What made you choose investing in property other than shares and mutual index funds ?

That is so true. A lot of first generation migrants didn't have a strategy. They just bought their first house as a roof over their families heads. As they worked harder and had more income, they invested it into housing, as it was regarded as 'safe as houses'.

 

I like both but as I salary sacrifice to super what I can which isn't much due to caps I already have a fair bit of exposure to the share market.

Outside of super my current weighting is 10% shares, holding about 10 stocks plus AFIC and 90% property and that is mainly due to the benefits of leverage. There is only so much spare income/cashflow available to purchase shares.

The superior income streams available by purchasing fully franked shares does appeal and I might have to purchase more LICs outside of AFIC.
The GFC was an eye opener to me as I watched dividends being cut and some companies undertaking huge capital raising which diluted EPS and shareholder value in some stocks massively. The LPT sector comes to mind, not to mention the millions of shareholders caught out holding non dividend paying mid cap Australian miners etc.

Direct share ownership requires following the market closely and picking up on adverse trends. I find property easier but like the income streams available from shares.

 

Did you include re-investing dividends back into capital?

 

I haven't done maths since Year 12.

My calculations were: $X/year income, depositing 20% (Y).

I then went to a compound calculator and put in that value, added annually, with a 5% return.

Not very accurate, so no!

But, replacing income by depositing 20% per year will take a long time, especially with a 5% return. Each year, 5% of the 20% deposited will be returned.

I hope someone can do it better

 

This is the math behind it

Spoiler

assume your annual salary is 100k. Need to get passive income of $100k in 2016 dollars. Assume that the passive income is 4% of your income producing assets (conservative?).

Therefore in 2016 dollars you need $2 500 000 equity in income producing assets. Assume you deposit $20k in 2016 dollars a year. Assume each 20 000 gets you 5% per year in 2016 dollars.

After Y years you will have (20k)*(1.05^(Y-1))+(20k)*(1.05^(Y-2))+...+(20k)*(1.05^0)

Rearranging and solve for 2 500 000 = (20 000)*(1.05^(Y-1)+1.05^(Y-2)+...+(1.05^0))
125 = 1.05^(Y-1)+1.05^(Y-2)+...+1.05^0

I had to use excel to solve that but its about 41 years of saving. Key assumptions:

1. Your income only changes with inflation
2. when smoothed out, net gain in your savings/equity position is 5% p.a (this is 5% post tax and post-inflation adjustments)

Of course, life will never be that simple, so keep working on improving your savings rate and your income AND your quality of assets. All 3 are important. Perhaps more important than all 3 is working on improving yourself. Money comes easier if you have the tools/knowledge/resources/network to get it.

 

I think 5% combined CG+dividends averaged out over a long period is a bit too conservative tbh, as is the fact that this assumed zero use of debt which probably wouldn't be the case once a decent sum+experience was obtained.

personally I chose property because I love it and it can be pretty lucrative if done right. the ability to directly affect the return is a big factor too, instead of being completely passive/at merCy of market/others etc.

having said that Im not really a big fan of basic resi buy and holds and especially so when income is important vs CG

 

But what about the capital growth on the ETFs?

For example
I think Vanguard report VAS has an average 4.63% pa distributions and 4.56% pa. growth sibnce inception.
https://static.vgcontent.info/crp/intl/auw/docs/etfs/profiles/VAS_profile.pdf?20160622|160000

 

+1.

 

I did property and I did shares. Stop doing both for different reasons. Just don't see any reason to invest anymore.

 

Lets do more math. If you reinvested every cent of dividends back into capital. Thats a smoothed out 9.4% YoY growth. Even taking out inflation, its still a good return. Of course this is the past and not necessarily indicative of the future

 

My thoughts exactly, I like to have at least the illusion of control over my investments.

 

The way I see property is:

Cons:

• illiquid & expensive to buy and sell (stamp duty, conveyancing, etc to buy & agents fees to sell) with a complicated and lengthy buy/sell process.
• Immobile & lacking diversification
• Very hard to properly diversify from given the high individual asset cost
• High ongoing costs (property managers, maintenance, insurance, council rates)
• I've mentioned these in other points, but it has its own special fees and taxes. Stamp Duty & rates

Pros:

• Stable, markets swings don't have anywhere near the same immediate impact. Nor have I ever heard of anyone getting margin called / having major dramas bank side on boring stuff like an 80% lvr loan on a resi prop (development & bridging loans are a different story but that's not what I play in)
• Leverage. If I walk into a bank to ask for 80% LVR for 30 years at cash rate + 2% to buy index funds, they are probably going to laugh at me. Vs quite happy to do it on resi prop.
• Has some nice tax perks, the previously mentioned expenses in cons are all deductible against the income. I've found things like asset depreciation schedules to be fairly generous so far.

For me, the pros outweigh the cons.

 

Yah, LibGs liked something I wrote!

 

Why choose one over the other, when you can build both a resi property portfolio, and a share portfolio? I started with resi for the CG factor, now I'm moving to include ETFs for yield

 

Well said!

 

Why dont you see a reason to invest anymore ??

 

I would not be happy without a hobby. For me, sourcing a run down, under market value dump that I can DIY reno to improve is a fantastic (but expensive) hobby

Oh, it has also been very profitable so far.

 

Don't want to take any wind out of Terry's sails but:-

10. No solicitors fees? (Assuming you didn't invest in Timbercorp or HIH or something else that went pearshaped...)

 

Leverage.

 

Use property as security, get a residential loan, use the loan to buy listed securities