Discussion:
Bricks and morter way to goooo
(too old to reply)
Ironbark Bill
2004-08-19 04:51:47 UTC
Permalink
Read this in a online forum. Is this as good as it gets?


-----------------------------

If you have $50K to invest you can either buy $500K of property
(around 90% LVR) with most of the holding cost covered by
rental.

Or you can buy $200K of a blue-chip stock (75% margin loan),
paying most of the cost of your margin loan via the dividends.

Or you can buy $50K of a managed fund - cash.

Let's say that for the next three years the following CG occurs:

Property 4%
Blue-chip 8%
Managed Fund 16%

After three years the value of your investments would be:

Property: $500K -> $562 = $62K profit
Blue-chip: $200K -> $251 = $51K profit
Man. Fund: $50K -> $78 = $28K profit

Which are you better off buying?

Actually you can buy twice as much as property as illustrated
above, but I thought I'd leave a margin for costs.

The share purchase is the most you can borrow on a blue-chip
margin loan....and if your shares go down in value you have a
BIG risk of a margin call which doesn't exist with the other
options.
B J Foster
2004-08-19 05:18:19 UTC
Permalink
Post by Ironbark Bill
Read this in a online forum. Is this as good as it gets?
<snip>
Post by Ironbark Bill
The share purchase is the most you can borrow on a blue-chip
margin loan....and if your shares go down in value you have a
BIG risk of a margin call which doesn't exist with the other
options.
That's an assumption. Whatever you buy ultimately needs to either hold
its value (in the face of a ballooning money supply) or generate an
income. If everyone does this, the banks will generate income - so it's
not that simple.
Jacques Guy
2004-08-19 23:06:29 UTC
Permalink
Post by Ironbark Bill
Property 4%
Blue-chip 8%
Managed Fund 16%
Property -4%
Blue-chip -8%
Managed Fund -16%
(and we've seen that happen)


After three years the value of your investments would be:

Property: $500K -> $442K = $58K loss
Blue-chip: $200K -> $156K = $44K loss
Man. Fund: $50K -> $30K = $20K loss

Which are you better off buying?
Post by Ironbark Bill
and if your shares go down in value you have a
BIG risk of a margin call which doesn't exist with the other
options.
And if you cannot service your mortgage, what do you
think happens? Ever seen "mortgagee's auction"
loudly advertised?

With figures drawn out of a hat, you should be made
eat it.
Tom N
2004-08-19 08:31:51 UTC
Permalink
Post by Ironbark Bill
If you have $50K to invest you can either buy $500K of property
(around 90% LVR) with most of the holding cost covered by
rental.
Or you can buy $200K of a blue-chip stock (75% margin loan),
paying most of the cost of your margin loan via the dividends.
Or you can buy $50K of a managed fund - cash.
Or you can get a margin loan for the managed fund (let's say 70% gearing
[1]) -> $166K
Post by Ironbark Bill
Property 4%
Blue-chip 8%
Managed Fund 16%
Property: $500K -> $562 = $62K profit
Blue-chip: $200K -> $251 = $51K profit
Man. Fund: $50K -> $78 = $28K profit
Man Fund with margin loan $166K -> $259K = $93k profit
Post by Ironbark Bill
Which are you better off buying?
Actually you can buy twice as much as property as illustrated
above, but I thought I'd leave a margin for costs.
Like the $18-26k stamp duty (cheaper in Qld) on purchase [2]? Plus legals?
Post by Ironbark Bill
The share purchase is the most you can borrow on a blue-chip
margin loan....and if your shares go down in value you have a
BIG risk of a margin call which doesn't exist with the other
options.
So what if your property is vacant, and decreases in market price by 10%?

But tell me which managed fund is going to give 16% ?

[1] http://www.leveraged.com.au
[2] http://www.loan.echoice.com.au/stamp.html
Gregory Toomey
2004-08-20 01:51:15 UTC
Permalink
Post by Tom N
But tell me which managed fund is going to give 16% ?
http://www.hunterhall.com.au/value_growth_trust.asp

gtoomey
Samuel
2004-08-20 05:41:48 UTC
Permalink
On Fri, 20 Aug 2004 11:51:15 +1000, Gregory Toomey
Post by Gregory Toomey
Post by Tom N
But tell me which managed fund is going to give 16% ?
http://www.hunterhall.com.au/value_growth_trust.asp
Not last year, next year


But I can play that game better, just buy one share

http://au.finance.yahoo.com/q?s=BSL.AX&d=c&t=2y&l=on&z=b&q=l



Sam
The Wog
2004-08-20 10:43:34 UTC
Permalink
Post by Tom N
Post by Ironbark Bill
If you have $50K to invest you can either buy $500K of property
(around 90% LVR) with most of the holding cost covered by
rental.
Or you can buy $200K of a blue-chip stock (75% margin loan),
paying most of the cost of your margin loan via the dividends.
Or you can buy $50K of a managed fund - cash.
Or you can get a margin loan for the managed fund (let's say 70% gearing
[1]) -> $166K
Post by Ironbark Bill
Property 4%
Blue-chip 8%
Managed Fund 16%
Property: $500K -> $562 = $62K profit
Blue-chip: $200K -> $251 = $51K profit
Man. Fund: $50K -> $78 = $28K profit
Man Fund with margin loan $166K -> $259K = $93k profit
Post by Ironbark Bill
Which are you better off buying?
Actually you can buy twice as much as property as illustrated
above, but I thought I'd leave a margin for costs.
Like the $18-26k stamp duty (cheaper in Qld) on purchase [2]? Plus legals?
Post by Ironbark Bill
The share purchase is the most you can borrow on a blue-chip
margin loan....and if your shares go down in value you have a
BIG risk of a margin call which doesn't exist with the other
options.
So what if your property is vacant, and decreases in market price by 10%?
But tell me which managed fund is going to give 16% ?
Yeah, it's a bit low for a share fund, most should have been getting 20%+
and some have been getting 40%+. But it's OK to be a little conservative for
this kind of stuff.
Samuel
2004-08-21 07:09:17 UTC
Permalink
On Fri, 20 Aug 2004 20:43:34 +1000, "The Wog"
Post by The Wog
Post by Tom N
But tell me which managed fund is going to give 16% ?
Yeah, it's a bit low for a share fund, most should have been getting 20%+
and some have been getting 40%+. But it's OK to be a little conservative for
this kind of stuff.
Are you joking ?

20% is extra-ordinary, sure some are getting it now but only after
losing a similar amount since 2001.

20% long term is not achievable. If it is let me know where,


Sam
sarge
2004-08-23 08:50:30 UTC
Permalink
Post by Samuel
On Fri, 20 Aug 2004 20:43:34 +1000, "The Wog"
Post by The Wog
Post by Tom N
But tell me which managed fund is going to give 16% ?
Yeah, it's a bit low for a share fund, most should have been getting 20%+
and some have been getting 40%+. But it's OK to be a little conservative for
this kind of stuff.
Are you joking ?
20% is extra-ordinary, sure some are getting it now but only after
losing a similar amount since 2001.
20% long term is not achievable. If it is let me know where,
Sam
A couple of places spring to mind. I think these figures were in a story in
the Fin Review last week about Wesfarmers. It mentioned 4 listed companies.
All are that are similar to a Managed Fund in regards to the fact that they
invest in a range of different businesses, but the difference is they run
them.

The returns quoted from memory were per annum over a 20 year period.

The companies were Westfield Holdings - 29.4%, Wesfarmer 29%, General
Electric 20%+ and Berkshire Hathaway 20%+. So as you can see achieving a
20%+ return hasn't been that difficult, you just need a long term view and
the right management team. In fact from memory I think the article said
$1,000 invested in Wesfarmers in 1984 woudl be worth around $105,000 today.
So if we use the posters original amount of $50,000 we could have either $
5,250,000 (ungeared) or $ 21,000,000 (75% leverage). This does not include
the possibility of increasing your borrowings to maintain the 75% leverage
position, as the gearing % would now only be 0.71%.

I would like to see any bricks and morter investment that has done this well
over the past 20 years.

* Past performance is no indication of future performance, but that applies
to everything discussed in this thread.

sarge
Phil Herring
2004-08-24 00:46:48 UTC
Permalink
Post by sarge
The companies were Westfield Holdings - 29.4%, Wesfarmer 29%, General
Electric 20%+ and Berkshire Hathaway 20%+. So as you can see achieving a
20%+ return hasn't been that difficult, you just need a long term view and
the right management team.
You're overstating the situation in a big way.

Consider the two Australian companies. If two ASX-listed companies
managed an average of 29% each for 20 years, it seems likely that
almost every other company on the ASX didn't. Conclusion: roughly 1 in
700 Australian companies pulled it off.

Therefore, I would describe 29% long-term average growth as "not
impossible, but exceptionally difficult, and less than 1% of listed
companies pull it off".

I'd go further: overall, ASX-listed companies grow about as fast as
the economy. Some will grow faster, and some slower. There will
probably be an approximately normal distribution, so most will show
average growth, and a very few, outstanding growth.


-- Phil
B J Foster
2004-08-24 00:57:48 UTC
Permalink
Post by Phil Herring
Post by sarge
The companies were Westfield Holdings - 29.4%, Wesfarmer 29%, General
Electric 20%+ and Berkshire Hathaway 20%+. So as you can see achieving a
20%+ return hasn't been that difficult, you just need a long term view and
the right management team.
You're overstating the situation in a big way.
Consider the two Australian companies. If two ASX-listed companies
managed an average of 29% each for 20 years, it seems likely that
almost every other company on the ASX didn't. Conclusion: roughly 1 in
700 Australian companies pulled it off.
Therefore, I would describe 29% long-term average growth as "not
impossible, but exceptionally difficult, and less than 1% of listed
companies pull it off".
I'd go further: overall, ASX-listed companies grow about as fast as
the economy. Some will grow faster, and some slower. There will
probably be an approximately normal distribution, so most will show
average growth, and a very few, outstanding growth.
-- Phil
Westfield and Newscorp have grown outside of Australia

Cochlear has a 70% share of the world market in its segment
Aristocrat is similar

Our economic growth rate doesn't prevent offshore growth. It is
small-minded politicians, who force feed our savings into unproductive
areas (like residential property loans) that constrains our growth.

Australia has the highest number of patents registered per capita in the
world, yet we have one of the most hostile climates for entrepeneurs.
Phil Herring
2004-08-25 01:48:09 UTC
Permalink
Post by B J Foster
Westfield and Newscorp have grown outside of Australia
Cochlear has a 70% share of the world market in its segment
Aristocrat is similar
True, but I did't contend that every company's growth is contrained by
the local economy - only that on average, overall, the ASX is - more
or less.

There are also plenty of examples of local companies trying to expand
overseas and failing spectacularly, which supports my original point -
exceptional growth isn't impossible, but it's exceptionally hard to
pull off, whether overseas or locally.
Post by B J Foster
Our economic growth rate doesn't prevent offshore growth. It is
small-minded politicians, who force feed our savings into unproductive
areas (like residential property loans) that constrains our growth.
I think you're laying too much at the door of politicians. The growth
in residential property only happened because of a cultural
disposition towards real estate. It's our favourite sacred cow (which
is why there's no CGT on the family home - how's that for a tax
break?). It's facilitated by the government, of course, but only
because the voters like it that way.


