Shares vs. Property

Julia · 18 July 2007

Re: Shares vs Property

Ken said:
I am trying to get into property. Reality is that if you have 1 million worth of property that is renting at 4% a year, your looking at $40,000 a year, which is much as I earn now from my job.

I see myself making good dollars in the stock market eventually to fund my property aspirations.

I will always be in shares however.

I am trying to start with a $250,000 place around Frankston area in Melbourne.

Something on a decent bloke of land that has sub-division potential later on.... thus thinking of the tax man later on.

Ken, that's a very poor return. You would have to be getting a good capital gain on the property to make it a valid investment. Then there's all the entry/exit costs with property, plus the hassle of tenants, as has already been pointed out. Hard to see why you'd do this instead of shares, unless you are planning to do it when property is appreciating considerably more than at present, or if your plan is to buy your own home.
If I were investing $1M I'd be wanting a lot more than $40K a year as a return!

Kathmandu · 18 July 2007

Re: Shares vs Property

Julia said:
Ken, that's a very poor return.
If I were investing $1M I'd be wanting a lot more than $40K a year as a return!

Yep, our $780k of debt (mostly OPM, all property) is getting just over $90k/year before cap gain and tax breaks.

Dave

Buster · 18 July 2007

Re: Shares vs Property

Hey Kat,

Kathmandu said:
But then you could also have, A flock of low $100k buy's now val'ed at $300k+.

or a flock of blue chip shares (say, BHP/WES/WOW bought 2/3 years ago) now valued at more than 3x original price.. same same..

Kathmandu said:
$280 to $290/week rent's with 1 week vacancy max. No land tax, tenant pay's water, low maintanence, yes to rates insurance etc but all tax deductable.

minus marginal rate of tax and management fee, only tax deductable if you are running a loss, don't forget to subtract that loss from the 300K value

Kathmandu said:
Landlord's insurance to cover everything also tax deductable.

excess, excess, excess on claims, and again, you can only claim if your making a loss..

Kathmandu said:
Picked up over $1mil in equity, in 2 year's which can be leveraged into shares, to keep thing's ticking over during the quieter property cycle........................instead of selling, paying CGT and stamp duty out and back in when getting into the next property phase.

Each to thier own Kat, give me a yell in a couple of years when you figure out the realcost of property in comparison to a fully franked dividend paying Blue chip portfolio.. Sounds like you have just embarked on the property journey, after 20 years of playing with property (and doing reasonably well with it) I now prefer the stocks.. much less hassle and a great return after tax

Regards,

Buster

Buster · 18 July 2007

Re: Shares vs Property

Hey Ken,

Ken said:
I am trying to get into property. Reality is that if you have 1 million worth of property that is renting at 4% a year, your looking at $40,000 a year, which is much as I earn now from my job.

Matey, as Julia has pointed out, that's a shocking return, especially when you factor in tax.. you're not even keeping up with inflation. I hope for your sake those properties REALLY appreciate..

Regards,

Buster

toothfairy · 18 July 2007

Re: Shares vs Property

I can share my last 3 years experience with all of you.
I live in Melbourne and bought an investment property in Drummond St., N. Carlton @ the end of 2004, largely on borrowed $. Purchase price was 480000, interest rate average 7%, rental return under 3% after expenses. (Normal for this type of no frill, land value only city fringe properties). The 4% deficit can be negatively geared tax deduction. Agent evaluated it recently for $630000, ie about 10% pa capital gain for that period.
I also traded shares in the last 2 years for a 75% capital gain, trading mainly on ZFX. Because of the inherent volatility I did not use any borrowed $.
Conclusion : the actual capital gain on property is higher because it is largely on borrowed $ and also less stress. (Vacancy period was zero day and I still have the same tenants). I had some sleepless nights with shares and checking on prices of Zn all the time, exciting but probably less rewarding.
Cheers, what do you think.

Kathmandu · 18 July 2007

Re: Shares vs Property

Fair enough Buster, and like I said, I 'll be going both way's now that I have enough equity to leverage up into a hefty share portfolio.

The point of dragging this thread up at all was that many on the forum have been saying that property is a dud since at least 2004.

