Don't buy a house. Buy shares. $20,000 to $7,400,000 in 30 years

[Bloveld]

You are asking for trouble posting this thread....watch the headstrong property gurus get stuck into you now....

The filthy greedy property hoarders who see nothing wrong with buying up stacks of property (a basic human need) are coming after ya...better run and hide

You put your money into super.
Does your super fund hold any property trusts, bank shares, mining shares, or really any shares in companies that supply goods and services to society. Because if you do you are a part of the greedy circle.

 

[robots]

hello,

i dont do manual labor


robots

 

[Magdoran]

Realist.

Im very suprised,you can actually think outside your shoebox!

So Funny!!!! - Wonder what size shoes: 5?

 

[wallyt99]

What about the $15,000 a year you spend on rent?

 

[brty]

Hi,

I know the thread is 2 years old, but the simplicity of the argument defies belief. If we look at this strategy over the last 30 years, it puts things into perspective.

My understanding from Realist is that you put in $20,000 in year 1, $21,000 in year 2, etc, all the way up to year 10.

So to get to $7,400,000 by 2006, you had to put in $20,000 in 1976, $21,000 in 1977 etc (and reinvest all dividends).

Sounds do-able, until you realize that $20,000 in 1976 was 60% of the value of a median priced house in Melbourne at the time. It was also about 3 years worth of average wages. You then had to find MORE money the next year, and the one after etc.
Only very few people could have afforded to do this at the time.

Another aspect overlooked is what constitutes good long term shares. If you were buying between 1976 and 1986 then you would have a lot of companies like Bond Corp, Bell Resources, Elders IXL, Adsteam and Quintex. Luckily you would also have some BHP.

With an assumption that you would spread your money around 20 stocks over the 10 year initial investment period, you would have put about $12,500 into BHP in the late '70's. It has been a 40 bagger since then. This equates to ~$500,000 today, yep good investment.

However can anyone name 4 other top stocks from the late '70's that would have made good investments, without the benefit of hindsight???

All these easy to long term wealth strategies that use long term averages to 'prove' there point are riddled with inconsistencies in regard to reality.

brty

 

[white_goodman]

quintex was scase wasnt it?

 

[brty]

WG,

quintex was scase wasnt it?

Sure was.

Just played with some numbers about investing in houses instead of the market as suggested. If they were in Melbourne, the amount invested each year would give enough for a huge deposit on a house, 60% deposit in 1976.

You could buy one house each year, of median value, and be cash positive to boot. Using Melbournes median house price of the time, you would own 10 houses by 1985 for a total cost of $468,000, of which you put in $245,000 and had total loans of $223,000.

By reinvesting the cash into houses every couple of years when you had built up a 30-50% deposit (being really conservative), then by now you would have at least 20 median value houses, a loan of no more than $1,000,000 plus a positive cahflow of over $120,000 a year.

20 median houses in Melbourne would be worth $9,000,000+. If you take off the loan of $1,000,000 then you still have a net of $8,000,000+, and of course the first 10 houses would have a CGT excemption!!!

brty

 

[tech/a]

Nice work brty.

Ofcourse who do you know who trades with as much as most investors in Property invest. Even one IP would equate to a few 100K on loan.

While there is the opportunity to outperform both the market and property very very few do it.
99% including myself are in comparison to my Property holdings trading with spare change.
Certainly now since closing all long term positions 12mths ago.

 

[Temjin]

For those that do not believe 12% p.a. is sustainable over 30 years please consider dividends.

Roughly 6% dividends, and a 6% share price increase is very conservative in my opinion.

No I do not short Julia, and yes I expect poor years, even losses. 12% is the average I would expect over the longterm though, there'll be very good years to offset the poor years.

You will find that your estimates are far away from being conservative. Financial planners use 7% return p.a. for a really really long term investment. And what about capital gain and income taxes? While it is possible that there may be no capital gain if this was within a superannuation tax structure and that one rollover their account into an pension income stream, income/dividends earned will still be taxed.

Plus not to mention about not taking inflation into account. $7.4 million could well mean little in 30 years time.

And also, the "volatility" of returns over 30 years (even if it comes out to an average of 12% per yeaR) can have quite a significant effect on the portfolio balance at the end of that 30 years. Try a monte carlo simulation to look at the effect of the portfolio (taking volatility into account) and you will find it tough to get an account balance above $7.4 million.

 

[Tysonboss1]

Yes, but are you telling us how to be a property developer fulltime?

?

Frank Lowy is a property developer,... The whole westfields empire is based around developing properties then renting them out.

I am pretty sure he made more than 7.4M in his first 30years as a property developer.

 

[Tysonboss1]

I'm not against property but by using this method you will be alot wealthier than a property investor without all the effort.

Thoughts?

why do you believe that a property investor investing in property for over 30years putting in $20,000+ of fresh capital each year won't have a portfolio worth over 7.4M after 30 years.

 

[nomore4s]

why do you believe that a property investor investing in property for over 30years putting in $20,000+ of fresh capital each year won't have a portfolio worth over 7.4M after 30 years.

lol, firstly this is an old thread and I haven't seen Realist around for quite awhile, so I don't think you'll get an answer.

And secondly Realist had quite a few odd theories that in reality didn't always pan out or take all the factors into consideration.

 

[SenTineL]

7% return for really long term?

Why bother seeing a financial planner? Term deposits give you better than that!

 

[So_Cynical]

7% return for really long term?

Why bother seeing a financial planner? Term deposits give you better than that!

Not over the last 7 years.

 

[Temjin]

7% return for really long term?

