# Long Term Investment Growth (Shares & Property)



## zac (12 May 2011)

This is going to sound perhaps like a debate of Property Vs Shares however thats not really what I want to get into.
I think both are good and they serve their purpose.

Ive a query in relation to the longterm prospects,
Im in the process of filling out an application for an Index Fund and putting most my wealth into it. (Until I went to this seminar)
Last night I coincidentally went to a property seminar run by this mob http://www.investmentpropertyfinders.com.au

Bare in mind ive been to a few financial planners who are pro funds etc,
so my point is I feel like my logic isnt biased by any hard sell.

To me the longterm growth and wealth prospects seem to be in the favour of Property and the reason being is the leverage used and tax breaks through negative gearing and depreciation.
The yield from property vs stocks on average seems much of a muchness give or take but the leverage used and tax breaks seem to be where it gets ahead.

Having said that im still confused, ie the strategy is to get an Interest only loan, so assume $400k is borrowed at 7% = $28k a year.
After rental income, tax breaks and depreciation out of pocket expenses per week is said to be around $50-$100, so for arguments sake, lets say over 10 years ive paid $50k.

In 10 years ive now a $800k property with $400k Principle still owing. (assuming property value has atleast doubled)
If im to sell the property to repay principle, I pay Capital Gains of $100k (assuming im taxed 25% of the 400k capital gain.)
Ive paid $50k over 10 years in out of pocket expenses.
Overall personal gain is $400k - $100k (CGT) - $50k = $250k, therefore annual earning of $25k.
Doesnt seem like much after 10 years.

Sorry for it being too lengthy, I'd love to hear other peoples views and thoughts on this.


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## matty77 (12 May 2011)

*Re: Longterm Investment Growth (Shares & Property)*

Firstly you should be working on IO loan of more like 8.1%, always good to have a buffer of a % on current rates, and who is to say rates wont go up or down further?



> so assume $400k is borrowed at 7% = $28k a year.






> In 10 years ive now a $800k property with $400k Principle still owing.(assuming property value has atleast doubled)






> After rental income, tax breaks and depreciation out of pocket expenses per week is said to be around $50-$100,




Big assumptions here, what you should do is actually go and work out the average yeild of the property in that price range and then work it out from there....


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## zac (12 May 2011)

*Re: Longterm Investment Growth (Shares & Property)*



matty77 said:


> Big assumptions here, what you should do is actually go and work out the average yeild of the property in that price range and then work it out from there....




Yeah i was working on figures given during the seminar and it is a very crude assumption.
Ive made an appointment with the planner to speak 1 on 1 about it, but to me the hassle and running around it causes isnt worth the supposed $25k/year yield,
considering there are other forms of investments.
Its the negative gearing and leverage that makes this on paper sound appealing.


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## brty (12 May 2011)

*Re: Longterm Investment Growth (Shares & Property)*

Anyone who talks about buying brand new properties off developers and doubling in prices in ten years, in the same breath, is someone you should run from, not walk.

Property can indeed be a good investment, we have made a lot of money off property, but you need to know what you are doing. One of our properties in a good suburb has had 90% gain in purchase price over the last 7 years, yet it needed substantial work when we bought it. On the total spend it has gained ~60% in the 7 years. New properties 7 years ago in the same area have gone up 20-30% at the tail end of one of the greatest booms (the last 15 years) in Australian history.

There is no historic presedent for such a boom to repeat in the next 10 years.

brty


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## zac (12 May 2011)

*Re: Longterm Investment Growth (Shares & Property)*



brty said:


> Anyone who talks about buying brand new properties off developers and doubling in prices in ten years, in the same breath, is someone you should run from, not walk.
> 
> Property can indeed be a good investment, we have made a lot of money off property, but you need to know what you are doing. One of our properties in a good suburb has had 90% gain in purchase price over the last 7 years, yet it needed substantial work when we bought it. On the total spend it has gained ~60% in the 7 years. New properties 7 years ago in the same area have gone up 20-30% at the tail end of one of the greatest booms (the last 15 years) in Australian history.
> 
> ...




Yeah cheers, thanks for the insight.
Im finding it hard to way things up, 

Im just wondering is leverage necessary for wealth creation. 
My initital plan was to invest in an Index and then the following year take out a small loan, only enough that the repayments offset income.


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## KurwaJegoMac (12 May 2011)

*Re: Longterm Investment Growth (Shares & Property)*



zac said:


> Yeah cheers, thanks for the insight.
> Im finding it hard to way things up,
> 
> Im just wondering is leverage necessary for wealth creation.
> My initital plan was to invest in an Index and then the following year take out a small loan, only enough that the repayments offset income.




I see you're repeating your posts from the Whirlpool forum 

I wrote a lengthy reply but my browser stuffed up and I lost it 

About leverage: No it is not necessary for wealth creation but it will create (and destroy!) wealth a lot quicker. Just need to make sure you know what you're doing and have appropriate risk management procedures in place to protect yourself if your investment starts going sour.


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## danbradster (23 June 2011)

*Re: Longterm Investment Growth (Shares & Property)*



KurwaJegoMac said:


> I see you're repeating your posts from the Whirlpool forum
> 
> I wrote a lengthy reply but my browser stuffed up and I lost it
> 
> About leverage: No it is not necessary for wealth creation but it will create (and destroy!) wealth a lot quicker. Just need to make sure you know what you're doing and have appropriate risk management procedures in place to protect yourself if your investment starts going sour.




In your first post you said $25k interest, did you forget to include the remaining 9 years of interest?


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