General Opinions on Property VS Shares

Thanks for sharing. Did you sell down part of your property portfolio? Did you borrow against the equity for your share purchases?

 

Sold down and consolidated my IPs over a 10 year period to load up my SMSF through concessional and non-concessional contributions, transition to retirement, etc… This to minimise CGT on property and maximise tax benefits on shares.

 

The summary of this and other threads seem to conclude that property has the advantage of leverage, but not much else. Therefore, if one owned both property and shares as investments but had no debt, there would also be no advantageous leverage going on. If one were to want to use more leverage, then one could borrow against the house to invest in shares? Is this a "Line of Credit" or an outright "Mortgage"; what would be the advantage of one over the other (different application costs? interest rates?), if the purpose were simply to invest more for greater growth using leverage?

 

My theory on property investment is that it is a minimum investment of 5+ years, that you are investing in the local economy where the property is situated.
When the local economy (suburb, town, region, state or country) is doing OK to well, it is easy to gain leverage for your equity by using a mortgage, exiting the investment is usually not an issue, income is just OK but can be erratic, management (and maintenance) expenses are high (repairs, body corporate, council rates, insurance).

When the local economy turns bad, it is difficult for buyers to obtain a mortgage, exiting the investment is a BIG problem.My leverage exacerbates my losses. I think of it as vicious game of commercial musical chairs (1000 participants and only 25 chairs). Income falls but the expenses remain high.

The cost of getting in and out of the investment is very high.

Bad real estate news is significantly under reported, no one wants to talk about it and only comes as news to many when there are mortgagee foreclosures, by which stage the land rats have moved on.

I have had RE investments around the country, over the years with varying degrees of success. In general I have bought when the income level is high after a large purchase price fall, when all else looks just OK and sold when taxi drivers start talking about investing in real estate. Timeframe 5 to 20 years.

Over the next few years there will be plenty of these opportunities and they are all in the north and west.

I must say I do not understand why people derive comfort from owning a "bricks and mortar" investment which is producing no income, has ongoing high expenses and is falling in value rapidly.

One caveat, I do not consider the family residence an investment and so do not care whether the price rises or falls and outgoings are a fact of life.

I will comment on shares soon

 

I think you are spot on. In general, people don't understand shares properly so they fear what they don't understand and see them as inherently more risky. In addition, people are much more likely to remember the horror stories than any positive stories. Think of how may people are telling their friends/acquaintances that they lost everything investing in Dick Smith shares.

Safe as houses? ... sure do. My view is that both property and shares can form part of a diversified portfolio. I see residential property as an active asset and shares more passive (especially if you go the managed fund route). I don't see any asset class as "better" but resi property with renovations suits me for now as I am still building capital.

 

Shares are easier and cheaper to buy, there are no issues with tenants, PM's, repairs, Body Corps, rates, and so on.

Shares can disappear to nothing in a very short space of time, but can also soar through the roof in a short space of time.

For most people; the allure of the easy access and possible "tattslotto" type win are a strong attraction.

Property is harder, more expensive to enter into, and the ongoing management of the asset is annoying and more time consuming.

But, you can insure it against loss, and the chances of the property disappearing to nothing, or halving over night - are very slim.

If you are more risk averse; property is a better SANF.

 

One thing I'd say about property investing in Oz, is its very hard to convince someone who has backed some winning horses that the made the wrong bet, and that it was anything other than a bet, and that the illusion of control (with the exception of sweat equity/development) is just that. You don't know what you don't know. I've got a mate that is clueless, just follows the herd, but he has ridden the Sydney property wave by taking more and more leverage. He has no concept of mitigating risk. Who am I to tell him that he is wrong? Its worked so far....but at the end, its an all or nothing punt, and the longer you stay in the casino, the lower the likelihood of leaving with anything in your pocket.

People will need to come to their own conclusions as to what asset class suits them. I'd just suggest they try to get a broad understanding of investment strategy (Stanyer is an excellent starting point) before they do so. Some of the comments around leverage on this forum, and prognostications on future returns are interesting to say the least.

Good Luck to all, as a little bit of that helps as well!

 

In relation to shares - do some research on "petrodollar".
- cause of Iraq invasion
- Vietnam war
- Syria
- various other conflicts

USA to Middle East: you guys agree to simply price oil against US dollar and we will supply you with guns and other supplies. Won't cost you guys a thing.

Forces all nations to hold US dollars in their reserves to buy oil.

Thus isolates a huge amount of US dollars in circulation and allows them to keep printing money but keep it out of general circulation.

If Iran dropped the US dollar tomorrow and went back to the old gold pricing, the USA would crumble in on itself. Of course there would be global ramifications, but without going into complexity that is how share prices keep going up but earnings per share are not.
That doesn't make sense!
So the entire share market is a game of smoke and mirrors in my view, sure people are making a killing on it, but if you don't believe in something, whatever that is, you will come unstuck.

As for share trading, it's a mugs game too, supercomputers manage to buy and sell the stock you are buying before yours has even cleared, thus making them .00000001 cent on a trillion trades. Can't compete with that.

As for fund managers. No faith at all in them.
Would rather put my money in an index fund.

 

Just the opposite for me. Tenant tried to sue us, large unexpected expenses, supposed unfloodable property flooded, one RE agent went bust due to gambling problem taking months of our rent with her, another house damaged badly by tenants gone bad, expensive repairs and drainage issues due to poor building inspection not picking up these issues, long drawn out and huge fees for buying and selling process and costs, woeful income with a whole pile of expenses, insurers not paying up due to loopholes in policy leaving us out of pocket eg flood event and other etc etc etc.