Why bother seeing a financial planner? Term deposits give you better than that!

No, it's just a conservative value they use to "estimate" long term growth (including dividends) in equity. If someone can accomondate his retirement with X amount of income per year for X number of years by assuming his current superannuation account balance to grow at a rate of 7% over X number of years, then one can say with good confidence that he has a "better than average" chance of NOT outliving his retirement account. Any extra return is considered a bonus he/she can use to pay for luxury stuff.

It would be unethical (and probably illegal for a financial planner) to base future performance on past performance and assume one's portfolio to raise by 20%+ over the next 30 years using a buy-and-hold strategy.

Of course, nothing is certain in the future and who knows the stock market can go negative or stagnant for the next several years. (just like after the 1920 depression)

 

[jonojpsg]

I think if we take a look at this situation from now over the next thirty years we might get a different picture.

$20k is maybe a deposit on a median Oz house (Median $350k?). Would have to borrow $330k plus costs so back up to $350k. At 8.5% (best loan rate) have interest costs of $572 per week. Definitely NOT going to get that in median rent ($350 per week?). So it would cost you $220 per week to own the house ($11k per year). Assuming 8% average capital growth gives $28k growth or $17k net growth in capital position.

On the other hand if you put $20k into solid blue chips (CBA, BHP, Westfield, others??) now and leveraged 50% (conservative) with a margin loan as well, giving $40k total) where would that put you? Assume 12% capital growth plus 5% dividends, gives 17%, or $6.8k capital growth.

From this it looks pretty clear that property will always beat shares if you are looking at buy and hold type strategy with blue chips vs median type houses. Of course, moving away from that into speculation will change things as there are few property deals that will get you a multibagger in the short space of time that spec shares can, or alternatively few properties that will self destruct and lose all their value

 

[Junior]

I think if we take a look at this situation from now over the next thirty years we might get a different picture.

$20k is maybe a deposit on a median Oz house (Median $350k?). Would have to borrow $330k plus costs so back up to $350k. At 8.5% (best loan rate) have interest costs of $572 per week. Definitely NOT going to get that in median rent ($350 per week?). So it would cost you $220 per week to own the house ($11k per year). Assuming 8% average capital growth gives $28k growth or $17k net growth in capital position.

On the other hand if you put $20k into solid blue chips (CBA, BHP, Westfield, others??) now and leveraged 50% (conservative) with a margin loan as well, giving $40k total) where would that put you? Assume 12% capital growth plus 5% dividends, gives 17%, or $6.8k capital growth.

From this it looks pretty clear that property will always beat shares if you are looking at buy and hold type strategy with blue chips vs median type houses. Of course, moving away from that into speculation will change things as there are few property deals that will get you a multibagger in the short space of time that spec shares can, or alternatively few properties that will self destruct and lose all their value

I think you've oversimplified it a little. With the property scenario you've got $350,000 invested versus shares $40,000. Also the property has other costs associated with it.

 

[Tysonboss1]

I think you've oversimplified it a little. With the property scenario you've got $350,000 invested versus shares $40,000. Also the property has other costs associated with it.

That is one of the strengths of property, you can borrow far more than you can agianst shares so you can by more $$$ of investments, while not being exposed to the risk of margin calls, property loans also have a lower interest rate than margin loans.

Property and shares both have strengths and weaknesses, are portfolio that includes both property and shares will always out perform one that focuses on one or the other.

Even if your only property investment is your own home, you will still benefit from properties strength, and offset the weaknesses in shares.

 

[ROE]

Don't buy a house. Rent. Put the money you save into shares..

Start with $20,000 in your Account in highly successfull large companies that are near monopolies, they make large increasing profits and pay good increasing dividends and have a good future ahead of them.

Westfield, Fosters, Brambles etc.

Diversify, and avoid selling if you can purely for tax reasons, let what you owe in tax compound for you not the government.

Each year you buy $20,000 (+ $1,000 for each year) worth of shares . So on the 10th year you are adding $30,000 etc.

Reinvest dividends.

After 1 year you should have $20,000 + $21,000 +$2,400 = $43,400.
After 2 years you should have $70,608.
After 30 years you should have $7.4 Million.

Then move to Bermuda....

If you wanna tinker try and pick house price spikes before they happen - or if you can postively gear some investment properties go for it. I'm not against property but by using this method you will be alot wealthier than a property investor without all the effort.

Thoughts?

I'm year two and I have 200K already maybe 400K by end of next year the way thing going at bargain basement hahahah.

No joke I use similar techniques but not as simple as that hehe ...

 

[ROE]

That is one of the strengths of property, you can borrow far more than you can agianst shares so you can by more $$$ of investments, while not being exposed to the risk of margin calls, property loans also have a lower interest rate than margin loans.

Property and shares both have strengths and weaknesses, are portfolio that includes both property and shares will always out perform one that focuses on one or the other.

Even if your only property investment is your own home, you will still benefit from properties strength, and offset the weaknesses in shares.

Property based on debt and you counting asset will appreciate each year.
come the time like now when things are de-value and debt is on the down turn. If you lose your job, you are F**K cos you cant keep up the repayment and you could be wiped out completely.

Not many people think of that scenario but a lot fall into that traps

the way you invest debt free is you safe regardless if you lose your job or not and you survive in all circumstances... you even get an income from it.

leverage is 2 edges sword and not one way street.

hundred of year ago investment is for people who actually has money in hand..and want an adequate return for their money....now through financial engineering they give you a massive debt and they called that investment or the most famous lot equity is your home, use that asset to buy shares and more property..yikes they just give you more debt haha..