Why Property is Better Than Shares

If you are using property as security you'll be able to leverage back up to 80% of the market value of the property. For instance, if the value is $5M and you have $2.5M equity, you'll be able to pull out $1.5M as an equity loan, assuming you can service for the debt.

You can then use the $1.5M to purchase shares. If you want leverage on leverage you can also apply for a margin loan facility. Proceed with caution though.

As @twobobsworth mentioned you forgot to include the interim dividend.

 

Is that net rent figure for capital city properties? I feel it's a tad optimistic especially once you factor in large capital costs such as hot water systems going bust, and putting aside funds for renovations every few years.

Precisely mate. The two scenarios of $1.2M unencumbered shares OR $2.5M unencumbered property arrive at roughly the same result. Which would you choose?

Having said that though, to arrive at that net equity figure, I still feel that capital growth from leveraged property is the optimal/safest way to get there.

Your savings rate must've been astronomically high for it to outpace capital growth on leveraged property. I know I'd be nowhere near my position had I not invested in property.

Do you think you would've developed the discipline to ramp up your savings rate and directed it towards investing activities, had it not been for property? I know for me, it was property that allowed me to develop the financial habits and mindset for wealth creation.

 

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If I go on to live till 85 I would have been retired for more than 35 years, much longer than my entire working life. Retirement requires very long term investment planning and growth, which is why I think plonking most of your savings into low yielding and low growth assets when you hang up your hat is hugely problematic. And yet some retirement gurus are promoting it.

I wouldn’t advise anyone to choose to invest in shares based solely on something as temporary as the Trump bump.

 

Sure. Just my opinion.

 

Well it sounds strange I agree. But there’s a few factors that go into that...

The massive stamp duty we paid.
Plus buyers agents fees and settlement costs.
Plus ongoing negative cashflow.

This means that the first couple years (at least) of capital growth is just to break even.

Also some of our properties (Perth) havent done very much since purchase.

So all up, while some did well and some not so good, the holding period hasn’t been all that long to make up for the other factors.

We’ve paid very little CGT at this stage due to us not working now so low tax brackets (only other income is dividends) and we still have negative cashflow from the remaining properties further diluting the taxable gain, so CGT has not been a factor.

Hope that makes it clearer.

 

Savings rate was around 60-65% on average.

Discipline was never an issue for me.

You could say, I was quite obsessed with early retirement so I didn’t need that forced saving or anything.

Property was just the vehicle. It’s a vehicle that can go fast but tends to be slow off the mark because of the upfront costs/reasons I shared.

See my response above to Mac to see the reasons why property didnt do anything magical in our scenario.

It was the fuel (savings) that really got us to our financial independence finish line, not so much the vehicle!

We could have just taken the less popular, less exciting vehicle and arrived at the same time.

Had little interest in spending. Investing was always more fun and interesting

Yeah I agree that it can definitely work out well. No question it worked out amazing in your scenario. But I think it’s not needed and I wouldn’t call it the safest option.

Depends on the person/circumstances as always. With a strong savings rate and timeframe of 10 years or less I wouldn’t recommend it.

The dependable nature of dividend investing via LICs means that your growing early retirement income stream and your progress is fairly predictable and much easier to forecast than a capital growth approach (property or shares).

But I would question the assumption by many that leveraged property always wins. It doesn’t always work out how we expect. We can model capital growth perfectly on a spreadsheet, but it doesn’t play out like that in the real world. Sometimes little or no growth for years.

And also I guess for a couple reasons I expect property growth to be lower in the future. Many will say they expect to do better than average. But if there’s anything I’ve learned from shares it’s that it’s impossible for everyone to do better than average, despite thinking they will!

We still hold most of them (at this stage) so I’m no property bear, just see it differently after some experience on both sides, new knowledge and how the numbers worked for us

Just some of my current thoughts on the topic. Nobody shoot me!

 

I've always said that you can't save your way to wealth. Looks like you've just managed to debunk that theory.

 

Leverage and demand for well located properties is a good reason.

Property can have a high PITA factor where as shares not so much.

The best strategy is a mix of both IMO.

 

there we have it.. winner winner chicken dinner

 

The question is, whats the perfect balance between the two to minimise tax? I think @Terry_w suggested a paid off PPOR and approx $2 million worth of shares yielding $94K per annum in fully franked dividends.

 

That would be ideal!
But even a partially paid off PPOR leveraged into shares would be great.

 

I could do this right now and still have cash left over....BUT I have this (perhaps irrational) fear in selling a heap of props and dump it into the stockmarket.

 

Is this fear delaying retirement??
It is perhaps only partially irrational!!

 

slow and steady, and before you know it... voila... funds transferred into sharemarket. Less headaches in the sharemarket, but you could hold 1-2 IPs, just to keep that side going.

 

not all shares pay fully franked dividends.

 

Ok, don't buy those ones.

 

Which is why we don’t invest in it. Who needs more PITA factor in their life.

 

Yes it is

 

And you're on PROPERTYchat?

Makes sense lol.

 

Na that’s just a cover to hide from all the Hot Copper Spec Trading types. I thought you would have figured out by now this is not a genuine property forum. It’s always been a Share Investing forum.