As for shares I sleep wonderfully because I buy for the dividends, other mugs can do the gambling thing with price volatility. Very few property buyers will ever experience the magnificent feeling from buying massively discounted quality companies at rediculous bargain prices during the likes of the GFC. Incredible high yield income streams purchased at a steal that will set you up for life.

Listed companies aren't gambling chips. There real productive assets. Our economy would collapse without them. And if the sharemarket totally collapsed then good luck in trying to rent and sell your IPs.

Each to their own and I'm sure this being a property forum my post will have many members here up in arms.

Meanwhile sitting here retired on dividend income enjoying time on the IPad I have just received notification of our ANZ dividend in the thousands having hit the bank account. All purchases of this company done during times of gloom. Rediculous high yield on original purchase price. Never had to raise a finger to to get this income out of ANZ. Purchased in an instant with tiny transaction costs and I don't have to do a thing other than decide what to spend the dividend on. Trouble is the dividends coming in now are more than we can spend. A very worrying situation, NOT.

Do yourself a favour when it comes to shares. Focus on the less volatile dividends, ignore day to day price volatility and your SANF will improve enormously. And as for severe volatility embrace it as an opportunity to buy future income streams cheap, not something to fear. Then go to sleep peacefully dreaming of early retirement, or if there already a more luxurious one, thanks to these wonderful income producing assets..

Here is my favorite chart. Note that all income is being drawn here, not reinvested. With dividends reinvested the end result is mind blowing. Around $10 Mil capital value from memory. Can't remember the final dividend with reinvestment but it is massive.



Finally, in the above chart was the drop in dividend and price during crashes (87 & GFC) really an abnormal event or merely greed at play and the drop a return to normal long term trend? Although in the earlier crash the introduction of imputation skewed things somewhat. Draw a line above the dividend bars then think about this.

Not liscenced to give advice. General info only.

 

Do you really believe this? And in any case, none of these things happen in a vacuum....what happens to all the USD denominated debt held by other sovereigns....oooops.

And on your EPS thing, Importantly, as cost of capital is also at all time lows so is the risk free rate of return. Of course some PE expansion will be evident and/or lower EPS expectation....that is how share prices continue to rise. As for the sharemarket as a game of smoke and mirrors, well, that kind of comes unstuck when you need to explain dividends, which are paid from earnings.....

But look, as you say - you need to invest in what you believe in.

 

Yep I believe the invasion of Iraq was for global freedom.. Are you serious?
Iraq was already in talks of dropping the petrodollar.
Same thing happened to Libya. That went well for Gaddafi didn't it.

The switch to USA backed oil pricing was the greatest boys club deal in the history of mankind.
Reagan's master stroke.

How can you believe otherwise?

petrodollar - YouTube

Take your pick of video.

America is an empire.. Empires rise and fall.

 

I'm not talking to your political points, but your theory on the stock market. Nice straw man effort though. Care to address? perhaps you may need to consult some websites or videos first

 

Just my observation on the "hardcore" property and shares investors.
Hardcore = people that only focus on the one specific asset class.

Property investors - this group tend to be more "straight", sturdy or conservative in nature and may not look outside of properties even given the opportunity. This group likes the real stuffs that they can see, touch, smell, etc.

Shares investors - this group is like "swingers", they love their stocks but if opportunity rises on the other side of spectrum, they would probably jump on it and quite open to study the new ideas. This group is more adventurous and likes discovery, probably due to the analysis nature of this group.

Conclusion, more property investors would talk negative against shares investors however, it may not be true on the other way around.
I do not think there are any issues, it's just part of human nature. Property exists on day dot even before stone age (human requires a place to stay) and shares/online trading exists later. Hence it's not as proven as such.

Just the same for technology (virtual, something that is not so "real"), regardless of what others think, it will evolve as part of human evolution! Due to this, there is a new of doing business. Not just the traditional brick and mortar but online businesses are becoming more real.

All of this comes down to individual behaviour and mindset.

 

I agree that residential properties are easier to start and good for the accumulation phase to leverage and build wealth. My experience with property investing has been stressful but ended up with now a high yield/depreciation and long term good tenant in place giving me dependable passive income. Last year I started building the share portfolio because investing in shares has a lot of benefits which suit my personal circumstances and phase in life: lower fees than residential property, no stress and liquid investments.

Although sometimes i do think about selling the property, the CGT I would have to pay stop me from selling.

Lately, I feel that i have discovered/learned the simple path to accumulating wealth that I feel really excited about, which is not the same feeling for property investing.

So maybe it depends on individual preference,either shares ot properties or both would be suitable.

 

My short experience with property investing was interesting too:
-Flood
-Tenant: damages, court and eviction, tenant death

 

How stressful was it buying Coke shares? How easy was it buying Coke? How exciting was it being able to buy Coke during short term market panic at almost GFC lows? Will you worry about Coke going bust, Unlikely? Will you enjoy receiving Coke dividend income without having to do a thing? Will you enjoy having no expenses to pay whilst owning Coke? How cheap were the transaction costs? How high is the yield?

OR

You could sell your Coke shares and use the proceeds toward a deposit on another IP and look forward to woeful net income and all the stress, expense and baggage that comes with IP ownership?

 

My favourite part of the week each Friday afternoon after 4pm!

pinkboy

 

He he, I was waiting for that. That's why I put the word shares after the first Coke!

If it gets around $8.00 again @Anne11 might become a Coke addict.

 

This is really a loaded question or thread, I vote property as tops, only cos I am making money.... now if I did the same with shares then I vote shares..... is this silly or obvious

 

If you read the OP properly, the purpose of this thread had never been intended to compare the 2 asset classes.

The point I'm trying to make ....
Why people tend to have -ve feedback over shares (as it's shown in some of the posts above, just refer to the first response for example LOL).
My thinking is shares and property are different hence there are pros and cons. However, first impression should be neutral until oneself discover what works and what not.