In some areas yes, in other's not, just like share's I think.

Not all shares have done well either.

But with research and careful selection, both form's of investment can pay off handsomely.

You're dirt did'nt work but the Blue chip has , whereas my dirt has worked and now I hope to make the blueies do the same.

And Toothfairy, I reckon that sound's mighty fine.

Dave

Smurf1976 · 19 July 2007

Re: Shares vs Property

Kathmandu said:
That's what Yack said in 2004 and Krisbarry on another thread around the same time.

Dave

And they were absolutely correct for the parts of this country where property has been a net loss since that time.

2004 - Small 3 bed weatherboard house, 1 bath, 500m2

2007 - Reasonably nice 3 bed brick 650m2. Within 5 minutes walk of the one above.

SAME price.

This property investing thing has been real easy for me over the past 3 years. Simple too. Take cash, put in bank, watch cash grow and property improve itself. No hassle at all. Better still, put the cash into stocks instead of the bank and make a profit that way too.

"Don't miss the fuel boat. Buy fuel now or you'll never get into the fuel market. Better to get a can full of diesel that be out of fuel forever - you'll be able to borrow against the diesel and buy some petrol in a year or two. And we're all getting rich as the equity in the tank increases and we go deeper and deeper into debt in a climate of rising interest rates."

Sounds absolutely ridiculous? Of course it is. And all I did was swap 4 words. It's all inflation, not to be confused with wealth creation.

Sure, property can produce a real return on investment. But for the vast majority it's nowhere near 10% per annum over the long term. Go back 100 years, do the math, and you'll see why it's just not possible for such a return to be sustainable for an average property. And an average property is by definition what an average investor will buy.

toothfairy · 19 July 2007

Re: Shares vs Property

Smurf1976 said:
Sure, property can produce a real return on investment. But for the vast majority it's nowhere near 10% per annum over the long term. Go back 100 years, do the math, and you'll see why it's just not possible for such a return to be sustainable for an average property. And an average property is by definition what an average investor will buy.

If you pick wrong shares its not much fun either. I think it is easier to pick a right property, just take a compasses and draw a 2-3km circle around the CBD of the state you live in, and then pick the better sectors.Pick houses only, no apartments which can be created. Cannot apply the same technique to shares in the newspaper listings.

theasxgorilla · 19 July 2007

Re: Shares vs Property

Smurf1976 said:
Sounds absolutely ridiculous? Of course it is. And all I did was swap 4 words. It's all inflation, not to be confused with wealth creation.

That was a really good post Smurf and I agree with what you say, particularly about inflation...asset price inflation that is. Although you missed one key ingredient in the property equation. Emotion. People don't by houses quite like they buy shares or diesel . There are a lot of emo factors and non-tangibles when comparing houses which go beyond brick vrs weatherboard and the precise amount of land etc.

wayneL · 19 July 2007

Re: Shares vs Property

theasxgorilla said:
That was a really good post Smurf and I agree with what you say, particularly about inflation...asset price inflation that is. Although you missed one key ingredient in the property equation. Emotion. People don't by houses quite like they buy shares or diesel . There are a lot of emo factors and non-tangibles when comparing houses which go beyond brick vrs weatherboard and the precise amount of land etc.

That can change though. Negative equity ought to do it... like it did in the mid-nineties.

Kathmandu · 19 July 2007

Re: Shares vs Property

Smurf1976 said:
And they were absolutely correct for the parts of this country where property has been a net loss since that time.

2004 - Small 3 bed weatherboard house, 1 bath, 500m2

2007 - Reasonably nice 3 bed brick 650m2. Within 5 minutes walk of the one above.

SAME price.

That'd be those "Dud " areas I was talking about, just like "Dud " shares, BUT I know of plenty of people who bought in these areas that sold too early and missed out on 500% cap gains over a very short period.

I know, I bought some of them

I'm sure you have seen people do the same with shares.

Smurf1976 said:
This property investing thing has been real easy for me over the past 3 years. Simple too. Take cash, put in bank, watch cash grow and property improve itself. No hassle at all. Better still, put the cash into stocks instead of the bank and make a profit that way too.

