Jan Somers - Creating Wealth

Experience and excel seems to say:
Ungeared, shares beat property over the long term.
Geared, putting a 20% deposit into shares v buying one property at 80% LVR, property wins at first (but property isn't liquid), shares catch up and shares win over the long term.

Property wins when geared AND you buy more using the equity.

But that's just numbers. Some are scared of shares because they don't understand it. Some are scared of property because it's such a big number. Some don't like debt.

In reality, any serious investor won't just buy once and do nothing else for 30 years.

 

Here are some interesting stats


How many Australians own an investment property?

 

Power of leverage is huge

 

Not just leverage. Ungeared shares will probably beat one property at about 80% LVR over the longer term.

The key seems to be increasing the amount of leverage over time. The longer term investors often have higher debts than they started with, but much lower LVRs.

Its like the idea 'how do I get a nice PPOR?' One answer is you buy cheaper, then keep upgrading and increasing the dollar amount of debt every time (even as the LVR is decreasing).

 

OK you keep your IP for 10+ years and sell, with house prices ATM you can find yourself with a hefty CGT - what has never been discussed on this forum is how do you plan on paying CGT on top of your usual tax in the financial year it was sold?

I faced this problem when I sold industrial units I had held for over 20 years and it hurt

 

Urgh! Metropole!

That aside, those stats aren't new.

 

As long as stats are correct
Peter is their stat guy

 

If one was too track the performance from when the series of books first hit the bookshelves as I'm not sure if longterm reinvented ASX top 50 over that 26 years span compared to holding property depending on the time period ..
Just looking at the economic clock from boom to bust as all booms follow the same over the past 25 years ..
The problem now combined with Covid is now is no one can tell if the economic clock is running faster or slower.

 

+1

If one plans and executes their strategy correctly, the amount of leverage can continue to increase way into retirement.

For the first 10 years of our retirement, our debt levels continue to increase in $ terms but not in LVR terms.

Shares are passive and the income is fairly reliable.

A good large share portfolio (prefer in a SMSF) can be used to support a large negatively geared property portfolio in retirement.

 

As the ASX 50 changes over time, so should property portfolios either through divestment & reinvesting, refurbishment, replacement, redevelopment, rezoning etc.

 

Just had a look back the past 20 year's to try see a comparison..
First one that comes up is One-Tel just after the 2000 Asian financial crisis so property would have won hands down during that period..
But you are correct both would come up level at different times when you have a stable government which we have..
A strong economy And increasing population..
Property market running like a run away train and a steadily improving share market --All At the same time..

 

its just part of business, you sell and CGT is considered. A profit is a profit

 

If you sell once you retire, you will find the tax effect is even less than geoffw indicates above.

Last year with the sale of an IP, I had an approx $450k capital gain, reduced to $225k (50% disc), but with other significant deductions (incl $75k super deduction), I ended up with a $38k tax bill.

So, timing the sale and maximising your deductions or carried forward losses can ease the CG tax pain.

 

Sell the main residence and move into a rental and the CGT could be nil. That alone can allow you to retire years earlier than anticipated.

 

This was my plan but the other half has become used to a certain lifestyle now. It appears there is no going back…

CGT hurts if you don’t have other losses. If you do, it’s the losses that hurt! Hurt is involved either way…

Just calculate your net worth before and after the sale and you will see a big drop, along with the other transaction costs. Then you have to add in the transaction cost of buying something else to get that exposure back. Include your own hourly rate doing all the running around of course…

After all that, you had better be real confident that the flip still makes more money than all those costs. If you never sell, you never pay CGT and everything else, or have to spend the time finding something else. Out here in the real world, I can certainly see the attraction of that…

 

Thanks everyone for replying to my question - looking at the big picture I am not convinced owning IP's is the way to go, divide your CG over the number of years you have held the property and the picture doesn't look quite so rosy and take into account it is not easy to access any equity for unexpected expenses or business opportunities. There are other reasons for my thinking but above are the main ones ...

 

Its just what works. Some investors here develop property, perhaps sell 2 and keep 1 to increase cashflow.

Whatever works. Different strokes for different folks.

 

This.

 

After selling some long held IPs I don't think its that bad in terms of ROI and work involved.
Yes i bought the dips, with one exception, though I can't see another asset class perform better over 30 yrs.
Sure I could gone all in with Westfields or wateva, but as an asset clas RE still beats the others.
NB though not as what seem the standard strategy which takes over 30 yrs for significant gains. Just like ETFs