-- Phil
The Wog
2004-08-28 02:13:36 UTC
Permalink
Post by Phil Herring
I think you're laying too much at the door of politicians. The growth
in residential property only happened because of a cultural
disposition towards real estate. It's our favourite sacred cow (which
is why there's no CGT on the family home - how's that for a tax
break?).
It's not a tax break. There's no tax because there's no tax relief on
borrowings for "private purpose." It would be a bit rude to treat the home
as private when it comes to borrowing for it, but an investment at sale time
(especially as people selling to move can't really be finding a $100,000 CGT
bill).

Wog
Public Image Ltd
2004-08-19 09:53:47 UTC
Permalink
Post by Ironbark Bill
If you have $50K to invest you can either buy $500K of property
(around 90% LVR) with most of the holding cost covered by
rental.
Or you can buy $200K of a blue-chip stock (75% margin loan),
paying most of the cost of your margin loan via the dividends.
Or you can buy $50K of a managed fund - cash.
So the take-away message is that the more leverage, the better?
Absolutely brilliant! Here's an even better idea: don't put _any_
deposit down on property. Use somebody else's money instead. :-)
Tom N
2004-08-19 09:58:44 UTC
Permalink
Post by Public Image Ltd
Post by Ironbark Bill
If you have $50K to invest you can either buy $500K of property
(around 90% LVR) with most of the holding cost covered by
rental.
Or you can buy $200K of a blue-chip stock (75% margin loan),
paying most of the cost of your margin loan via the dividends.
Or you can buy $50K of a managed fund - cash.
So the take-away message is that the more leverage, the better?
Absolutely brilliant! Here's an even better idea: don't put _any_
deposit down on property. Use somebody else's money instead. :-)
Then you make infinity percent. Does it get any better?
Henry
2004-08-19 10:06:32 UTC
Permalink
Post by Ironbark Bill
Read this in a online forum. Is this as good as it gets?
-----------------------------
If you have $50K to invest you can either buy $500K of property
(around 90% LVR) with most of the holding cost covered by
rental.
5% entry costs
2-4% exist costs (excluding CGT)
Insurance
Vacancy
Management fees
Repairs
Rates
Some utilities (water & sewerage service charge, gas bottle rental)
+ General inconvenience

The more I experience the more attractive equities become...
Post by Ironbark Bill
Or you can buy $200K of a blue-chip stock (75% margin loan),
paying most of the cost of your margin loan via the dividends.
Or you can buy $50K of a managed fund - cash.
Property 4%
Blue-chip 8%
Managed Fund 16%
Property: $500K -> $562 = $62K profit
Blue-chip: $200K -> $251 = $51K profit
Man. Fund: $50K -> $78 = $28K profit
Which are you better off buying?
Actually you can buy twice as much as property as illustrated
above, but I thought I'd leave a margin for costs.
The share purchase is the most you can borrow on a blue-chip
margin loan....and if your shares go down in value you have a
BIG risk of a margin call which doesn't exist with the other
options.
Gregory Toomey
2004-08-20 02:01:46 UTC
Permalink
Post by Ironbark Bill
Read this in a online forum. Is this as good as it gets?
-----------------------------
If you have $50K to invest you can either buy $500K of property
(around 90% LVR) with most of the holding cost covered by
rental.
Or you can buy $200K of a blue-chip stock (75% margin loan),
paying most of the cost of your margin loan via the dividends.
Or you can buy $50K of a managed fund - cash.
Property 4%
Blue-chip 8%
Managed Fund 16%
Property: $500K -> $562 = $62K profit
Blue-chip: $200K -> $251 = $51K profit
Man. Fund: $50K -> $78 = $28K profit
Which are you better off buying?
Actually you can buy twice as much as property as illustrated
above, but I thought I'd leave a margin for costs.
The share purchase is the most you can borrow on a blue-chip
margin loan....and if your shares go down in value you have a
BIG risk of a margin call which doesn't exist with the other
options.
Err, if you cant repay your property mortage the bank repoessess it.

A recent poster to aus.invest invested in a commercial propert syndicate.
The final sale price of the properties was lower than the purchase price,
resulting in a loss.

Investment is all about management of risk. And although I'm loathe to admit
it, I keep on agreeing more and more with Travis and the aus.invest faq.

gtoomey
Phil Herring
2004-08-20 07:14:37 UTC
Permalink
Post by Gregory Toomey
Investment is all about management of risk. And although I'm loathe to admit
it, I keep on agreeing more and more with Travis and the aus.invest faq.
Rule 1 of investing: DON'T LOSE MONEY.

Easy to remember :)


-- Phil
u***@domain.invalid
2004-08-22 07:38:25 UTC
Permalink
Post by Ironbark Bill
Property 4%
Blue-chip 8%
Managed Fund 16%
Property: $500K -> $562 = $62K profit
Blue-chip: $200K -> $251 = $51K profit
Man. Fund: $50K -> $78 = $28K profit
Which are you better off buying?
Ignoring the impact of tax, the (in)accuracy of your assumed rate of
capital growth and the possibilities of increasing borrowings using
the increased capital growth as leverage:

Year Property Blue Chip Managed Fund
1.04 1.08 1.16
0 $500,000.00 $200,000.00 $50,000.00
1 $520,000.00 $216,000.00 $58,000.00
2 $540,800.00 $233,280.00 $67,280.00
3 $562,432.00 $251,942.40 $78,044.80
4 $584,929.28 $272,097.79 $90,531.97
5 $608,326.45 $293,865.62 $105,017.08
6 $632,659.51 $317,374.86 $121,819.82
7 $657,965.89 $342,764.85 $141,310.99
8 $684,284.53 $370,186.04 $163,920.74
9 $711,655.91 $399,800.93 $190,148.06
10 $740,122.14 $431,785.00 $220,571.75
11 $769,727.03 $466,327.80 $255,863.23
12 $800,516.11 $503,634.02 $296,801.35
13 $832,536.75 $543,924.75 $344,289.57
14 $865,838.22 $587,438.72 $399,375.90
15 $900,471.75 $634,433.82 $463,276.04
16 $936,490.62 $685,188.53 $537,400.21
17 $973,950.25 $740,003.61 $623,384.24
18 $1,012,908.26 $799,203.90 $723,125.72
19 $1,053,424.59 $863,140.21 $838,825.84
20 $1,095,561.57 $932,191.43 $973,037.97
21 $1,139,384.03 $1,006,766.74 $1,128,724.05
22 $1,184,959.40 $1,087,308.08 $1,309,319.90
23 $1,232,357.77 $1,174,292.73 $1,518,811.08
24 $1,281,652.08 $1,268,236.15 $1,761,820.85
25 $1,332,918.17 $1,369,695.04 $2,043,712.19
26 $1,386,234.89 $1,479,270.64 $2,370,706.14
27 $1,441,684.29 $1,597,612.29 $2,750,019.12
28 $1,499,351.66 $1,725,421.28 $3,190,022.18
29 $1,559,325.73 $1,863,454.98 $3,700,425.73
30 $1,621,698.76 $2,012,531.38 $4,292,493.85
Jacques Guy
2004-08-23 01:13:16 UTC
Permalink
Post by u***@domain.invalid
Ignoring the impact of tax, the (in)accuracy of your assumed rate of
capital growth and the possibilities of increasing borrowings using
Year Property Blue Chip Managed Fund
1.04 1.08 1.16
0 $500,000.00 $200,000.00 $50,000.00
Figures out of thin air. Did you at least remember
to lick your finger before sticking it out in the
wind?
David Hooper
2004-08-25 11:24:18 UTC
Permalink
I actually think that the person that started this post has a very
good point, which (to state the obvious) can be summed up as follows:

Even if we assume that real estate will in the future have lower
capital growth than equities, it is likely that the fact that real
estate is more highly geared will more than compensate for this when
returns are put in $ terms.

Of course, we don't know what will happen in the future. However we do
know that historically, over the long term, equities have had SLIGHTLY
higher returns than real estate. The original poster has assumed that
equities will have SUBSTANTIALLY higher returns than real estate -
despite this, his example shows that the "gearing effect" of real
estate more than makes up for its hypotethically substantially lower
rate of return. This makes his argument all the stronger.
Post by Jacques Guy
Post by u***@domain.invalid
Ignoring the impact of tax, the (in)accuracy of your assumed rate of
capital growth and the possibilities of increasing borrowings using
Year Property Blue Chip Managed Fund
1.04 1.08 1.16
0 $500,000.00 $200,000.00 $50,000.00
Figures out of thin air. Did you at least remember
to lick your finger before sticking it out in the
wind?
Chris P
2004-08-25 23:52:56 UTC
Permalink
Post by David Hooper
I actually think that the person that started this post has a very
Even if we assume that real estate will in the future have lower
capital growth than equities, it is likely that the fact that real
estate is more highly geared will more than compensate for this when
returns are put in $ terms.
what a load of nonsense, gearing is a double edge sword which
magnifies gains (even those on paper written by the council) and the
losses. There is absoultely no doubt that people have made monies on
property and the smart investors will continue to do so however dont
get a debt driven bull market mixed up with intelligence.
Post by David Hooper
Of course, we don't know what will happen in the future. However we do
know that historically, over the long term, equities have had SLIGHTLY
higher returns than real estate. The original poster has assumed that
equities will have SUBSTANTIALLY higher returns than real estate -
despite this, his example shows that the "gearing effect" of real
estate more than makes up for its hypotethically substantially lower
rate of return. This makes his argument all the stronger.
the median average house price has gone up yes but that does not
include all houses (only detached houses) and doesnt include the cost
of maintaining the property, paying rates, improvements etc etc etc.
Typically rental properties do not rise in value at the same rate as
owner occupied as when was the last time you put in new carpets a new
kitchen and an electric roller door for your tenant. As for gearing
into shares, there are many ways to gear more than 100% into shares,
for simple caluclation purposes you can actually borrow back the full
amount against your house and place it into the market and outside of
servicing the difference in interest costs between the loan and the
dividends/tax return you never have to spend one cent on repairs
advertise for tenants etc etc etc just wait for the friendly dividends
that have been rising each year for years on end, if you wanted you
could also add a margin loan throw in some installment warrants and if
your a real punter have a crack at the futures market.

calculations using property have far to many assumptions whereas share
market returns are fact. No one in the real estate industry and even
the reserve bank can even agree on valuing houses
Post by David Hooper
http://www.rba.gov.au/PublicationsAndResearch/Bulletin/bu_jul04/bu_0704.1.pdf
forgetting the love affair we have with capital growth, what are the
baby boomers going to do when there is no capital growth left, give me
the money. the same thing happened with the dot com boom the argument
that it is different this time, well nothing is different. purchasing
an investment is purchasing that investments future cash flows so with
net rental returns of 2% at best or even worse, good luck with
residential property.

just as an aside Commonwealth bank was floated in 1991 at a price of
$5.40 and closed last night at $29.70 (450% capital growth without
reinvesting dividends), over this time it has paid back the original
investment and then some in dividends (as an example dividends since
august 99 have been $8.19 and is expected to pay approx. $4.00 over
the next 2 years FULLY FRANKED) so who cares if we dont get any growth
or it even goes backwards in the futuree as i can quiter happily use
the income in my pocket.

