Property vs. Shares

[Paul24]

Before everyone jumps out of their seats thinking this is another better then the other thread, its not. Just want to talk some theory.

At the end of the day, property or shares is same same. Lets look at my reasoning why.

Lets say I have 50k to invest.

Scenario 1.
I get a home loan to purchase a 200k apartment. I'm only putting in 25% of the cost of the investment. Say it grows 8% that year and I get 2% from rent, I'm now up 10% on my 200k. If i sell it after 12 months I only pay tax on half of the profit. (theres other benefits to owning a house but i'm leaving them out for simplicity here)

Scenario 2.
I take my 50k and get a loan to buy 200k worth of shares, shares go up say 9% and get 1% from dividends. I can claim the payments on the loan just like negative gearing on the house etc... bla bla bla

I'm sure your seeing my point here.
At the end of the day shares and property is the same, its just another commodity, the tax benefits are the same. So one should always be in the market that is giving best returns, if property is going no where and shares are up, move money into shares and vice versa.

(Am I on the right track here?)

But the question about all this I have is, aren't home loans normally at a lower rate then margin loans? So in the above scenario, having all the profits equal, wouldn't the property come out on top because of the lower costs to service the loan?

 

[So_Cynical]

There the same as in they can both be investments...and that's where the similarity's end.

Shares =

• 4 days to get your money at market
• Low cost to buy and sell
• Low cost to own
• Bank/s to deal with (margin)
• Easy and low cost to trade and thus turn over money for profit.

Property =

• 4 to 6 weeks to get your money at market :dunno:
• High cost to buy and sell
• High cost to own
• Council, agent/s, tenant/s, bank/s etc to deal with.
• Very complex and expensive to trade and thus turn over money for profit.

 

[cutz]

But the question about all this I have is, aren't home loans normally at a lower rate then margin loans? So in the above scenario, having all the profits equal, wouldn't the property come out on top because of the lower costs to service the loan?

Think outside big 4.

A good broker will give you stock funding at cheaper than published aussie home loan rates.

Do your own research.

 

[Tysonboss1]

Before everyone jumps out of their seats thinking this is another better then the other thread, its not. Just want to talk some theory.

At the end of the day, property or shares is same same. Lets look at my reasoning why.

Lets say I have 50k to invest.

Scenario 1.
I get a home loan to purchase a 200k apartment. I'm only putting in 25% of the cost of the investment. Say it grows 8% that year and I get 2% from rent, I'm now up 10% on my 200k. If i sell it after 12 months I only pay tax on half of the profit. (theres other benefits to owning a house but i'm leaving them out for simplicity here)

Scenario 2.
I take my 50k and get a loan to buy 200k worth of shares, shares go up say 9% and get 1% from dividends. I can claim the payments on the loan just like negative gearing on the house etc... bla bla bla

I'm sure your seeing my point here.
At the end of the day shares and property is the same, its just another commodity, the tax benefits are the same. So one should always be in the market that is giving best returns, if property is going no where and shares are up, move money into shares and vice versa.

(Am I on the right track here?)

But the question about all this I have is, aren't home loans normally at a lower rate then margin loans? So in the above scenario, having all the profits equal, wouldn't the property come out on top because of the lower costs to service the loan?

I own property and shares, and i think an investor needs both.

but you example is plain silly, as with any analysis, if you put bs figures in you get bs results.

comparing property with shares is like compaing a mountain bike with a racer, both have their own strenghths and weaknesses, but I feel over your life you need to own both.

 

[skcots]

There the same as in they can both be investments...and that's where the similarity's end.

Agree and to add to your list

Shares =

• $200k can buy a very diversified portfolio (retail, utility, property, mining etc)
• Can sell part of the portfolio with ease
• Can profit in a bear market
• Can sit back and let someone else do the work
• No ongoing costs

Property =

• $200k can buy a property most likely a unit.
• Unlikely to be able to sell part of a $200k property
• Cant profit in a bear market
• Need to make sure the place is maintained and safe
• Council rates, strata levies, water etc.

Dont get me wrong I like property but they are very different investments.

 

[mallymcl]

Am I being stupid not to use 50k capital as leverage for a 200k loan? Most importantly I am a rookie, so at this time I'll stick with 0 debt and once I get the hang of things I should consider maybe a 50k loan? Thoughts/advice? Mal

 

[Tysonboss1]

Am I being stupid not to use 50k capital as leverage for a 200k loan? Most importantly I am a rookie, so at this time I'll stick with 0 debt and once I get the hang of things I should consider maybe a 50k loan? Thoughts/advice? Mal

I think debt is not a tool to be used willy nilly. And it is not a sure fire path to riches.

Things to consider would be.

Will my investments generate a cash flow return that is higher than the interest on the loan? If not How long will it take till the cashflow is increased to the point the cashflow does cover the interst? If I am focusing on capital growth, what analysis have I done to be sure the chosen investment has a decent chance getting capital gains?

