Buy in Melbourne or keep investing in shares

Hey guys,

Do you think it makes sense to buy in Melbourne now if we have a 10yr timeframe in mind? The latest we would want to stop working is in 10yrs when we would sell our IPs and buy shares for income.

If we decide to buy in Melbourne now, we would need to sell 20% of our shares portfolio to get funds. We would buy something for 500k, maybe in Geelong.

Cheers

 

Are you comparing geared property v ungeared shares?

 

Yup. Time frame is my only issue. If i had 20yrs this would be a no brainer. But buying costs, stamp duty, buyer's agent (I wouldn't dare doing that myself) etc. all adds up making me think 10yr is too short..

 

Will just holding the shares make you enough to meet your goals in 10 years?

 

Thanks mate. Which ones have you been inveating in? Ill do a bit of research..

 

Yeah mate it will. But i suppose I'm a little bit greedy and want to exceed my goals.

 

Depends. How much money you making on shares now? If you’re making $100k+ Pa then shares

 

That gets my vote. If you look up the threads on unlisted property trusts you will find some great info. Problem with listed right now is there are no really high quality AReits right now that pay a decent yield. Unlisted right now I would look at charter hall and centuria.

As a buy and hold income investor I really can’t find a better investment than unlisted property. Aus equities will get you a 5% or so grossed up yield. A decent unlisted property trust will get you 7% grossed up ( working in the deferred tax benefits ). When trying to reach a passive income goal that extra 2% makes a huge difference. And don’t buy the whole Reits will give you good yield but not growth. Because in my short 4 years experience investing in Reits I have had plenty of growth with great yield.

 

It should have nothing to do with how much you are making now. Any investment should be based on how much it will be making and what it will be worth in 5 years time minimum. If you are making $ 100k now, a property would be a good idea for diversity, capital concentration risk, locking in profits, for a tax effective way to realize gains and for ability to leveraging back in to shares so getting 2x growth and 2x income on your capital with less risk.. The property can give higher more stable reliable income than shares , growth shares can give much higher CG than property and become worth more the property used as security in a few years.

 

1. how do you sell unlisted ones? i would have thought this would be a difficult task.

2. also 7% is that on cash etc or do banks give loans on these types of investments?

Cheers, Elives

 

1. You don’t. It’s suited to buy and hold investors looking for income. But if you wanted out you would have to wait for liquidity events. They happen anytime between 5-7 years depending on the fund.

2. Sorry can’t help you there. Have never tried to borrow against unlisted property. If I had to guess I would say difficult due to limited liquidity.

 

If you are making $100k now with $300k, and you bought a property with it, then you wouldn’t be able to make $100k. Judging that he’s aiming to buy a $500k house, I assumed his capital base is around $150-200k.

If he’s making $100k on shares then his return is 30-50%. Run that as an IRR and it’ll cream a property any day unless you bought well (triple in 5 years, yes done that on few occasions)

For him, buying shares or a property is almost mutually exclusive. Because there’s limited capital. If it wasn’t mutually exclusive he must be like some of my billionaire friends, at which point it’s about capital preservation, not growth.

 

yea so the main drawback i'm seeing here is you need to have cash/equity you can't leverage on normal resi rates for these as you do for resi property. this wouldn't really help an investor at the accumulation stage i wouldn't have thought

 

While you can’t leverage like you normally would with resi, keep in mind the property manger is leveraging within the fund. So your returns are still boosted by leverage.

 

i understand that - and thats how you're able to get good returns but for the investor they need to have the cash / equity to do so i'd think 100k min at a time. it's not bad but just think would be difficult for someone in the accumulation stage age 20-30

 

Yeah fair enough. While I am still accumulating and still in my 30s by a whisker, I have been fortunate enough to have earned a healthy income through business over the years. I have and still am injecting that income into property trusts and slowly into equities to ensure I have a significant passive income for when the working income comes to a halt.

 

you didn't want to offset your 47.5% tax rate (assuming) with neg geared property in high growth areas? thats my main attraction for buy and hold resi property etc business makes profit and neg gear hopefully makes capital growth

 

My shares in business are owned by a company which is owned by a trust. My investments that earn income and capital gains are held in a trust. My investments that are interest only earners are held in a bucket company.

I have a number of structures that hold different investments to minimise tax. But I still pay plenty of tax. Structures give you flexibility and time to arrange and distribute income in a tax effective manner, but they are no free lunch.

I have done the resi property thing in the early days. I currently only hold 1 resi investment property and am seriously thinking of unloading it. I have 0 interest in owing resi property ever again.

I see the attraction to resi property in the early stages of wealth accumulation. Not that long ago I would not have invested in anything but resi. Now I have seen the light and would not touch it.

Everyone should choose a path that suits them and there situation best and that they are comfortable putting there money in.