Finally, i wasnt born then and from what people tell me about the 60's
no one could even remember but $1,000 invested in the original
Westfield holdings is worth over $100 million today and until the
recent merger didnt hold any property assets, show me a residential
property that has done that
Post by David Hooper
Post by Jacques Guy
Post by u***@domain.invalid
Ignoring the impact of tax, the (in)accuracy of your assumed rate of
capital growth and the possibilities of increasing borrowings using
Year Property Blue Chip Managed Fund
1.04 1.08 1.16
0 $500,000.00 $200,000.00 $50,000.00
Figures out of thin air. Did you at least remember
to lick your finger before sticking it out in the
wind?
David Hooper
2004-08-26 11:12:13 UTC
Permalink
Post by Chris P
Post by David Hooper
I actually think that the person that started this post has a very
Even if we assume that real estate will in the future have lower
capital growth than equities, it is likely that the fact that real
estate is more highly geared will more than compensate for this when
returns are put in $ terms.
what a load of nonsense, gearing is a double edge sword which
magnifies gains (even those on paper written by the council) and the
losses. There is absoultely no doubt that people have made monies on
property and the smart investors will continue to do so however dont
get a debt driven bull market mixed up with intelligence.
Everyone knows that gearing magnifies gains and losses.

If you don't think you will make a gain, then don't invest, with or
without gearing. The fact that gearing is not without risk needs does
not mean it is not a very useful tool.
Post by Chris P
Post by David Hooper
Of course, we don't know what will happen in the future. However we do
know that historically, over the long term, equities have had SLIGHTLY
higher returns than real estate. The original poster has assumed that
equities will have SUBSTANTIALLY higher returns than real estate -
despite this, his example shows that the "gearing effect" of real
estate more than makes up for its hypotethically substantially lower
rate of return. This makes his argument all the stronger.
the median average house price has gone up yes but that does not
include all houses (only detached houses) and doesnt include the cost
of maintaining the property, paying rates, improvements etc etc etc.
Rubbish!

I have seen many houses, detached or otherwise, units and flats
(exception: high rises) appreciate substantially since 1997.
Substantially = more than double. Which I assure you more than makes
up for any operating loss during the ownership of the property.
Post by Chris P
Typically rental properties do not rise in value at the same rate as
owner occupied as when was the last time you put in new carpets a new
kitchen and an electric roller door for your tenant.
Complete rubbish. It depends on the property. To make the gross
generalisation "owner occupied housing rises more than rental housing"
may be true in some cases but there is no evidence that such a
generalization is correct. Furthermore, whether a house is owner
occupied or a rental property depends on its owner, not on the nature
of the house (though some houses are more likely to be rental
properties than others0.



As for gearing
Post by Chris P
into shares, there are many ways to gear more than 100% into shares,
for simple caluclation purposes you can actually borrow back the full
amount against your house and place it into the market and outside of
servicing the difference in interest costs between the loan and the
dividends/tax return you never have to spend one cent on repairs
advertise for tenants etc etc etc just wait for the friendly dividends
that have been rising each year for years on end, if you wanted you
could also add a margin loan throw in some installment warrants and if
your a real punter have a crack at the futures market.
calculations using property have far to many assumptions whereas share
market returns are fact. No one in the real estate industry and even
the reserve bank can even agree on valuing houses
I do agree with you to a point. Though all predictions, by their
nature, whether on shares or real estate, require assumptions.
Post by Chris P
Post by David Hooper
http://www.rba.gov.au/PublicationsAndResearch/Bulletin/bu_jul04/bu_0704.1.pdf
forgetting the love affair we have with capital growth, what are the
baby boomers going to do when there is no capital growth left, give me
the money. the same thing happened with the dot com boom the argument
that it is different this time, well nothing is different. purchasing
an investment is purchasing that investments future cash flows so with
net rental returns of 2% at best or even worse, good luck with
residential property.
There's a huge difference. There will always be substantail demand for
real estate, even if it does to some extent weaken. Housing is a near
necessity, unlike owning shares in dot coms.

You keep making the distinction between rental property and owner
occupied housing, not realising that most properties can be either,
depending on who they are bought by.
Post by Chris P
just as an aside Commonwealth bank was floated in 1991 at a price of
$5.40 and closed last night at $29.70 (450% capital growth without
reinvesting dividends), over this time it has paid back the original
investment and then some in dividends (as an example dividends since
august 99 have been $8.19 and is expected to pay approx. $4.00 over
the next 2 years FULLY FRANKED) so who cares if we dont get any growth
or it even goes backwards in the futuree as i can quiter happily use
the income in my pocket.
What's your point??? If you bought a flat in Elwood (in Melbourne) or
in Bondi (in Sydney) in 1997 the gain you made on that would be
substantially more than CBA shares have risen between 1997 and 2004.
And you would get rent also for that time.

I can pick points on time to show houses are better than shares, and
vice versa. In the long run, their returns (without taking any gearing
into account) is that it is slightly higher on shares. However, taking
into account that houses can be more highly geared than shares, the
return on housing is usually higher.
Chris P
2004-08-27 00:01:17 UTC
Permalink
Post by David Hooper
Post by Chris P
Post by David Hooper
I actually think that the person that started this post has a very
Even if we assume that real estate will in the future have lower
capital growth than equities, it is likely that the fact that real
estate is more highly geared will more than compensate for this when
returns are put in $ terms.
what a load of nonsense, gearing is a double edge sword which
magnifies gains (even those on paper written by the council) and the
losses. There is absoultely no doubt that people have made monies on
property and the smart investors will continue to do so however dont
get a debt driven bull market mixed up with intelligence.
Everyone knows that gearing magnifies gains and losses.
If you don't think you will make a gain, then don't invest, with or
without gearing. The fact that gearing is not without risk needs does
not mean it is not a very useful tool.
i never said gearing is not a useful tool i completely agree that
gearing is a correct startegy for the person with the correct risk
return profile however just because you can gear mnore into one asset
than the other doesnt make that assets a better investment.
Post by David Hooper
Post by Chris P
Post by David Hooper
Of course, we don't know what will happen in the future. However we do
know that historically, over the long term, equities have had SLIGHTLY
higher returns than real estate. The original poster has assumed that
equities will have SUBSTANTIALLY higher returns than real estate -
despite this, his example shows that the "gearing effect" of real
estate more than makes up for its hypotethically substantially lower
rate of return. This makes his argument all the stronger.
the median average house price has gone up yes but that does not
include all houses (only detached houses) and doesnt include the cost
of maintaining the property, paying rates, improvements etc etc etc.
Rubbish!
I have seen many houses, detached or otherwise, units and flats
(exception: high rises) appreciate substantially since 1997.
Substantially = more than double. Which I assure you more than makes
up for any operating loss during the ownership of the property.
I have aboslutely no doubt that many properties have substantially
gone up in price since 1997, interesting that you choose 1997 though
as this was after a dip from 96 - 97 in medain average house prices in
sydney after which time the median house price has gone up by more
than 2.5 times. alot of these so called proerty investors have
magically been operating only in the last 5 - 7 years and pretend to
be so called experts, well the point i made above is dont get a debt
driven market mixed up with intelligence or investment genious. there
will always be people who make monies out of property but the binge of
the last 5 -7 years is well and truelly over and wont be back for a
while, god forbid we will probably have another dot com boom before
the next property boom then all the stock picking experts can come
back out of hibernation
Post by David Hooper
Post by Chris P
Typically rental properties do not rise in value at the same rate as
owner occupied as when was the last time you put in new carpets a new
kitchen and an electric roller door for your tenant.
Complete rubbish. It depends on the property. To make the gross
generalisation "owner occupied housing rises more than rental housing"
may be true in some cases but there is no evidence that such a
generalization is correct. Furthermore, whether a house is owner
occupied or a rental property depends on its owner, not on the nature
of the house (though some houses are more likely to be rental
properties than others0.
the point i am making here is that few investors spend major amounts of monies upgrading a rental property for a tenant, yes they may upgrade for sale i.e. new kitchen carpets etc however would not do the same for a tenant. the median house price increase does not take into effect any improvements or ongoing costs
As for gearing
Post by Chris P
into shares, there are many ways to gear more than 100% into shares,
for simple caluclation purposes you can actually borrow back the full
amount against your house and place it into the market and outside of
servicing the difference in interest costs between the loan and the
dividends/tax return you never have to spend one cent on repairs
advertise for tenants etc etc etc just wait for the friendly dividends
that have been rising each year for years on end, if you wanted you
could also add a margin loan throw in some installment warrants and if
your a real punter have a crack at the futures market.
calculations using property have far to many assumptions whereas share
market returns are fact. No one in the real estate industry and even
the reserve bank can even agree on valuing houses
I do agree with you to a point. Though all predictions, by their
nature, whether on shares or real estate, require assumptions.
Post by Chris P
Post by David Hooper
http://www.rba.gov.au/PublicationsAndResearch/Bulletin/bu_jul04/bu_0704.1.pdf
forgetting the love affair we have with capital growth, what are the
baby boomers going to do when there is no capital growth left, give me
the money. the same thing happened with the dot com boom the argument
that it is different this time, well nothing is different. purchasing
an investment is purchasing that investments future cash flows so with
net rental returns of 2% at best or even worse, good luck with
residential property.
There's a huge difference. There will always be substantail demand for
real estate, even if it does to some extent weaken. Housing is a near
necessity, unlike owning shares in dot coms.
this is far too a simplistic approach, demand does not mean prices
continue to go up for ever, there is over $1b traded on the stock
market each day and a minimum of 9% of every australians salary is in
the main pumped into the market each year and that doesn't mean prices
continue an upward rise should prices get ahead of fundamentals. Ask
any property/share investor in japan how they have been going over the
last 10 years, prices can and do go well above value however when they
get too far ahead (residential property today) they will either come
back or go sideways until value is restored, god forbid they can even
be undervalued for periods of time
Post by David Hooper
You keep making the distinction between rental property and owner
occupied housing, not realising that most properties can be either,
depending on who they are bought by.
i fully understand that properties can be rental and owner occupied
however i thought this was called ausinvest not ausroomforimprovement.
the reality is that the majority of properties (majority meaning more
thann half) are owner occupied as australians have a love affair with
property. and owner occupied properties would want to more than double
as should you have a $600k mortgage at an average int rate of say 7%
you would pay back approx. $516k in interest over a 20 year period.
many punters in residential market today will be paying back
substantially more than this and getting substantially less growth
Post by David Hooper
Post by Chris P
just as an aside Commonwealth bank was floated in 1991 at a price of
$5.40 and closed last night at $29.70 (450% capital growth without
reinvesting dividends), over this time it has paid back the original
investment and then some in dividends (as an example dividends since
august 99 have been $8.19 and is expected to pay approx. $4.00 over
the next 2 years FULLY FRANKED) so who cares if we dont get any growth
or it even goes backwards in the futuree as i can quiter happily use
the income in my pocket.
What's your point??? If you bought a flat in Elwood (in Melbourne) or
in Bondi (in Sydney) in 1997 the gain you made on that would be
substantially more than CBA shares have risen between 1997 and 2004.
And you would get rent also for that time.
whats your point??? many individual shares have more than doubled
tripled quadrupled since 1997
Post by David Hooper
I can pick points on time to show houses are better than shares, and
vice versa. In the long run, their returns (without taking any gearing
into account) is that it is slightly higher on shares. However, taking
into account that houses can be more highly geared than shares, the
return on housing is usually higher.
yes i agree with the fact that anything can be proved given a time
line and set of statistics however it is not true that housing can be
more highly geared than shares rather by using futures you can gear
your wallet off if you want. and if you want to gear against your own
house borrow the full amount then use a margin loan and invest into a
geared share fund, if we consider that demand will mean prices rise
continually forever where is the risk just sit back and wait to retire
rich without lifting a finger.

