General Opinions on Property VS Shares

Shares have more volatility because you can check the price every day.

Houses are Impossible to value exactly. You only really know when you sell. Price and suburb comparisons can give a guide, but the problem with these is that the actual properties being compared are different each time.

Our main shares are CBA. Bought around 12 years ago for $32 each. Dividends reinvested so number of shares has doubled. Daily fluctuations in the share price is not a concern to me. Total value now is more than two return business class flights to Europe, which is how I look at it.
Marg

 

This is a great comparison Wombat. But I wonder how accurate is the property value you quoted.
I see bank valuation tends to be more conservative than the real value. Hence it may not be a like for like comparison. However, it's close enough indicator.

Just wondering if you regularly (every 6/12 months) order property valuation report?

 

I have both. The stability of real estate is a plus. The liquidity of shares is a plus.

The equity in my property portfolio is almost 10x the total cash I put in - took half a decade. Leverage helps. My portfolio is also cashflow positive, by a few grand.

My shares are more recent acquisitions and are unleveraged, so they'll need to grow about 1000% over the same timeframe to produce an equivalent return.

We'll see

 

Or your property just needs to drop double digits and the leverage will bring down returns significantly. Leverage works both ways

Cheers,
Oracle.

 

PPOR was last valued September last year. I expect the value now to be on par or slightly higher based on recent sales in the immediate area. Coincidently a valuation is booked for Monday.

I estimated my IP's growth based on growth in the median for the suburb in the last 12 months.

 

Yep, a 25% drop would squash my equity pretty much to $0.

Thankfully no margin calls

 

I'm also taking the perspective that growing a share portfolio will allow a passive income stream to be built to supplement PAYG income. It may take me a period to get dividends to a respectable level but it should help serviceability in the long-run and build an asset base.

 

Do you get banks to assess dividend income? Do you need to provide tax returns?

 

I believe it depends on the lender as to whether they will use dividend income in the assessment. There are fields for it in the serviceability calculators I have seen. I expect the banks would need some form of evidence.

Dividend reinvestment would be another complicating factor. i.e. Unsure if any lenders take this into account.

 

I'd assume that the "" around income would suggest that the property is negatively geared but that's just my guess.

 

Earlier post was that it was cash flow positive. My guess would be that working out exact income after costs is time consuming and that it would be minimal anyway.

 

As guessed above, it was too fiddly to calculate. The yield is 5.5% and it is positive / near-neutral. Rent certainly covers the interest payment on the loan as well as property management fees. I also do get a respectable tax-deduction primarily due to depreciation ( the property which is approx 50 years had extensive renovations ). This well and truly offsets rates/insurance. Beyond that there has been no significant maintenance costs.

 

I'll just insert this thread here:

Tennant not what he seemed.. drugs/gangs.

 

I was looking at the income comparison from a return perspective, taking into consideration purchase and holding costs. If I deduct loan interest payments, PM fees, insurance, rates etc then the return (ignoring tax deductions) is negligible. It is the depreciation benefits in terms of tax deductions that put me ahead and helps improve cashflow. Will wait for my tax return to work it out.

My share purchases had been bought with no leverage and hence the purchase costs were negligible ( brokerage fees ) and therefore had negligible impact on return.

 

For comparison you need to show numbers in a consistent way, otherwise there is no point. Ungeared, before tax but net of all costs, is a good way of doing it.

Your numbers would look something like this:
- Shares: 15.33% gain, 4.17% net income, return 19.5%
- IP: 4% gain, 4% net income (assumed from 5.5% gross), return 8%
- PPOR: 10.6% gain, 3% net income (assumed, using market rent), return 13.6%

You could choose to display not the IP but the equity you hold in the IP, i.e. the 20% portion of your IP assuming 80% LVR. You’d have then:
- Equity in IP: 20% gain (4% x 5), 0% income (neutral geared), return 20%

Depreciation shouldn’t come into the equation. It has more to do with cashflow than actual return.

You also could display after tax results in which case share franking credits should be included, however tax is variable from person to person and therefore isn’t a good basis for comparison.

Last point, you have indeed achieved a very nice return on your investments, better than most people, however 1 year is too short to be meaningful.

 

Good point about looking at it based on the equity in the IP.

Is anyone that has held a combination of shares and IPs for a longer term able to post a comparison?

 

Unfortunately an article behind a paywall, however makes a good point about the ability for the "rich" to offset rental loses against other investment income.

No Cookies | Daily Telegraph

Whilst you don't invest to make a loss, having a combination types of investment of both gives greater flexibility with treatment of loses.

 

Yep I’ve held both property and shares for a long time. Not easy for me to come up with precise numbers over such a long period after so many buys and sells at different times. A back of an envelope calculation found 8-9%pa return for my IPs and 9-10%pa for my shares. Not far from what’s considered normal long term averages.

These numbers hide large variations at individual level though. 20% of my IPs were duds, 60% average and 20% outstanding. Remarkably my shares had a similar pattern, therefore the risk of picking a dud property is rather significant and not necessarily lower than picking a dud share.

Another point of comparison is leverage. Property is more suitable for higher LVRs hence faster growing in accumulation phase. Shares have better yields, more attractive in pension phase. Basically that’s what I’ve done: start with highly leveraged property and gradually convert into shares as LVRs reduce. I’m retired with shares mostly in SMSF and property mostly in trusts.