If a couple of % after tax in the bank works for you that's great, but again, like shares, buy smart and reap rewards.

Smurf1976 said:
"Don't miss the fuel boat. Buy fuel now or you'll never get into the fuel market. Better to get a can full of diesel that be out of fuel forever - you'll be able to borrow against the diesel and buy some petrol in a year or two. And we're all getting rich as the equity in the tank increases and we go deeper and deeper into debt in a climate of rising interest rates."

Sounds absolutely ridiculous? Of course it is. And all I did was swap 4 words. It's all inflation, not to be confused with wealth creation.

And this means??? I could change the word to "rubberchicken" and it would be equally ridiculous.

Smurf1976 said:
Sure, property can produce a real return on investment. But for the vast majority it's nowhere near 10% per annum over the long term. Go back 100 years, do the math, and you'll see why it's just not possible for such a return to be sustainable for an average property. And an average property is by definition what an average investor will buy.

I can certainly go back through property that my parent's have been involved in with very average houses and very average areas since 1960 and see a historic 9% compound growth, some as high as 17%.

These Very Average Houses are what the vast majority of Average Australia lives, buys and rents, so a safe buy.

I have done the same, buying for the Average Joe and having a nice result, in areas that have historically done 11% compounding since 1972, which is as far back as the records in this area go, or I can access anyway.

Sure, some year's they have done less than 11% but other years they have done higher than 11% and the last 4 year's have done over 50%/year.

IMHO The only people who actually lose on property are the ones who lack the patience and fund's to hold them through the leaner times and are forced to sell.

They may have seen a small gain on paper, so rush out and buy a new car ,a plasma screen or take that overseas holiday, or just buy in crap areas full stop. Lose the job or get a small rate rise and the wheel's fall off.

The other thing I like about property that you can't do with shares is actually create wealth. EG: Purchasing houses on larger block's, subdividing and building other houses/unit's/commercial instantly increasing equity.

Buying cheap crap block's with issues and moving older houses onto those blocks instantly increasing equity.

Buying "Ugly Ducklings" EG: Couldn't give houses away in Bulimba in Brisbane 10 years ago as it had a working area stigma. Now trendy as and plenty of property over $1mil, riverfront over $2 mil

I don't necessarily think property is better than share's or viceversa, but what I do believe, is that investing in both is better than one and one is better than none.

My

Dave

theasxgorilla · 19 July 2007

Re: Shares vs Property

Kathmandu said:
I have done the same, buying for the Average Joe and having a nice result, in areas that have historicaly done 11% compounding since 1972, which is as far back as the records in this area go, or I can access anyway.

My strategy has been to buy less good houses in very good areas and improve them. The advantages here are many:

* Even a less good house in a very good area is still usually an above average house.
* The very good areas tend to be less homogenous so you can be selective and get something that has a unique appeal to it.
* Less homogenous also means more difficult to price, if you choose well and improve well there can be greater untangible upside potential (read: emotional buying).
* The cost of improvements as a percent of the cost of the house are lower than if you'd bought something half the price. You over-capitalise sooner on lower priced houses.
* When the value of houses in the good neighbourhoods appreciate their gains are greater in absolute dollar terms, relative to Joe Average's cost of living.
* If you live in the house you can bury your living costs and avoid paying capital gains.
* Bust protection...booms tend to originate in the well-to-do areas and eminate outward, then as things slow the boom contract the opposite way. Slow markets in outer areas are a forewarning, sometimes up to a couple of years, that your market may also slow.

Also thanks to China there is a sweet spot in the market for affordable exclusive looking decor which you can fit for a fraction of the price of the real deal.

Sh&t, I just gave all my secrets away!

Kathmandu · 20 July 2007

Re: Shares vs Property

theasxgorilla said:
My strategy has been to buy less good houses in very good areas and improve them. The advantages here are many:

* Even a less good house in a very good area is still usually an above average house.
!

Yep, that's one way, but i'd rather 2 cheapies in a more affordable area that is about to turn into a very good area.

Less chance of the 2 cheapies geing vacant at the same time.