Would I have the staying power to fund the interest payments on the loan if interst rates hit 10%? and would my investments still generate a return highe than the interest at 10%?

Would a have a state of mental calmness and think rationally if the investments I had funded through debt fell by 50% and I was put into negative equity?

What is my plan for getting out of debt? and am I putting to much hope into future capital gains as a way of getting out of debt?

Have I done the correct analysis to make sure that I have found investments that are trading at a discount to their intrinsic value? And if I have not, why would I want to rush in?

 

[tech/a]

There are times to load up and get into debt.
There have been many and there will be many more.

Property
Stocks
Gold
AUD
Oil
Silver.

Trick is to cut losses and belt the hell out of opportunities that CONTINUE to perform.

 

[mallymcl]

duely noted, thanks guys

 

[Tysonboss1]

[*]Cant profit in a bear market

The weekly rent will still come in no matter what market we are in.

 

[Junior]

The weekly rent will still come in no matter what market we are in.

Unless you don't have a tenant, or your tenant has lost all his dough in the stockmarket and can't make rent payments.

 

[cutz]

The weekly rent will still come in no matter what market we are in.

Unless your tenant decides to engage in a game of cat'n'mouse.

 

[poverty]

The tenant will trash your house no matter what kind of market we're in too!

 

[nunthewiser]

Tyson

Sorry to add fuel to the fire but...........

And the 5 months it takes to ACTUALLY legally evict the tenant for not paying rent with no rent in that period. sometimes its shorter but not by much ..

Not such a good return there at times.

I own rental property.

 

[Gunlom]

Landlords Insurance, can take the sting out of that, if it happens...

But for me as a long time property investor, the absolute critical part of property that is mostly over looked, is getting good tenants. Better to leave your place empty than get suspect tenants.

What I do is do my own open houses for new tenants,

* I use my gut feel, human intuition is a remarkable thing (right more times that wrong)
* ring up all references ( although I don't put much reliance on that, who would put a reference that is bad anyway!!)
* ring there work, sometimes pop into there work, and say hello
* most important for me is I drive by there former/current place, and judge the condition it's in.


This all may sound over the top, but you as a landlord are putting alot of faith and trust in prospective tenants, and you need them more than they need you. A few hours of time now can potential save you thousands of dollars later.

Since I started doing this, I've not had a bad tenant yet... (fingers crossed for the future)
It's all about risk minimisation.

 

[nunthewiser]

Landlords Insurance, can take the sting out of that, if it happens...

.

Landlord insurance ( RAC tasmania) only kicks in to cover rent after 6 weeks of non payment of rent and does not cover that initial 6 weeks.

I also have rental property and had everything from scumbag house trashing, huon pine door stealing non payers to a couple that near on rebuilt my whole house and looking after it better than i would PLUS pay the rent

Landlord insurance is a must but it aint no cure for bad tenants.

 

[Wysiwyg]

Margaret Lomas has "Property Success" on pay t.v. The show is loaded with facts and insights as well as hot spots around the country for investment. Margaret herself is dynamic and very experienced as well as being a good person.

Margaret Lomas -- Sky News Business Channel -- weekends. Very interesting.

Hope this helps.

 

[Tysonboss1]

Landlord insurance ( RAC tasmania) only kicks in to cover rent after 6 weeks of non payment of rent and does not cover that initial 6 weeks.

I also have rental property and had everything from scumbag house trashing non payers to a couple that near on rebuilt my whole house and looking after it better than i would PLUS pay the rent

Landlord insurance is a must but it aint no cure for bad tenants.

mine just has an excess of $500. I guess it depends are the company you insure with. Land lords insureance is cheap as to, So that goes to show the horror stories you see on today tonight are not al that common.

 

[nunthewiser]

mine just has an excess of $500. I guess it depends are the company you insure with. Land lords insureance is cheap as to, So that goes to show the horror stories you see on today tonight are not al that common.

yeah my excess with them is only 500 also and it sure has come in handy in the past.( in fact a tenant by being a destructive tossa has actually benefitted me via a brand new kitchen amongst other damage)

agree re the horror stories but they dont have to get that far to turn a decent or acceptable return and investment into a major pain in the a$$

But as with all things , take the good with the bad

 

[So_Cynical]

mine just has an excess of $500. I guess it depends are the company you insure with. Land lords insureance is cheap as to, So that goes to show the horror stories you see on today tonight are not al that common.

I had a mate a while back that had a rental property, borrowed 85% of the purchase price to get it and though he had done everything right...then his schizophrenic tenant burn the house down, well no worry's he though, i have the house fully insured.

Then the insurance company tells him his policy is only good in the event of an accidental fire, turns out his tenant confessed to the cops that he burnt the house deliberately cos like he thought the devil was in the kitchen trying to get him etc.

He lots the lot, around 100K at the time.