saying the return on housing is usually higher is nonsense, just as
punters lost monies on HIH (i actually made monies on that one thank
you very much)and onetell, the same amount of punters have lost monies
on property (ask victims of the high rise spruikers- sorry to use
these people as do feel empathy for many that were sucked in) the
issue is that there were many warning signs to get out of hih and many
warning signs to not touch onetell or if you did get out well bfore
zero it is just that people who enter markets (property and shares)
without an exit strategy are asking for trouble. no where will you
see it written that the ride is over , back in dot com boom the sky
was going to be blue forever just as last year property investors
thought the sky was going to be blue forever well the party is well
and truelly over and the sun aint going to shine tomorrow or the next
day for sometime yet, so property investors can take their 2% or less
rental yield and i will take my nice fully franked dividends ands wait
for another day to enter the property market. no one can opick the
bottom or top but many can take the fat from the middle
Fitzroy
2004-08-28 00:16:05 UTC
Permalink
Post by Chris P
Post by David Hooper
Post by Chris P
Post by David Hooper
I actually think that the person that started this post has a very
Even if we assume that real estate will in the future have lower
capital growth than equities, it is likely that the fact that real
estate is more highly geared will more than compensate for this when
returns are put in $ terms.
what a load of nonsense, gearing is a double edge sword which
magnifies gains (even those on paper written by the council) and the
losses. There is absoultely no doubt that people have made monies on
property and the smart investors will continue to do so however dont
get a debt driven bull market mixed up with intelligence.
Everyone knows that gearing magnifies gains and losses.
If you don't think you will make a gain, then don't invest, with or
without gearing. The fact that gearing is not without risk needs does
not mean it is not a very useful tool.
i never said gearing is not a useful tool i completely agree that
gearing is a correct startegy for the person with the correct risk
return profile however just because you can gear mnore into one asset
than the other doesnt make that assets a better investment.
Post by David Hooper
Post by Chris P
Post by David Hooper
Of course, we don't know what will happen in the future. However we do
know that historically, over the long term, equities have had SLIGHTLY
higher returns than real estate. The original poster has assumed that
equities will have SUBSTANTIALLY higher returns than real estate -
despite this, his example shows that the "gearing effect" of real
estate more than makes up for its hypotethically substantially lower
rate of return. This makes his argument all the stronger.
the median average house price has gone up yes but that does not
include all houses (only detached houses) and doesnt include the cost
of maintaining the property, paying rates, improvements etc etc etc.
Rubbish!
I have seen many houses, detached or otherwise, units and flats
(exception: high rises) appreciate substantially since 1997.
Substantially = more than double. Which I assure you more than makes
up for any operating loss during the ownership of the property.
I have aboslutely no doubt that many properties have substantially
gone up in price since 1997, interesting that you choose 1997 though
as this was after a dip from 96 - 97 in medain average house prices in
sydney after which time the median house price has gone up by more
than 2.5 times. alot of these so called proerty investors have
magically been operating only in the last 5 - 7 years and pretend to
be so called experts, well the point i made above is dont get a debt
driven market mixed up with intelligence or investment genious. there
will always be people who make monies out of property but the binge of
the last 5 -7 years is well and truelly over and wont be back for a
while, god forbid we will probably have another dot com boom before
the next property boom then all the stock picking experts can come
back out of hibernation
Post by David Hooper
Post by Chris P
Typically rental properties do not rise in value at the same rate as
owner occupied as when was the last time you put in new carpets a new
kitchen and an electric roller door for your tenant.
Complete rubbish. It depends on the property. To make the gross
generalisation "owner occupied housing rises more than rental housing"
may be true in some cases but there is no evidence that such a
generalization is correct. Furthermore, whether a house is owner
occupied or a rental property depends on its owner, not on the nature
of the house (though some houses are more likely to be rental
properties than others0.
the point i am making here is that few investors spend major amounts of
monies upgrading a rental property for a tenant, yes they may upgrade for
sale i.e. new kitchen carpets etc however would not do the same for a
tenant. the median house price increase does not take into effect any
improvements or ongoing costs
Post by Chris P
Post by David Hooper
As for gearing
Post by Chris P
into shares, there are many ways to gear more than 100% into shares,
for simple caluclation purposes you can actually borrow back the full
amount against your house and place it into the market and outside of
servicing the difference in interest costs between the loan and the
dividends/tax return you never have to spend one cent on repairs
advertise for tenants etc etc etc just wait for the friendly dividends
that have been rising each year for years on end, if you wanted you
could also add a margin loan throw in some installment warrants and if
your a real punter have a crack at the futures market.
calculations using property have far to many assumptions whereas share
market returns are fact. No one in the real estate industry and even
the reserve bank can even agree on valuing houses
I do agree with you to a point. Though all predictions, by their
nature, whether on shares or real estate, require assumptions.
http://www.rba.gov.au/PublicationsAndResearch/Bulletin/bu_jul04/bu_0704.1.pd
f
Post by Chris P
Post by David Hooper
Post by Chris P
forgetting the love affair we have with capital growth, what are the
baby boomers going to do when there is no capital growth left, give me
the money. the same thing happened with the dot com boom the argument
that it is different this time, well nothing is different. purchasing
an investment is purchasing that investments future cash flows so with
net rental returns of 2% at best or even worse, good luck with
residential property.
There's a huge difference. There will always be substantail demand for
real estate, even if it does to some extent weaken. Housing is a near
necessity, unlike owning shares in dot coms.
this is far too a simplistic approach, demand does not mean prices
continue to go up for ever, there is over $1b traded on the stock
market each day and a minimum of 9% of every australians salary is in
the main pumped into the market each year and that doesn't mean prices
continue an upward rise should prices get ahead of fundamentals. Ask
any property/share investor in japan how they have been going over the
last 10 years, prices can and do go well above value however when they
get too far ahead (residential property today) they will either come
back or go sideways until value is restored, god forbid they can even
be undervalued for periods of time
Post by David Hooper
You keep making the distinction between rental property and owner
occupied housing, not realising that most properties can be either,
depending on who they are bought by.
i fully understand that properties can be rental and owner occupied
however i thought this was called ausinvest not ausroomforimprovement.
the reality is that the majority of properties (majority meaning more
thann half) are owner occupied as australians have a love affair with
property. and owner occupied properties would want to more than double
as should you have a $600k mortgage at an average int rate of say 7%
you would pay back approx. $516k in interest over a 20 year period.
many punters in residential market today will be paying back
substantially more than this and getting substantially less growth
Post by David Hooper
Post by Chris P
just as an aside Commonwealth bank was floated in 1991 at a price of
$5.40 and closed last night at $29.70 (450% capital growth without
reinvesting dividends), over this time it has paid back the original
investment and then some in dividends (as an example dividends since
august 99 have been $8.19 and is expected to pay approx. $4.00 over
the next 2 years FULLY FRANKED) so who cares if we dont get any growth
or it even goes backwards in the futuree as i can quiter happily use
the income in my pocket.
What's your point??? If you bought a flat in Elwood (in Melbourne) or
in Bondi (in Sydney) in 1997 the gain you made on that would be
substantially more than CBA shares have risen between 1997 and 2004.
And you would get rent also for that time.
whats your point??? many individual shares have more than doubled
tripled quadrupled since 1997
Post by David Hooper
I can pick points on time to show houses are better than shares, and
vice versa. In the long run, their returns (without taking any gearing
into account) is that it is slightly higher on shares. However, taking
into account that houses can be more highly geared than shares, the
return on housing is usually higher.
yes i agree with the fact that anything can be proved given a time
line and set of statistics however it is not true that housing can be
more highly geared than shares rather by using futures you can gear
your wallet off if you want. and if you want to gear against your own
house borrow the full amount then use a margin loan and invest into a
geared share fund, if we consider that demand will mean prices rise
continually forever where is the risk just sit back and wait to retire
rich without lifting a finger.
saying the return on housing is usually higher is nonsense, just as
punters lost monies on HIH (i actually made monies on that one thank
you very much)and onetell, the same amount of punters have lost monies
on property (ask victims of the high rise spruikers- sorry to use
these people as do feel empathy for many that were sucked in) the
issue is that there were many warning signs to get out of hih and many
warning signs to not touch onetell or if you did get out well bfore
zero it is just that people who enter markets (property and shares)
without an exit strategy are asking for trouble. no where will you
see it written that the ride is over , back in dot com boom the sky
was going to be blue forever just as last year property investors
thought the sky was going to be blue forever well the party is well
and truelly over and the sun aint going to shine tomorrow or the next
day for sometime yet, so property investors can take their 2% or less
rental yield and i will take my nice fully franked dividends ands wait
for another day to enter the property market. no one can opick the
bottom or top but many can take the fat from the middle
I agree with most of this.

1) The investment worthiness of a property does not depend
on the level of gearing. In fact property should be evaluated as
a cash purchase. If it stands up, it will also stand up as a
geared investment.

2) The residential property sector is strictly the domain of
owner-occupiers. The investor is hopelessly outgunned.
Reason ? It is a corollary of point 1).
The value of an asset depends on its economic profit.
For the owner occupier this is AFTER tax rent. For
the investor BEFORE tax rent. Huge difference, without
even considering the CGT free status of owner occupier
property.

3) The crap pedalled by so-called experts in the media,
such as 'the Australian Dream' is just that, crap. Most
owner occupiers make the correct (perhaps intuitive)
decision to address their unavoidable accomodation
needs through home owenrship. The value of home
ownership is an after-tax (rent) perpetuity. I dont see the
average owner occupier making big mistakes. I see a lot
of residential property investors making big mistakes.

Fitzroy
Peter Parker
2004-09-01 00:21:18 UTC
Permalink
Post by Fitzroy
3) The crap pedalled by so-called experts in the media,
such as 'the Australian Dream' is just that, crap. Most
owner occupiers make the correct (perhaps intuitive)
decision to address their unavoidable accomodation
needs through home owenrship. The value of home
ownership is an after-tax (rent) perpetuity.
Which is not very much when rental yields in the major cities
are just 3-4%.

CGT aside, the tax system makes it more profitable to buy an IP and rent
yourself than buy your own PPOR and have no investments. This is even if you
buy in the same area that you live in. The cashflow gets even better if you
pay your landlord their 3-4% yield but buy an IP (or two or three) where it
gets (say) 8-10% yield, though at the possible cost of capital growth.

