# Need advice which way to go shares or property??



## lancedefrance (13 October 2006)

Hi guys

I will explain my situation and I would like some advice or recommendation on which way i should go. 

Last year i bought my first property that i am currenly living in. Although i could have paid a larger deposit, i decided to keep some money for later use. I put this money in an offset account for future use.

I have been living in this property for exactly 1 year, I dont have any equity in it, however all the money that i didnt put on the mortgage is sitting in an offset account .

This is my question, what should I do with the money that is sitting in the offset account? should I buy a new property with this money and negatively gear it   

Or should I invest this in stocks keeping in mind that i am a complete NOOB lol but I am learning   

I have learned from this form that you should have a plan, well my investment plan is long term wealth grouth/creation as opposed to income. however i am also on a high taxation rate so lowering that is also a priority. 

I am leaning towards property just because it is a bit simpler for me to understand and execute. it will also help me claim some of my tax back. However there is no reason why i cant do both. Also if it was property when would be a good time to buy? now or wait till end of year as property prices might go down after the expected interest rate rise in Nov.

Any advice or recommendation or comments will be appreciated


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## Realist (13 October 2006)

Negative gearing quite simply means you are losing money.

And with the recent tax cuts unless you are earning well over $150K is hardly worth it tax wise.

I'd put most of the money into yuor existing property - that is at least safe!


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## finnsk (13 October 2006)

Something to think about

We are in the middle of a drought which means not very much is being grown on the fields, which in turn means not much food for live stock which means increased prices.
I think we are going to see a big price increase on all food items within the next 6 months  
Anyway just a thought.

Finnsk


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## Happy (13 October 2006)

finnsk said:
			
		

> Something to think about
> 
> We are in the middle of a drought which means not very much is being grown on the fields, which in turn means not much food for live stock which means increased prices.
> I think we are going to see a big price increase on all food items within the next 6 months
> ...




Hopefully not, if Woollies and Coles will be forced to reduce 100% to 1000% profits they currently allegedly enjoy on fruits and vegetables.


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## lancedefrance (13 October 2006)

Happy said:
			
		

> Hopefully not, if Woollies and Coles will be forced to reduce 100% to 1000% profits they currently allegedly enjoy on fruits and vegetables




Ya like thats going to happen   

Thaks for all the comments but I would like to know that drought/increase in prices aside if i was about to invest this money somewhere where should I put it?


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## Milk Man (13 October 2006)

Consider this; someone borrows to buy a property. Property falls in value: equity moves to negative. Person is forced to sell into a buyers market. Person now has no property and a whopping great debt. At least shares only go to zero (unless leveraged- my forex account can only go to zero). Not giving advice but it's a pretty scary hypothetical.  

Oh, see below message. :


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## juddy (13 October 2006)

Now if you'd bought Perth property a year ago you'd have plenty of equity. Up another 7% in the Sep. quarter according to REIWA (not that I'd put much credibility in what they say, but they are probably close).


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## YChromozome (13 October 2006)

juddy said:
			
		

> Up another 7% in the Sep. quarter




Hope that is sustainable. . . LOL


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## juddy (13 October 2006)

lol..personally I don't put much value in median house prices. The housing stock dropped dramatically in the previous quarter so the sample is limited, concurrently the top end of the market has been doing very well which would further skew the figures on the upside.


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## niknah (13 October 2006)

You could be asking in the wrong forums, 
since this place is all about stocks you'll mostly get answers skewed towards that.

Be diversified, don't have >90% in property or stocks.

Most of the gain will probably be in tax offsets+rent, property probably isn't going anywhere fast for a while.
Get a calculator or the tax software from the ATO and do a pretend tax return for next year to see how much you'll be getting back.

..and make sure you can still pay the loan if interest rates go a few % higher.
As they say risk = return, the more loans you take out the more return you could get, more risks involved.


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## nizar (14 October 2006)

Milk Man said:
			
		

> Consider this; someone borrows to buy a property. Property falls in value: equity moves to negative. Person is forced to sell into a buyers market. Person now has no property and a whopping great debt. At least shares only go to zero (unless leveraged- my forex account can only go to zero). Not giving advice but it's a pretty scary hypothetical.




Thats some pretty good advice right there


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## Ferret (14 October 2006)

Realist said:
			
		

> Negative gearing quite simply means you are losing money.




Not if you're getting capital gains, even if they are unrealised.

As long as you have the cash flow to pay your interest and the time to ride out downturns, borrowing to leverage is fine for both stocks and property.  Average long term total returns from stocks and property are around 10 - 13% - interest rates are less than this so you end up in front.  When your interest is tax deductible its even better!