Speaking of cheapies, SA is doing something and some nice 40% plus gains being had.

http://wic003lc.server-web.com/~admin417/uploads/Documents/Property Stats Jun07.pdf

Dave

theasxgorilla · 20 July 2007

Re: Shares vs Property

Kathmandu said:
Y
Speaking of cheapies, SA is doing something and some nice 40% plus gains being had.

http://wic003lc.server-web.com/~admin417/uploads/Documents/Property Stats Jun07.pdf

Careful who you show that report to Dave...you've likely to burst a few bubbles around here...the ego kind that is, not the asset inflation kind South Australian property investors, giddy up!

nizar · 20 July 2007

Re: Shares vs Property

theasxgorilla said:
My strategy has been to buy less good houses in very good areas and improve them. The advantages here are many:

* Even a less good house in a very good area is still usually an above average house.
* The very good areas tend to be less homogenous so you can be selective and get something that has a unique appeal to it.
* Less homogenous also means more difficult to price, if you choose well and improve well there can be greater untangible upside potential (read: emotional buying).
* The cost of improvements as a percent of the cost of the house are lower than if you'd bought something half the price. You over-capitalise sooner on lower priced houses.
* When the value of houses in the good neighbourhoods appreciate their gains are greater in absolute dollar terms, relative to Joe Average's cost of living.
* If you live in the house you can bury your living costs and avoid paying capital gains.
* Bust protection...booms tend to originate in the well-to-do areas and eminate outward, then as things slow the boom contract the opposite way. Slow markets in outer areas are a forewarning, sometimes up to a couple of years, that your market may also slow.

Also thanks to China there is a sweet spot in the market for affordable exclusive looking decor which you can fit for a fraction of the price of the real deal.

Sh&t, I just gave all my secrets away!

I think the only way you can make REAL money from either is to treat it like a business.
For property maybe development, for shares maybe mechanical trading.

As a buy and hold investment, the returns are around 10-12% pa, and quite similar for both.

Kathmandu · 20 July 2007

Re: Shares vs Property

nizar said:
I think the only way you can make REAL money from either is to treat it like a business.
For property maybe development, for shares maybe mechanical trading.

As a buy and hold investment, the returns are around 10-12% pa, and quite similar for both.

Was there some other way?????

Dave

nizar · 20 July 2007

Re: Shares vs Property

Kathmandu said:
Was there some other way?????

Dave

LOL yes the other way is buy&hold ie. passive investment.
But good question

Julia · 20 July 2007

Re: Shares vs Property

nizar said:
I think the only way you can make REAL money from either is to treat it like a business.
For property maybe development, for shares maybe mechanical trading.

As a buy and hold investment, the returns are around 10-12% pa, and quite similar for both.

Nizar, Can you clarify the above? Are you suggesting a buy and hold approach to shares will return around 10 - 12% p.a.?

And how would you differentiate a buy and hold approach from passive investing?

mime · 21 July 2007

Re: Shares vs Property

You can make alot of money on both if you are skilled in each area. To make money on property you usually have to gear it in a growth area. But with all the tax on property it would not be a sensible investment.

Lets all thank a the Labor govt for that. I Wonder if federal Labor would do the same to the stock market.

Kathmandu · 21 July 2007

Re: Shares vs Property

mime said:
You can make alot of money on both if you are skilled in each area. To make money on property you usually have to gear it in a growth area. But with all the tax on property it would not be a sensible investment.

Lets all thank a the Labor govt for that. I Wonder if federal Labor would do the same to the stock market.

I'll remember that while using my million buck's + worth of equity from property to get more investment's happening

Dave

Shares vs. Property

Julia

In Memoriam

Kathmandu

Buster

Buster

toothfairy

Kathmandu

Smurf1976

toothfairy

theasxgorilla

Problem solved... next bubble.

wayneL

VIVA LA LIBERTAD, CARAJO!

Kathmandu

theasxgorilla

Problem solved... next bubble.

Kathmandu

theasxgorilla

Problem solved... next bubble.

nizar

Kathmandu

nizar

Julia

In Memoriam

mime

Kathmandu

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