Of course not many people do this, and buying your own home imposes a
savings discipline which can be beneficial.

Peter
Fitzroy
2004-09-01 09:52:58 UTC
Permalink
Post by Peter Parker
Post by Fitzroy
3) The crap pedalled by so-called experts in the media,
such as 'the Australian Dream' is just that, crap. Most
owner occupiers make the correct (perhaps intuitive)
decision to address their unavoidable accomodation
needs through home owenrship. The value of home
ownership is an after-tax (rent) perpetuity.
Which is not very much when rental yields in the major cities
are just 3-4%.
Thats 3-4% after-tax real in perpetuity.
(Unless your accomodation requirements include roughing it
under a bridge a few months each year, in which case I must
concede that home ownership would be an extravagance)
Post by Peter Parker
CGT aside, the tax system makes it more profitable to buy an IP and rent
yourself than buy your own PPOR and have no investments. This is even if you
buy in the same area that you live in. The cashflow gets even better if you
pay your landlord their 3-4% yield but buy an IP (or two or three) where it
gets (say) 8-10% yield, though at the possible cost of capital growth.
Apparently a lot of people think this way.
Sadly, a lot of people are wrong.
It also explains why a lot of people dont succeed financially.

Fitzroy
Peter Parker
2004-09-01 21:57:37 UTC
Permalink
Post by Fitzroy
It also explains why a lot of people dont succeed financially.
The key reason for people not succeeding financially is that 1. they fail to
spend less than they earn and 2. Fail to wisely invest the difference in
assets that appreciate and produce income.

This could be the case if you kept renting and didn't invest, but not if you
rented AND invested. And if you're on a lowish income, having three rental
properties worth $100k each beats not being able to afford your own home
(say $300k).

The difference is the rental properties can almost pay for themselves and
it's easier to get finance for them as you get income from them, whereas if
you buy your own home, it produces no extra income, the only person who pays
the mortgage is you and there's less spare cash for other investments.

Peter
Fitzroy
2004-09-02 09:11:44 UTC
Permalink
Post by Peter Parker
Post by Fitzroy
It also explains why a lot of people dont succeed financially.
The key reason for people not succeeding financially is that 1. they fail to
spend less than they earn and 2. Fail to wisely invest the difference in
assets that appreciate and produce income.
This could be the case if you kept renting and didn't invest, but not if you
rented AND invested. And if you're on a lowish income, having three rental
properties worth $100k each beats not being able to afford your own home
(say $300k).
The difference is the rental properties can almost pay for themselves and
it's easier to get finance for them as you get income from them, whereas if
you buy your own home, it produces no extra income, the only person who pays
the mortgage is you and there's less spare cash for other investments.
Peter
I disagree totally.
The key reason why a lot of people dont succeed financially
is because they dont bother to think for themselves and fall
for all the hype.

You fail to realise that saving rent is a cash flow (and after
tax at that).

Looking at the two scenarios you mentioned (buying home
vs continue to rent and invest equal amount) :

You will require double the rental yield from your investments
(dream on) to break even with the owner occupier as far as
annual cash flow is concerned.

Even if you do achieve double the yield, you have to bear
the risk of vacancy, which is not an issue for the home
owner whose rent saving is guaranteed and permanent.

When it comes to capital growth, apart from the fact that
the three shit-holes you invested in will not produce the same
capital gain (they will necessarily be in less desirable areas and
wrecked by the tenants) you will also have to pay CGT.

All in all, yours is a case of tragic misguidedness.

Fitzroy
Peter Parker
2004-09-02 10:29:10 UTC
Permalink
Post by Fitzroy
The key reason why a lot of people dont succeed financially
is because they dont bother to think for themselves and fall
for all the hype.
That's one reason. Yes, people's greed can sometimes lead them to be caught
by unscrupulout spruikers. But I don't think it's the key reason for people
not having enough in retirement.

After all, the number of people that attended Henry Kaye seminars and the
like was only ever a small proportion of the population.

But it's very common for people to 1. fail to save 10% or more of their
income, and 2. not invest this wisely. If most people fall down on 1 then
they don't get a chance to fail or succeed on 2.

By the standards of most of the population anyone who does 1. above is
already ahead of the pack.

And as it's a form of forced saving, buying your own home and saving nothing
is infinitely better than renting and saving nothing.
Post by Fitzroy
You fail to realise that saving rent is a cash flow (and after
tax at that).
Saving (maybe) $10 000pa rent is good.

But not if you need to pay $15000pa on your mortgage and maybe another $3000
in rates and maintenance. And if you have a job, note that none of this is
tax deductible. For a person on (say) $35k pa salary, this huge outflow
precludes significant investment activity and makes them vulnurable to
interest rate hikes.

You'd need some good capital appreciation to compensate for this. Given that
we've had a huge property boom, I'd be wary about any investment strategy
that was solely dependent on appreciation for it to work. Nevetheless I
agree that buying your own home is heaps better than doing nothing.
Post by Fitzroy
You will require double the rental yield from your investments
(dream on) to break even with the owner occupier as far as
annual cash flow is concerned.
Which is quite possible if you live in Sydney or Melbourne and invest
interstate. Indeed even 3 times can be doable.

And I'm not talking fibro shacks in farming towns - I'm talking 1970s-1990s
brick & tile IPs in major regional cities.
Post by Fitzroy
Even if you do achieve double the yield, you have to bear
the risk of vacancy, which is not an issue for the home
owner whose rent saving is guaranteed and permanent.
This is a risk and it's important to have funds aside to counter this (a
mixture of fixed interest and shares is my favourite), but the owner
occupier has
the certainty of paying increased costs, as outlined above. And instead of
the tenant paying the mortgage, it's all on the owner occupier's shoulders.
Post by Fitzroy
When it comes to capital growth, apart from the fact that
the three shit-holes
They look quite ordinary - much like typical 1970s-80s suburbia almost
anywhere. And they're all newer, better equipped, larger and superior
quality to the 1960s flat I rent.
Post by Fitzroy
you invested in will not produce the same capital gain
Maybe not as much as in capital cities long-term, but then having these
places isn't costing much (if anything). Short term, and based on sales of
adjoining IPs, I'd say the gain has been higher than in many larger cities.
I agree with having a mix of growth and income investments, with
diversification across regions to spread risks. Also I'd ignore extremes,
eg excluding 10-15% yields in remote areas where I consider growth prospects
are nil.

If your properties are breaking even, and you can keep renting, you could
have some spare cashflow (maybe $5-10k pa) that you can put into shares and
other growth investments. So you have a very diverse portfolio, providing
both income and growth fuelled by both capital appreciation and high
savings.
Post by Fitzroy
(they will necessarily be in less desirable areas
Not necessarily. One is 7 min walk to the beach in one of that city's
better suburbs. Another is in a top location 5-10 min walk from all city
facilities.
Post by Fitzroy
and
wrecked by the tenants)
Bad tenants do exist, but you can minimise this risk by buying quality
properties in which people will want to live, using good property managers
and insuring against tenant damage. As landlord insurance premiums are low,
this must indicate that insurers also think that this risk is fairly low.
Post by Fitzroy
you will also have to pay CGT.
If you sell, yes. But there are heaps of benfits you can claim before then,
eg deductibility of interest, deductibility of expenses and building
depreciation, that owner occupiers don't get. And you can use this to repay
debt quickly, fund improvements or buy more properties.
Post by Fitzroy
All in all, yours is a case of tragic misguidedness.
The above approach will not suit everyone, but it's arrogant to say that it
suits no-one. Especially when it has been arrived at after careful
consideration of one's circumstances, capabilities and aims and formulation
of a strategy that suits.

Peter
Market Theory
2004-09-02 20:37:01 UTC
Permalink
Post by Peter Parker
Post by Fitzroy
The key reason why a lot of people dont succeed financially
is because they dont bother to think for themselves and fall
for all the hype.
That's one reason. Yes, people's greed can sometimes lead them to be caught
by unscrupulout spruikers. But I don't think it's the key reason for people
not having enough in retirement.
After all, the number of people that attended Henry Kaye seminars and the
like was only ever a small proportion of the population.
But it's very common for people to 1. fail to save 10% or more of their
income, and 2. not invest this wisely. If most people fall down on 1 then
they don't get a chance to fail or succeed on 2.
I thought 15% was the magic number. Wouldn't most wage earners be
saving 9% in the form of compulsory super already?
Post by Peter Parker
Post by Fitzroy
You fail to realise that saving rent is a cash flow (and after
tax at that).
Saving (maybe) $10 000pa rent is good.
But not if you need to pay $15000pa on your mortgage and maybe another $3000
in rates and maintenance. And if you have a job, note that none of this is
tax deductible. For a person on (say) $35k pa salary, this huge outflow
precludes significant investment activity and makes them vulnurable to
interest rate hikes.
You'd need some good capital appreciation to compensate for this. Given that
we've had a huge property boom, I'd be wary about any investment strategy
that was solely dependent on appreciation for it to work. Nevetheless I
agree that buying your own home is heaps better than doing nothing.
At the moment I'm advising a friend on buying a house in NSW. His
trade-off looks something like this

Buy house $540k
interest on $270k @ 6.5% -17,550
forgone interest on $295k @ 5.4% -15,930 (less taxes (small))
rates & maintenance -2,000 (property not watered or
sewered)
Total cost of buying -35,480

Rent similar house $480/week -24,960

Advantage to renting: $10,520 pa

Of course he could probably do something better with his $295k than
park it in his wife's Citibank account, but if you're planning to buy
a house in the near future that is probably ok. I'm counting the
economic cost of the loan (interest) rather than the cashflow, which
makes the buying proposition look better.

I tend to think he should keep renting.