Ferret


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## Realist (14 October 2006)

Ferret said:
			
		

> Not if you're getting capital gains, even if they are unrealised.
> 
> As long as you have the cash flow to pay your interest and the time to ride out downturns, borrowing to leverage is fine for both stocks and property.  Average long term total returns from stocks and property are around 10 - 13% - interest rates are less than this so you end up in front.  When your interest is tax deductible its even better!
> 
> Ferret




For the last 3 years in Sydney you are making capital losses as well though. 

So you are losing twice!   

It is like buying shares and the price going down and getting negative dividends.


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## Realist (14 October 2006)

Milk Man said:
			
		

> Consider this; someone borrows to buy a property. Property falls in value: equity moves to negative. Person is forced to sell into a buyers market. Person now has no property and a whopping great debt. At least shares only go to zero (unless leveraged- my forex account can only go to zero). Not giving advice but it's a pretty scary hypothetical.
> 
> Oh, see below message. :





True, but shares will never go to anywhere near zero. If you are not leveraged you will never lose much on the sharemarket if you invest wisely...

If you have a widely diversified portfolio in large companies that pay dividends and are not overvalued it would be virtually impossible to lose 20% in a year.

People will disagree I know but even in 1987, 2000 (IT) and possbily 1929 people that did as I mentioned above did not lose that much...

Zero means that the Commonwealth bank, Westfield, Fosters, BHP, News Corp etc. all go bust overnight - the sharemarket will be the least of your problems if all major companies collapse.  It is impossible barring say a nuclear war killing us all.


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## stevo (14 October 2006)

One thing about property I don't like are the transaction costs and taxes. This is something that I find very frustrating when it comes to property. 

Real estate agent fees are substantially higher than brokerage and the government wants a cut in terms of stamp duty and property taxes. With shares brokerage is probably around 1/10th of property. Shares can take 10 seconds to sell, property can take 10 months! Try selling half of your property as opposed to half of a share holding. There is no stamp duty on shares as well.

So transaction costs are substantially lower with shares. Then there is the accessibility of shares - would you buy property on-line sight unseen! 

Also I have never had to put a development application in for my share portfolio - try making some changes to a property and it is not uncommon to hit serious delays with council. The list could go on and on. And property requires maintenance.

So in terms of flexibility, taxes and costs shares win hands down. That's not to say that you can't make a lot of money in property...

stevo


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## Ferret (14 October 2006)

Agree shares have a big advantage in entry and exit costs and time.  Other reasons I prefer shares:

Franking credits
Historically better returns
No tenants!
Easier to hold under the superannuation tax shelter

I have an investment property but won't buy any more.

But what would you expect on a stocks forum!

Ferret


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## nizar (14 October 2006)

I prefer shares because:

1/ liquidity
2/ divisibility
3/ marginally better returns over the long term (~13%pa versus 11%pa)

The only way u can REALLY CLEAN UP with property is through development, and this is only possible if:

1/ u do it yourself
2/ ur fairly connected and can get the job done cheaply
3/ u have heaps of cash


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## barney (14 October 2006)

lancedefrance said:
			
		

> Hi guys
> 
> I will explain my situation and I would like some advice or recommendation on which way i should go.
> 
> ...





Hi Lance, My 2 cents worth for what its worth ( I have owned a couple of rental properties over the years) ............... Put whatever spare cash you have into paying off your principle home first ............ The sooner that is paid off the BETTER, cause there is no tax benefit on the interest you pay on that loan ....... After that is paid off (or even before ) you can then borrow money against your main property to further invest (that loan interest IS tax deductable............ Thats when you have to make the decision on whether to go more property or shares .............. I borrowed money against my home and lost most of it through poor trading decisions ................ but, I would STILL recommend investing in shares .... Just don't do what I did!!   Get good advice from people that know how the market works and invest WISELY ............... I also like property, but the Gov. fees are outrageous, and some tenants (no offence to tenants in general) can be a real nightmare.  Shares are simple to look after and easy to liquidate if you need some ready cash .......... All just MO of course .......... Cheers, Barney.


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## grumpee boi (15 October 2006)

Barney's reply is a good one.  If you have interest at 7% on your mortgage and are at the 41.5% marginal tax rate then you need to earn 11.97% on your direct share investment to come out even.  At 46.5% it is about 13.08% to warrant choosing direct shares over mortgage elimination.  This is assuming no long term capital gains discount.

Of course, as he alludes to, there are things like debt recycling, where you turn your undeductible mortgage debt into deductible investment debt over time.  There is info on my website on it.

The other thing that i always recommend that many would disagree with - after the personal residence, it is always wise to diversify into another asset class.  Your own residence is an investment and to then spend another few hundred grand on the same asset class seems too overweight to me.  But then again I am conservative in my thinking and approach.

