelihood of none occurring.
My whole point, which was to answer the whole risk question, is the likelihood of the worst property or share market crash in the history of the universe, waking up with nothing, or an investment that is still standing.

there

"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? That's not the issue; stick to the topic. The topic is RISK. Besides; the key word in my sentence is ALWAYS. Shares do  not always go up in value. If they did, then no-one would need to have a portfolio of several different shares to minimise the risk.

"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? Of course they do, but they can still do all thr right things and lose the lot. Obviously it's a slim chance, but it has happened and can happen again. 

"With shares, there is no scope to insure against loss, you can't add value, you can't increase the dividends"
all false statements. ok, if they're false, then explain to me and all the other less knowlegable readers how to do it. Being a smart-arse and simply flipping us off doesn't help anyone. Be constructive; remember, people read this forum to get help and advice. I give advice and help based on my experience, albeit limited, and don't attack people with less knowledge when they say something out of ignorance. You should try do to the same and then more people might put some weight on your 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. You just contradicted your own argument. I haven't seen a property go bust in my lifetime. I've seen people lose money on them, but the houses are still there, going up steadily.

But, how many houses triple in value overnight? this often happens with shares and easily offsets your argument. We all know they can. That's one of the reasons why there are 10 times as many people in the stock market as there are in property. It's also more liquid than property, no tenant or maintenance dramas, etc. There is no doubt; shares have a lot of attractive features. But, again, the topic is the RISK between shares and property.

"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. ok, so if it's rubbish; explain why. Dismissing my comment with a flippant statement like that helps no-one. My best friend would like to know the answers I'm sure.

" 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? they are simply over-priced for the current market. They still have value, just not what the Vendor thinks and the agents tells them it's worth. How often have you sat watching a house waiting for the price to drop? in the end, you still paid some money for it. The Vendor still found a buyer. The property didn't go bankrupt un-announced and disappear forever.

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 like your site, good read! I like how u say the biggest risk is doing nothing, how true and thats why most people dont do anything to create wealth.