--mt.
Fitzroy
2004-09-03 11:17:47 UTC
Permalink
Post by Market Theory
Post by Peter Parker
Post by Fitzroy
The key reason why a lot of people dont succeed financially
is because they dont bother to think for themselves and fall
for all the hype.
That's one reason. Yes, people's greed can sometimes lead them to be caught
by unscrupulout spruikers. But I don't think it's the key reason for people
not having enough in retirement.
After all, the number of people that attended Henry Kaye seminars and the
like was only ever a small proportion of the population.
But it's very common for people to 1. fail to save 10% or more of their
income, and 2. not invest this wisely. If most people fall down on 1 then
they don't get a chance to fail or succeed on 2.
I thought 15% was the magic number. Wouldn't most wage earners be
saving 9% in the form of compulsory super already?
Post by Peter Parker
Post by Fitzroy
You fail to realise that saving rent is a cash flow (and after
tax at that).
Saving (maybe) $10 000pa rent is good.
But not if you need to pay $15000pa on your mortgage and maybe another $3000
in rates and maintenance. And if you have a job, note that none of this is
tax deductible. For a person on (say) $35k pa salary, this huge outflow
precludes significant investment activity and makes them vulnurable to
interest rate hikes.
You'd need some good capital appreciation to compensate for this. Given that
we've had a huge property boom, I'd be wary about any investment strategy
that was solely dependent on appreciation for it to work. Nevetheless I
agree that buying your own home is heaps better than doing nothing.
At the moment I'm advising a friend on buying a house in NSW. His
trade-off looks something like this
Buy house $540k
rates & maintenance -2,000 (property not watered or
sewered)
Total cost of buying -35,480
Rent similar house $480/week -24,960
Advantage to renting: $10,520 pa
Of course he could probably do something better with his $295k than
park it in his wife's Citibank account, but if you're planning to buy
a house in the near future that is probably ok. I'm counting the
economic cost of the loan (interest) rather than the cashflow, which
makes the buying proposition look better.
I tend to think he should keep renting.
--mt.
Perhaps. If you look at the more typical tax-paid on interest
scenario, the numbers on the 3 main scenarios are more or
less :

1) Current
-----------------------------------------------------
Rent -24,960
interest on $295k @ 5.4% 15,930
Tax on interest -7,726
Total -16,756

2) Buy house $540k
------------------------------------------------------
interest on $270k @ 6.5% -17,550
interest on $295k @ 5.4% 0
rates & maintenance -2,000 (property not watered or sewered)
Rent 0
Total -19,550

3) Rent similar house $480/week, invest $540K in property
-------------------------------------------------------
Own Rent -24,960
Rental income (3 x $180k properties @ $200pw) 31,200
Tax on rent -15,132
interest on $295k @ 5.4% 0
interest on $270k @ 6.5% -17,550
Tax deduction on interest 8,488
rates & maintenance -2,000 (property not watered or sewered)
tax deduction on rates 970
Total cost of renting and invest in property -18,984

CGT, vacancy risk, and not quite A-grade
quality property for capital growth tips the balance in
favour of 2) compared to 3).

What about 1) vs 2) ?
Would it be unreasonable to assume :
- property will deliver 7% capital growth pa (after tax)
- Rents will rise in line with inflation say 3% pa (after tax)
- the $295k (well invested) will deliver 15% (before tax)
At that rate, although 1) starts off with a $2,800 advantage
in the first year, it deteriorates at the rate of $16,000 pa after tax
------------------------------------------------------------------

Incidentally you should also be advising your friend that the
stay-at-home wife is another area of investment where it pays
to diversify. He should have 10 wives. Not only will he be able
to take advantage of 10 tax-free thresholds, he will also pay
10 lots of rent, something that he evidentlly enjoys.
With a little bit of careful planning, your friend can also enjoy
a variety of cuisines. What he must avoid at all costs is
a wife buy-and-hold mentality. Frequent trading is the go.

Thats what friends are for.
The Wog
2004-09-03 13:22:15 UTC
Permalink
Post by Fitzroy
What about 1) vs 2) ?
- property will deliver 7% capital growth pa (after tax)
- Rents will rise in line with inflation say 3% pa (after tax)
See here's my problem - carried on to infinity you'll eventually have
residential property yields of 0.01%. I have difficulty with any strategy
that assumes "PER expansion" in perpetuity, especially contributing 400bp of
return.
Fitzroy
2004-09-03 13:42:48 UTC
Permalink
Post by The Wog
Post by Fitzroy
What about 1) vs 2) ?
- property will deliver 7% capital growth pa (after tax)
- Rents will rise in line with inflation say 3% pa (after tax)
See here's my problem - carried on to infinity you'll eventually have
residential property yields of 0.01%. I have difficulty with any strategy
that assumes "PER expansion" in perpetuity, especially contributing 400bp of
return.
ok, make that 7% capital growth, 7% rental growth.
What are the historical stats btw ?
The Wog
2004-09-04 05:45:43 UTC
Permalink
Post by Fitzroy
Post by The Wog
Post by Fitzroy
What about 1) vs 2) ?
- property will deliver 7% capital growth pa (after tax)
- Rents will rise in line with inflation say 3% pa (after tax)
See here's my problem - carried on to infinity you'll eventually have
residential property yields of 0.01%. I have difficulty with any strategy
that assumes "PER expansion" in perpetuity, especially contributing
400bp
Post by Fitzroy
of
Post by The Wog
return.
ok, make that 7% capital growth, 7% rental growth.
Don't think I'm any happier with that! Not if we're talking about Sydney
anyhow. But if I had listened to you 10 years ago and assumed rental growth
in line with AWE I would probably be a lot richer now.
Post by Fitzroy
What are the historical stats btw ?
Dunno. And I don't care because I don't think past performance will be a
particularly good guide to the future in this case.

Wog
Fitzroy
2004-09-04 08:28:22 UTC
Permalink
Post by Chris P
Post by Fitzroy
Post by The Wog
Post by Fitzroy
What about 1) vs 2) ?
- property will deliver 7% capital growth pa (after tax)
- Rents will rise in line with inflation say 3% pa (after tax)
See here's my problem - carried on to infinity you'll eventually have
residential property yields of 0.01%. I have difficulty with any
strategy
Post by Fitzroy
Post by The Wog
that assumes "PER expansion" in perpetuity, especially contributing
400bp
Post by Fitzroy
of
Post by The Wog
return.
ok, make that 7% capital growth, 7% rental growth.
Don't think I'm any happier with that! Not if we're talking about Sydney
anyhow. But if I had listened to you 10 years ago and assumed rental growth
in line with AWE I would probably be a lot richer now.
Post by Fitzroy
What are the historical stats btw ?
Dunno. And I don't care because I don't think past performance will be a
particularly good guide to the future in this case.
Wog
Maybe, maybe not.

Current valuations and prevailing inflation / interest rates
and economic outloook are important tactical issues.
But you also need general guiding principles and a long
term strategy in investment.

I'll put it to you straight. Given the prevailing tax regime
for a high marginal rate individual, do you in general agree
that long-term :

1) The economics of Home Ownership are more
compelling than Residential Property Investment ?

2) Home Ownership is a superior strategy to rent and
invest the interest rate / rental yield differential ?

(I want a typical peer-to-peer comparison, not
someone who overpaid for his Camberwell house at
the height of the boom compared to a polygamous
unemployed family with $1,000,000 in a joint
CMT with property investments in the Gulangambone
1-bedroom flat market)

Fitzroy
The Wog
2004-09-06 09:22:21 UTC
Permalink
Post by Fitzroy
Post by The Wog
Dunno. And I don't care because I don't think past performance will be a
particularly good guide to the future in this case.
Wog
Maybe, maybe not.
Current valuations and prevailing inflation / interest rates
and economic outloook are important tactical issues.
But you also need general guiding principles and a long
term strategy in investment.
I'll put it to you straight. Given the prevailing tax regime
for a high marginal rate individual, do you in general agree
1) The economics of Home Ownership are more
compelling than Residential Property Investment ?
Economics? Not sure. I'd have to study the question at long length. The
economics might well support a hybrid approach - negatively gearing and then
moving into it.

I would agree that the HO is likely to exert more pricing pressure than the
investor because of
- lower cost of capital: The owner is happy to break even against his
funding shortfall, whereas the investor wants a large margin above;
- no risk premium - the home buyer has a short position in housing to hedge
(they consume one unit of housing p.a. and don't own it) and for them buying
property hedges this risk. For the investor it creates one that they want to
be compensated for
- cost of moving - the occupier faces a massive risk of the landlord selling
and punting them. This costs heaps of money especially if you have
undertaken improvements, and provides a strong incentive to buy. The
landlord has no comparable exposure, although of course the vacancy risk is
an offsetting (considerably smaller) exposure.
- the "feelgood factor." I was discussing with a friend how buying a home
(as opposed to renting) is a crap deal economically. His argument was "But
you can live any way you want - put up frames, build a carport, hang
pictures wherever you want without the real estate people hassling you about
holes in the walls, choose your own carpets etc. Apparently this goose
valued the ability to drill holes in his wall and build a car port at about
$2000 per month because that's how much he's prepared to increase his cost
of property occupancy by buying.
Post by Fitzroy
2) Home Ownership is a superior strategy to rent and
invest the interest rate / rental yield differential ?
Don't agree, at least not at Sydney prices. My mate could invest his deposit
in property securities and basically cover his rent. Assuming CPI-linked
growth of rents (comm and resi) he would live free forever. He would be
foregoing growth in his home equity, but in return could salary sacrifice
into super twice his pro-forma mortgage plus occupancy costs like rates,
insurance and maintenance. By doing so, he would reduce his taxable income
to f*-all, and then I (courtesy of my financial advisor who runs a
discretionary account for about 40% of my income, J Howard) will pay his
wife heaps more for having all those kids, plus a massive wad of money each
week for rental support.

Plus of course he would have growth in equity in his (ungeared, so not 1:1
comparable) property securities. He would retire with millions on any
realistic assumption about growth of super invested in real assets.
Wog
Market Theory
2004-09-04 01:33:05 UTC
Permalink
Post by The Wog
Post by Fitzroy
What about 1) vs 2) ?
- property will deliver 7% capital growth pa (after tax)
- Rents will rise in line with inflation say 3% pa (after tax)
See here's my problem - carried on to infinity you'll eventually have
residential property yields of 0.01%. I have difficulty with any strategy
that assumes "PER expansion" in perpetuity, especially contributing 400bp of
return.
If rents are going to catch up with the increase in house prices then
keep growing at 7% pa to infinity (and beyond), it may be that the
best advice I can offer is to lock in the longest lease he can at the
current 4.3% yield.

cheers,
--mt.
Market Theory
2004-09-04 01:26:54 UTC
Permalink
"Fitzroy" <***@bigpond.com> wrote
...
Post by Fitzroy
Incidentally you should also be advising your friend that the
stay-at-home wife is another area of investment where it pays
to diversify. He should have 10 wives. Not only will he be able
to take advantage of 10 tax-free thresholds, he will also pay
10 lots of rent, something that he evidentlly enjoys.
With a little bit of careful planning, your friend can also enjoy
a variety of cuisines. What he must avoid at all costs is
a wife buy-and-hold mentality. Frequent trading is the go.
For a moment there I thought that was a serious answer!

Surely if he had 10 wives he'd only need to rent one 5 br house. Two
per room and he could rotate.

--mt.
The Wog
2004-09-03 13:07:19 UTC
Permalink
Post by Fitzroy
When it comes to capital growth, apart from the fact that
the three shit-holes you invested in will not produce the same
capital gain (they will necessarily be in less desirable areas and
wrecked by the tenants) you will also have to pay CGT.
Can you show me one property worthy of owner occupation that generated
better capital growth than the feral-infested shithole of a complex I
invested in last year?
DocN
2004-09-02 15:22:45 UTC
Permalink
Post by Peter Parker
The key reason for people not succeeding financially is that 1. they fail to
spend less than they earn and 2. Fail to wisely invest the difference in
assets that appreciate and produce income.
Thats bleeding obvious, but still not appreciated
Post by Peter Parker
This could be the case if you kept renting and didn't invest, but not if you
rented AND invested. And if you're on a lowish income, having three rental
properties worth $100k each beats not being able to afford your own home
(say $300k).
The difference is the rental properties can almost pay for themselves and
it's easier to get finance for them as you get income from them, whereas if
you buy your own home, it produces no extra income, the only person who pays
the mortgage is you and there's less spare cash for other investments.
Residential rental properties cant pay for themselves. Many of my
freinds have them and think they are doing well but the reality is they
are negative gearing in the hope of future cap gains. I have a
commercial property which pays 8% rent (on market value) plus tenant
pays most of the outgoings(rates,water, power). The rent goes up each
year with CPI and then three yearly adjustments based on market value.
If you want an investment property look commercial not residential,
reality check - how many LPTs have residential properties?
Post by Peter Parker
Peter
Peter Parker
2004-09-02 21:46:26 UTC
Permalink
Post by DocN
Residential rental properties cant pay for themselves.
95% can't but some do.

