Investing in Property Doesn't Add Up!?!

While your preaching from the pulpit.. I don't disagree at all.
As I said: Its easy to pick silly examples.

Just like Mr Pascoe

 

Ahhhh makes sense.

 

No margin call on property secured leverage. Huge difference.

 

oops yep , typo corrected

GFC

Cliff

 

but I did also see some one come a cropper with a large commercial portfolio on which they'd never missed a payment ...

Happy to stick to residential

Cliff

 

I was talking to a developer friend of mine the other day and he said that during the GFC, some banks went into complete panic mode that they required many of their loans to suddenly be reduced, demanding LVRs be lowered to ridiculously low amounts. And for those who couldn't inject equity, they simply just recalled many loans and forced them to sell, even though they were running very good and profitable projects...many lost huge amounts of money.

 

Im not preaching at all, I have no particular affiliation or affinity to one over another, ill go where I feel I can make the best returns with my capital and knowledge, that's why I don't really do shares as I don't have the same level of knowledge as I do with property and I don't see the sort of returns I want at this point in my life.

I'm discussiing the pros and cons of various asset classes based on how I see it but I'm not fixed to anything. if things changed and residential property saw say even 6% net returns on average I'd consider them to be a better option to hold in retirement instead of putting the money elsewhere to chase higher returns.

as it stands though most people seem to do their numbers on 3 or 4% net and working backwards to get an equity figure necessary to live off, I personally think there are better options out there once someone is at that point. resi property can be great to fast track people say 70 or 80% of the way I just don't see it as an A to B solution. there's nothing wrong in you or anyone else disagreeing with that, it's a forum after all.

your reference to preaching is what I was referring to earlier when I mentioned that the church of resi property is sometimes a bit much. it isnt a football game, no one has to pick one side to follow for the rest of their lives.

 

Yeah i know 3 who copped it from St George after Westpac took over. all had no history of missing a single payment, 1 paid it out fairly comfortably, 1 made it with a day to spare and the other had about $85m worth of loans on $200m or so of property called in and only given a few months to pay, under 6 from memory. he also had never missed a payment and was a highly experienced developer.

he fell around $7m short, only needed a couple of weeks extension but they refused and bankrupted him.

 

It's not about shares vs property.
I agree Sanji, the point is, as always picking silly examples.
Michael Pascoe used the example of buying and selling a property in a flat market in 3 years. The transaction costs would destroy any return unless we are talking about development, renovations or subdivisions etc.

For what its worth I like shares for income but the fluctuations in value and the inability to leverage relatively safely hold me back from holding a larger portfolio.
I'm currently holding
Mostly AFIC but also WOW,CPU,NAB,TLS,CBA,ANZ,SGP,CSL

 

yeah I don't disagree with you that 3 years is not ideal unless you buy at the start of a boom but that does highlight a couple of points for me.

a) you really only are going to make decent returns if you sellafter the property goes up over 30%, which after transaction costs, likely NG, maintenance etc could mean a max of 20% gain. if you buy and the market is flat for say 2 years before going up that 30% over the next 3, you end up with 18-20% gains over 5 years if you sell and that's then taxed.

doesn't exactly cover itself with glory as an option.

I don't agree entirely with his article but it did prompt a few thoughts for me.

 

Holy moly. He must have been ******. Do you know if he has recovered now?

 

Take a plodder approach to both. Start investing in property at 20. Pay off your PPOR by 40. Start investing your now paid off PPOR repayments into a shares portfolio. Retire on the income from both a property and share portfolio at 60. Granted you'll still have to work 40 years to get there. But you'll be out of the workforce 10 years before everyone else and your Super kicks in at 70. Boring but achievable wealth by the masses if you stick to it I think.

 

The biggest benefit I see hands down with property is that growth can be actively obtained.
Renovations, subdivisions, developments.etc

You can choose to be passive and wait for the gains to come to you or you can go out chasing them. The power of leverage, some very beneficial tax laws and the will to think even slightly outside the box and put in a little work for me makes property a no brainer.

But yeah if you want to go buy an OTP shoebox in the docklands and call yourself an investor then probably better you handed your cash to blue chip shares.

 

That sounds awfully depressing to me.

 

Sure. But I'm talking about a plan for Joe Average here, NOT your average PC member. Most on here are far more actively dedicated to the endeavour of accelerating that financially secure retirement to a MUCH younger age than Joe Average. And we're striving to retire securely on our own terms. Not working until 70 and then merely surviving on whatever money comes along. Whether that be Super or Pension or a combination of both.

 

I was quite bouyed by this. I'm 37 will pay off ppor by 40. Sounds good.

I'm hoping to do better than that but it's good to know i can retire 10 years earlier.

 

I've got the means to pay off my PPOR by age 40, no problem. But I'd rather still hold the PPOR with some debt and own a few IPs at the same time. If they can all go up even say 5% a year...

 

Whilst I regard the commentator as generally lightweight I think his take on property performance next three years is reasonable salient – after all he’s just deferring to other economic experts views. Similarly my own view is that most (not all) domestic property markets may be flat at best for several years. That’s how our cycles tend to work. Doesn’t necessarily mean shares will thrive though. Look at the big banks last 12 months. Anyone game to say they with confidence they will spring back in a big fat hurry? I view this as a leading indicator for our economy as much as anything else, although I understand others rationalise this differently.

So I’m happy just to poke along chomping into debt at present, unless a gem presents – in which case I’d offload something anyway. Want the slow descent to Basel to be an uneventful flight. I credit smarter people than me from this forum for influencing my behaviour in this regard.

I don’t get excited about passive shares, nor properties low on value-add potential. For me learning to be patient and saying no to average property deals will be the smartest move next year or two, knowing that the best opportunities arise when the herd is feeling pain, which I’m sure will happen. How much pain is the question. I’m not a bear by nature, just a believer in cycles. Cheers.

 

*insert kids*
*insert divorce*
*insert back swan event*

 

Yep. And when you find those excellent deals, you have to be ready, finance lined up...