Adam


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## Realist (15 October 2006)

If you wanna get into property, or diversify your portfolio, buy Westfield and DBR Reef Trust shares!   

I've made about 15% this year off them so far..


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## Marvin Martian (15 October 2006)

Realist said:
			
		

> If you wanna get into property, or diversify your portfolio, buy Westfield and DBR Reef Trust shares!
> 
> I've made about 15% this year off them so far..



Yes


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## tech/a (15 October 2006)

Realist said:
			
		

> If you wanna get into property, or diversify your portfolio, buy Westfield and DBR Reef Trust shares!
> 
> I've made about 15% this year off them so far..




Realist with all the shares and trusts I see your invested with you must have close to a million or even more invested.

Mind you with all Ive read you are by far the most savvy investor I have come across bar none on any forum.
Your ability to be on 100% winning investments is truely uncanny.
Ive never read of even the slightest slip up.

Remarkable.


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## Realist (15 October 2006)

tech/a said:
			
		

> Realist with all the shares and trusts I see your invested with you must have close to a million or even more invested.
> 
> Mind you with all Ive read you are by far the most savvy investor I have come across bar none on any forum.
> Your ability to be on 100% winning investments is truely uncanny.
> ...




Thanks, finally a post of yours I can agree with Tech.    

Although JPR has been a f**k up so far I have to admit.


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## NeoT1 (16 October 2006)

* I think that a good mixture of both is good - my own philosophy not advice. 

You can get good leverage from both forms of investing. 
ie: $280K property $28K deposit about $28K in costs give or take a few K. 

If it grows by 10% $28K 50% return on the money you have invested. 
It is possible to get returns like this in the share market but you have to know how.
Yes there are risks such as tenants, market risk, pests, neighbours which you will have to take into account but this is the same in shares, Market risk, sector, company, earnings ect.


Personally I think that it is better to have your money spread in different markets - shares, property ect to reduce overall risk - I own shares, properties and land as well as a business - all are good as long as you do your due diligence and know why you want to own them in the first place and what purpose they serve apart from the $. *


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## lancedefrance (20 October 2006)

Just want to say a big *THANK YOU* to all the people that replied to my question. I must say that I am now leaning more towards shares. 

I know that before i start I will need to do some serious homework first, and I am sure you will see many noobie posts asking all sort of questions   

I found most of the advice given by the members very relevant and useful, i love the advice about debt recycling/reallocation i think that is great and I cana see my self doing something along these lines


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## happydollar (28 November 2006)

thought i would piggy back this thread rather than start a new one.

i am in a similar situation.

but i have nothing. have been up, down and now out of debt again. (spent my profits from property after i split with ex).

so for me its all about starting again. im pretty much debt free and have about $10k in savings and saving about $1200 a week.

i am looking to invest in 6 months in something.

thing is, property market seems to have peaked, and possibly still being corrected in certain hot spots. when is share market likely to do same? it seems to have had a good roll for quite a while now?

so im left in a position thinking i have no investment oppurtunites in near future. despite what some will say about long term not being affected by dips, i am not buying into someone elses over expediture. i always believe u make money on the initial purchase in property. shares i have no idea about.

so i guess what i am saying is. im waiting 3 years before property again. then will reno and hold like i use to do. but in the mean time how can i safely maixmise my savings? is 6% at the bank my best option or is there still legs in 3 year investment in shares? i know noone can guarantee, but what are my best options in such an inbetween investment cycle?


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## nioka (16 August 2007)

Remember this thread. The main thrust of the posts were for shares because property prices were too high. Anyone like to comment on the actions they took at the time.


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## numbercruncher (16 August 2007)

nioka said:


> Remember this thread. The main thrust of the posts were for shares because property prices were too high. Anyone like to comment on the actions they took at the time.





To be fair you need to wait a while to give realestate a chance to crash to


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## saichuen (6 October 2007)

Here's a link to a website about negative gearing on property investment. I hope it will be useful for anyone who's thinking along this line. I'm not suggesting whether if you should or not as I'm only posting the link simply because I was at one point considering it as well.

http://www.propertyinvesting.com/strategies/negativegearing.html

For me, making profits the 'conventional' way is already challenging enough as it is. Why would someone want to do it the 'unconventional' way instead - i.e. in order to make a profit, you first have to make a loss? 

I would keep it as simple as possible personally. Some may argue about the tax implications and savings that you can potentially get but I'm grateful to pay the *tax* since the fact that I'm liable to any in the first place would mean that I'm actually making a profit already, isn't it? 

I do like the idea suggested by Realist about getting more exposures to property by investing into property related shares/trusts. It's probably simpler too as oppose to actually owning a real investment property. 

Just my 2cents worth.

Happy trading!


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