For example, one gets 10.2% gross yield, which breaks even on a 75% P&I
loan. Add the tax benefits (It's post-85 so gets building depreciation) and
it becomes strongly positive.

Some negatively geared properties eventually become positive geared as rents
rise (and provided interest rates don't). However I suspect that this will
take longer than many property writers (eg Peter Spann) claim.
Post by DocN
I have a
commercial property which pays 8% rent (on market value) plus tenant
pays most of the outgoings(rates,water, power). The rent goes up each
year with CPI and then three yearly adjustments based on market value.
If you have a secure tenant, yours would produce a superior income to the
10.2% example above. But a large proportion of small businesses fail and
vacancy risks are higher than for residential property. Despite 10 years
of continuous economic growth and buoyent spending there are some retail
properties around here that have been vacant for 2-3 years. However even in
a recession people will want somewhere to live, so well-located, attractive
residential property should always attract tenants.
Post by DocN
If you want an investment property look commercial not residential,
reality check - how many LPTs have residential properties?
LPTs can more easily spread risk by buying multiple properties and have
spare funds for rent-free periods and incentives where necessary. They can
also buy large properties (eg shopping centres) that are out of reach of
individual investors, who are most likely to buy a main street shop or light
industrial area shed which are likely to be occupied by small businesses.

Peter
Phil Herring
2004-08-26 01:05:18 UTC
Permalink
Post by David Hooper
Even if we assume that real estate will in the future have lower
capital growth than equities, it is likely that the fact that real
estate is more highly geared will more than compensate for this when
returns are put in $ terms.
Flies in this ointment:

1. It fails to take into account the fact that 90% gearing is negative
gearing, which means a year-on-year loss for the forseeable future,
that has to be deducted from the final value of the asset.

2. It fails to take into account costs of ownership.

3. It fails to take into account risk. What happens if the tenant
leaves, and the property is vacant for six months? What happens if the
property market dips 20%, leaving you with negative equity and a
lender asking for some of their money back, please?

There are others, but these are the obvious ones.


-- Phil
David Hooper
2004-08-26 11:20:12 UTC
Permalink
Post by Phil Herring
Post by David Hooper
Even if we assume that real estate will in the future have lower
capital growth than equities, it is likely that the fact that real
estate is more highly geared will more than compensate for this when
returns are put in $ terms.
1. It fails to take into account the fact that 90% gearing is negative
gearing, which means a year-on-year loss for the forseeable future,
that has to be deducted from the final value of the asset.
A comprehensive calculation takes into account the both capital gains
and operating gains/losses. You are quite correct.

Housing due to its current high price has low returns. Which is why a
fully geared house is a negatively geared one. Because the returns are
lower than the interest and other expenses.

When share prices are high, and hence their dividend yields are low,
they produce the same result. This is not the case now, because the
sharemarket is not overvalued.

So yes, currently real estate has lower yields than most shares.
However, this is not necessarily the case historically. And if you're
a long term investor, look at the long term average.
Post by Phil Herring
2. It fails to take into account costs of ownership.
This is a repeat of point 1. A cost of ownership contributes to an
asset being negatively geared
Post by Phil Herring
3. It fails to take into account risk. What happens if the tenant
leaves, and the property is vacant for six months? What happens if the
property market dips 20%, leaving you with negative equity and a
lender asking for some of their money back, please?
A geared asset is more risky than an ungeared one. All other things
being constant, this is undeniable.

However, putting the issue of gearing aside, shares are more volatile
than real estate pricewise. What happens if you owned shares in HIH???
Or even bought Telstra when the price was $9+?? What happens if the
company has lean times and cant pay dividends for a few years???

Risk exists everywhere......need to find the amount you can live with.

Re your negative equity argument, banks don't ask for their money back
if you are making your repayments in time, notwithstanding that they
may be technically allowed to in some cases.
Phil Herring
2004-08-27 00:08:46 UTC
Permalink
Post by David Hooper
However, putting the issue of gearing aside, shares are more volatile
than real estate pricewise. What happens if you owned shares in HIH???
Or even bought Telstra when the price was $9+?? What happens if the
company has lean times and cant pay dividends for a few years???
There are simple ways of managing investment risk in the stock market,
and they make it a lot less risky than is generally believed,
especially if you take the long-term view.

I'm not really disgreeing with you, anyway. I don't think this is an
either/or situation; I was just addressing one specific scenario and
its assumptions. The risks in real estate differ from risks in the
share market, and in the long run, are probably about the same order
of magnitude. However, a lot of people think that 90% gearing in real
estate is a sure path to riches, and it ain't.


-- Phil
The Wog
2004-08-28 02:27:02 UTC
Permalink
Post by David Hooper
Post by Phil Herring
1. It fails to take into account the fact that 90% gearing is negative
gearing, which means a year-on-year loss for the forseeable future,
that has to be deducted from the final value of the asset.
A comprehensive calculation takes into account the both capital gains
and operating gains/losses. You are quite correct.
Housing due to its current high price has low returns. Which is why a
fully geared house is a negatively geared one. Because the returns are
lower than the interest and other expenses.
When share prices are high, and hence their dividend yields are low,
they produce the same result. This is not the case now, because the
sharemarket is not overvalued.
So yes, currently real estate has lower yields than most shares.
However, this is not necessarily the case historically.
Oh oh!
Post by David Hooper
And if you're
a long term investor, look at the long term average.
Unfortunately if you buy the asset, or make the decision to hold now, you
virtually lock in the cashflow in perpetuity! You're almost implying that if
you buy an investment at 2% net now, a L/T investor can ignore that number
and think "I'll get a L/T average of 4%." But you don't. Your return will be
2% indexed (to something), not "an average of 4% indexed."
Market Theory
2004-09-04 01:48:49 UTC
Permalink
Post by David Hooper
Post by Phil Herring
Post by David Hooper
Even if we assume that real estate will in the future have lower
capital growth than equities, it is likely that the fact that real
estate is more highly geared will more than compensate for this when
returns are put in $ terms.
1. It fails to take into account the fact that 90% gearing is negative
gearing, which means a year-on-year loss for the forseeable future,
that has to be deducted from the final value of the asset.
A comprehensive calculation takes into account the both capital gains
and operating gains/losses. You are quite correct.
Housing due to its current high price has low returns. Which is why a
fully geared house is a negatively geared one. Because the returns are
lower than the interest and other expenses.
When share prices are high, and hence their dividend yields are low,
they produce the same result. This is not the case now, because the
sharemarket is not overvalued.
So yes, currently real estate has lower yields than most shares.
However, this is not necessarily the case historically. And if you're
a long term investor, look at the long term average.
If housing is over-valued, returns are low, and you're expecting a
reversion to historical norms, then why buy housing now? Even a
long-term investor is at liberty to wait before he buys.

--mt.
u***@domain.invalid
2004-08-26 13:57:18 UTC
Permalink
Post by David Hooper
Post by u***@domain.invalid
Ignoring the impact of tax, the (in)accuracy of your assumed
rate of capital growth and the possibilities of increasing
Year Property Blue Chip Managed Fund 1.04
1.08 1.16 0 $500,000.00 $200,000.00
$50,000.00
I actually think that the person that started this post has a
very good point, which (to state the obvious) can be summed up as
Even if we assume that real estate will in the future have lower
capital growth than equities, it is likely that the fact that
real estate is more highly geared will more than compensate for
this when returns are put in $ terms.
Of course, we don't know what will happen in the future. However
we do know that historically, over the long term, equities have
had SLIGHTLY higher returns than real estate. The original poster
has assumed that equities will have SUBSTANTIALLY higher returns
than real estate - despite this, his example shows that the
"gearing effect" of real estate more than makes up for its
hypotethically substantially lower rate of return. This makes his
argument all the stronger.
I think you missed my point. Although I thought the original quoted
returns were a load of baloney, using them showed that over the long
term equites offered the better return, not property.
The Wog
2004-08-28 02:17:52 UTC
Permalink
Post by David Hooper
I actually think that the person that started this post has a very
Even if we assume that real estate will in the future have lower
capital growth than equities, it is likely that the fact that real
estate is more highly geared will more than compensate for this when
returns are put in $ terms.
The key assumption is that BOTH are ahead of CPI and ahead of AWE. And of
course that we're free to ignore the income shortfall. A 90% geared property
may well generate a lot of % growth @ 4% assumed. But if the net yield is 3%
and you're paying 7% (as people other than myself on this group appear to
wish to do) then you also have to show the effect on your financials of this
side of the equation.

Most property proponents show this exponentially increasing equity. What
they don't mention is that if you're funding a 4% shortfall then you could
have obtained the SAME exponentially increasing equity simply by investing
this 4% OUTSIDE resi property @ 7% compound!

Wog
Starvin
2004-10-10 12:56:08 UTC
Permalink
ahhhhh The old shares vs. Property war. Has been going on for years and will
keep going on for years.
The smart people have rode the property wave for the last couple of years,
and have then pulled out and have rode the share market wave. Or thanks to
rising prices in property they have been able to borrow some equity for
shares. There is no easy answer to this battle. But as the original writer
has stated you can leverage your money better in property.
Banks will chuck me 500k for a house, but I am lucky to get even half that
for shares. So I have made more money in property then shares, yet they have
both doubled in value. For example I made $210,000 on a property in 2 years.
And that was with approximately $25000 upfront, and probably another 6-7000
of my own money
(not taking into account tax claims) over those two years. So my property
went up 100% but I only spent $30,000 on it so it is like 600% capital
growth on my money. And I get like 40% rent a year.
But to stick up for the shares supporters If I was to buy a house today the
leverage will work against me. As property has stopped and is even going
backwards at the moment. So I am trading shares with great results although
except for the long term portfolio, I have pretty much sold off my shares.
As I have mad good gains and no when to get out. Because the share market
has a habit of crashing. You could also be in for a nasty fall in the
market soon. That's when you will find some "good value shares".
In conclusion it is best to have a both assets in your portfolio. And I
would not "speculate" on shares or property at the moment. As both assets
are at their peak.
For a long term view. Only buy quality shares and property that has a good
yield and value.
Property must be in a good area, South East Qld looks to be the best. Or
close to a capital city. or beaches. I am as thorough buying property as
most people are with shares I look at yield, long term capital growth,
occupancy rates, future developments, are there schools, jobs, migration
levels and a heap of other things.
With shares there are mountains of information when you want to buy, So do
your home work before buying anything. And buy what ever you feel
comfortable with, and can afford.
Post by u***@domain.invalid
Post by Ironbark Bill
Property 4%
Blue-chip 8%
Managed Fund 16%
Property: $500K -> $562 = $62K profit
Blue-chip: $200K -> $251 = $51K profit
Man. Fund: $50K -> $78 = $28K profit
Which are you better off buying?
Ignoring the impact of tax, the (in)accuracy of your assumed rate of
capital growth and the possibilities of increasing borrowings using the
Year Property Blue Chip Managed Fund
1.04 1.08 1.16
0 $500,000.00 $200,000.00 $50,000.00
1 $520,000.00 $216,000.00 $58,000.00
2 $540,800.00 $233,280.00 $67,280.00
3 $562,432.00 $251,942.40 $78,044.80
4 $584,929.28 $272,097.79 $90,531.97
5 $608,326.45 $293,865.62 $105,017.08
6 $632,659.51 $317,374.86 $121,819.82
7 $657,965.89 $342,764.85 $141,310.99
8 $684,284.53 $370,186.04 $163,920.74
9 $711,655.91 $399,800.93 $190,148.06
10 $740,122.14 $431,785.00 $220,571.75
11 $769,727.03 $466,327.80 $255,863.23
12 $800,516.11 $503,634.02 $296,801.35
13 $832,536.75 $543,924.75 $344,289.57
14 $865,838.22 $587,438.72 $399,375.90
15 $900,471.75 $634,433.82 $463,276.04
16 $936,490.62 $685,188.53 $537,400.21
17 $973,950.25 $740,003.61 $623,384.24
18 $1,012,908.26 $799,203.90 $723,125.72
19 $1,053,424.59 $863,140.21 $838,825.84
20 $1,095,561.57 $932,191.43 $973,037.97
21 $1,139,384.03 $1,006,766.74 $1,128,724.05
22 $1,184,959.40 $1,087,308.08 $1,309,319.90
23 $1,232,357.77 $1,174,292.73 $1,518,811.08
24 $1,281,652.08 $1,268,236.15 $1,761,820.85
25 $1,332,918.17 $1,369,695.04 $2,043,712.19
26 $1,386,234.89 $1,479,270.64 $2,370,706.14
27 $1,441,684.29 $1,597,612.29 $2,750,019.12
28 $1,499,351.66 $1,725,421.28 $3,190,022.18
29 $1,559,325.73 $1,863,454.98 $3,700,425.73
30 $1,621,698.76 $2,012,531.38 $4,292,493.85
Fitzroy
2004-10-11 09:44:23 UTC
Permalink
Post by Starvin
ahhhhh The old shares vs. Property war. Has been going on for years and will
keep going on for years.
The smart people have rode the property wave for the last couple of years,
and have then pulled out and have rode the share market wave. Or thanks to
rising prices in property they have been able to borrow some equity for
shares. There is no easy answer to this battle. But as the original writer
has stated you can leverage your money better in property.
Banks will chuck me 500k for a house, but I am lucky to get even half that
for shares. So I have made more money in property then shares, yet they have
both doubled in value. For example I made $210,000 on a property in 2 years.
And that was with approximately $25000 upfront, and probably another 6-7000
of my own money
(not taking into account tax claims) over those two years. So my property
went up 100% but I only spent $30,000 on it so it is like 600% capital
growth on my money. And I get like 40% rent a year.
But to stick up for the shares supporters If I was to buy a house today the
leverage will work against me. As property has stopped and is even going
backwards at the moment. So I am trading shares with great results although
except for the long term portfolio, I have pretty much sold off my shares.
As I have mad good gains and no when to get out. Because the share market
has a habit of crashing. You could also be in for a nasty fall in the
market soon. That's when you will find some "good value shares".
In conclusion it is best to have a both assets in your portfolio. And I
would not "speculate" on shares or property at the moment. As both assets
are at their peak.
For a long term view. Only buy quality shares and property that has a good
yield and value.
Property must be in a good area, South East Qld looks to be the best. Or
close to a capital city. or beaches. I am as thorough buying property as
most people are with shares I look at yield, long term capital growth,
occupancy rates, future developments, are there schools, jobs, migration
levels and a heap of other things.
With shares there are mountains of information when you want to buy, So do
your home work before buying anything. And buy what ever you feel
comfortable with, and can afford.
You seem to be a beginner in investing.

In aus.invest WE ARE the smart people.
We started our investment careers 30 years ago.
We marked time in the 70's and we sold our gold
at its old time high in the early 80's to get on the
share bull market. We got out in the summer of
1987, and invested in the property market, geared
to the hilt, taking maximum advantage of the booming
property market.
In 1989 we liquidated our properties and collected
high teen interest rates on our now bulging cash balances.
We pretty much sat on the sidelines for 3 years, except
for the occasional foray into the phenomenally
successful Woolworths and CBA IPO's.
In 1993 we got back on board the stock market
and rode the long bull market to 1999. We also participated
in Telstra T1, but passed up on T2 because it was
over-valued. We plan to invest in T3, but only
if it is not over-valued (we'll know).
Where was I ?
Right, in 2000 it was obvious that the property
market was due for a recovery, so again we
went all in and then some, geared to buggery.
Sold property and cashed up for what appeared
to be one of those few in a lifetime opportunities
in the stockmarket in March 2003. Unlike you we had
no trouble getting the banks to lend us shitloads
of money to maximise our ridiculous profits in
the past 18 months.
We also had the presence of mind to sell the
American dollar and invest the proceeds in
metals and oil futures.
Thats it in a nutshell, until next year when we will
do the right thing. Again
Starvin
2004-10-11 13:59:25 UTC
Permalink
Post by Fitzroy
You seem to be a beginner in investing.
In aus.invest WE ARE the smart people.
We started our investment careers 30 years ago.
We marked time in the 70's and we sold our gold
at its old time high in the early 80's to get on the
share bull market. We got out in the summer of
1987, and invested in the property market, geared
to the hilt, taking maximum advantage of the booming
property market.
In 1989 we liquidated our properties and collected
high teen interest rates on our now bulging cash balances.
We pretty much sat on the sidelines for 3 years, except
for the occasional foray into the phenomenally
successful Woolworths and CBA IPO's.
In 1993 we got back on board the stock market
and rode the long bull market to 1999. We also participated
in Telstra T1, but passed up on T2 because it was
over-valued. We plan to invest in T3, but only
if it is not over-valued (we'll know).
Where was I ?
Right, in 2000 it was obvious that the property
market was due for a recovery, so again we
went all in and then some, geared to buggery.
Sold property and cashed up for what appeared
to be one of those few in a lifetime opportunities
in the stockmarket in March 2003. Unlike you we had
no trouble getting the banks to lend us shitloads
of money to maximise our ridiculous profits in
the past 18 months.
We also had the presence of mind to sell the
American dollar and invest the proceeds in
metals and oil futures.
Thats it in a nutshell, until next year when we will
do the right thing. Again
You are right. I reread my msg and I may have come off as a person who
thinks they know it all. It was not my intention to preach to you.
What I basically was trying to say is, you really cant compare the two
assets as there are to many variables. And then I started dribbling on. I by
know means tried to offend anyone. I assumed most of us in aus.invest have
made money in the property boom. And are currently enjoying a nice run with
the stock market.
With regards to your condescending reply, You didn't have to be a expert to
make money in property. Every person I know who has a house, it's value has
almost doubled in the last 5 years. You didn't have to a financial degree to
do it. And they have used equity to renovate or buy more assets. If you
thought I was bragging about my timing, or profits you are mistaken I
thought it would be easier to have examples.
"I have pulled most of my stocks out. Why I am sure you are still the market
are still enjoying a good run and still getting record highs. I just took my
profits. As I think there will be a correction I the market soon. I maybe
wrong (I probably am). And I don't think this is the right place to gear my
investments at the moment.
I was just stating the argument "property or shares" is not simply black
and white. I have heard this argument for years (and obviously so have you.)
And both sides are right. And no one can win. I was just trying to make the
point of, it depends on when you buy them.
Trevor S
2004-10-12 11:36:39 UTC
Permalink
"Starvin" <***@coming.com.au> wrote in news:416a91ad$0$22860$***@news.optusnet.com.au:

<Snip>
Post by Starvin
With regards to your condescending reply, You didn't have to be a
expert to make money in property. Every person I know who has a house,
it's value has almost doubled in the last 5 years.
Will these be the same people that presume it will do the same in the next
5, then again for the following 5 ? Do they know where they are going to
get people to pay these prices ?

I am "rooting" for a 50% decrease to bring some sesibilty back.... or 10
years of 0% increases at least.
--
Trevor S


"Unthinking respect for authority is the greatest enemy of truth."
-Albert Einstein
Starvin
2004-10-12 12:03:44 UTC
Permalink
Post by Trevor S
<Snip>
Post by Starvin
With regards to your condescending reply, You didn't have to be a
expert to make money in property. Every person I know who has a house,
it's value has almost doubled in the last 5 years.
Will these be the same people that presume it will do the same in the next
5, then again for the following 5 ? Do they know where they are going to
get people to pay these prices ?
I cant talk for them. Although most of them are aware that property looks
like to be on the way down. If they are holding a long term view then it
really doesnt matter.
We are lucky we didnt have a crash. The property "bubble" seems to slowly
deflating. So the warning signs are there.
If Latham got in we would have seen a crash as interest rates would have
gone up because of him(sarc) ;)
Post by Trevor S
I am "rooting" for a 50% decrease to bring some sesibilty back.... or 10
years of 0% increases at least.
I hope you are wrong on these predictions, they do seem a little excessive.
50%? I highly dought it.
Post by Trevor S
--
Trevor S
"Unthinking respect for authority is the greatest enemy of truth."
-Albert Einstein
Jacques Guy
2004-10-13 05:15:34 UTC
Permalink
Post by Trevor S
Post by Starvin
Every person I know who has a house,
it's value has almost doubled in the last 5 years.
Will these be the same people that presume it will do the same in the next
5, then again for the following 5 ?
Yes. Are you in denial, Trevor S? Just consider: it will keep
doubling every 5 years, so that in 50 years' time, the median
price will be around $300,000,000.

Now, I've got this pyramid for you my friend, at a very
special price. And it sharpens razor blades too.
J
2004-10-11 23:30:48 UTC
Permalink
"Fitzroy" <***@bigpond.com> wrote in message news:<XBsad.22058$***@news-server.bigpond.net.au>...
...snip....
Post by Fitzroy
Thats it in a nutshell, until next year when we will
do the right thing. Again
Do what thing again? Great when you have a crystal ball (read 20/20
hindsight).
We currently have folks sitting on a pile of money waiting for the
property market to crash, we have others saying the share market is
too high, others recommending that we get out of bonds as rates are on
the rise.

I'm happy to read all postings and be enlightened...
Maynard893645
2004-10-12 06:28:05 UTC
Permalink
Post by J
We currently have folks sitting on a pile of money waiting for the
property market to crash,
..that's why I voted Labor this time, hoping they'd send interest
rates through the roof as Johnny promised in his TV adverts.

I normally vote Country party. I've got a big pile of cash and keen to
get back into real estate.
m***@gmail.com
2012-07-11 07:24:12 UTC
Permalink
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