Why Property is Better Than Shares

Discussion in 'Share Investing Strategies, Theories & Education' started by Terry_w, 17th Feb, 2017.

Join Australia's most dynamic and respected property investment community
  1. Intrigued_again

    Intrigued_again Well-Known Member

    Joined:
    4th Mar, 2016
    Posts:
    217
    Location:
    Perth
    Terry, What about this one
     
    fritzsticker likes this.
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,672
    Location:
    Australia wide
    That is for small businesses. Shares in a private company that is operating a business could count as active assets in some instances but not for share investors in publicly listed shares.
     
    fritzsticker and Intrigued_again like this.
  3. vbplease

    vbplease Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    1,575
    Location:
    Brisbane
    It's become easier to get leverage with shares through some 'BetaShares' etf's. Gearing up to 50% (going long and even more if shorting), which is geared internally, so no risk of a margin call.
     
    fritzsticker likes this.
  4. Sticky

    Sticky Well-Known Member

    Joined:
    2nd Jul, 2015
    Posts:
    73
    Location:
    Melbourne
    Be careful and understand how these products work, while there is no margin call on you directly as such, they must stay within the target LVR range, and reduce exposure if the market falls - effectively the same as a margin call within the etf and meaning you will not regain the same amount when the market recovers.
     
    fritzsticker and gman65 like this.
  5. Snowball

    Snowball Well-Known Member

    Joined:
    28th Dec, 2016
    Posts:
    843
    Location:
    Perth
    Well said. The GEAR fund (by Betashares) was absolutely hammered the other month...down 66% in 4 weeks.

    Not many have the stomach for that.
     
    fritzsticker and TAJ like this.
  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,672
    Location:
    Australia wide
    Lots of properties being flooded at the moment - that doesn't happen with shares. But the Russian invasion gave them a bit of a battering, but they were up again today.

    I think shares are winning the contest, at least for me
     
    Northy85 likes this.
  7. Northy85

    Northy85 Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    444
    Location:
    Brisbane
    I'm starting to see that property has more risk than shares and is more suited to moderate to advanced investors. There is much more involved and so many friction points.

    Property has it's place, with the ability to highly leverage and that it provides necessary shelter. I do wonder if banks allowed 80% LVR and home loan rates for investment into ETFs and LICs, if more people would abandon property investment.
     
    Terry_w likes this.
  8. Sackie

    Sackie Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    25,034
    Location:
    Vaucluse, Sydney.
    I highly doubt this.

    You leverage 90% into a 700k property in a decent area and you'll likely sleep well most nights.

    Leverage 90% on stocks....and get ready for some heart stopping moments. Many would sell out at weak moments as the psychological toll would be too much.
     
    Cousinit and kierank like this.
  9. APINDEX

    APINDEX Well-Known Member

    Joined:
    26th Feb, 2017
    Posts:
    277
    Location:
    Sydney
    There is risk and the perception of risk the two often get confused we as humans are generally pretty bad at effectively evaluating the actual risks vs perceived risks
     
    Silverson likes this.
  10. Sackie

    Sackie Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    25,034
    Location:
    Vaucluse, Sydney.
    I agree. The other major, major problem is human psychology. This must be factored into the risk equation. 'A' could be less risky than 'B' when viewed in isolation from the human element. Once human psychology enters the mix....everything can change.
     
    Northy85 likes this.
  11. KinG3o0o

    KinG3o0o Well-Known Member

    Joined:
    17th Jul, 2017
    Posts:
    1,074
    Location:
    Sydney
    actually if u leverage on stocks most of them it’s not a panic sell. It’s margin called
     
    craigc likes this.
  12. Sackie

    Sackie Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    25,034
    Location:
    Vaucluse, Sydney.
    Well there's that too. Which then forces many to have to sell stocks to reduce margin.
     
  13. Northy85

    Northy85 Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    444
    Location:
    Brisbane
    I get the psychological effect on people with a stock market crash, this also happened in real estate markets in Australia when they crashed too.

    The point I was making is a diversified share portfolio is a lot less risky than a single house in a good suburb. A lot can go wrong with property and an investor needs to have skills to invest; negotiating (RE agents, trades etc), organisation, account keeping, eye for interior design and tax etc. It could be argued all this could be outsourced but then you open yourself up to be taken advantage of.

    You could literally have an IQ of a potatoe and just buy VDHG and do well. And if the banks allowed home loan rates, with high LVRs aaaand no margin calls, I know a lot of people on this forum would take advantage. Just look at how many people on here talk about selling down their properties because they don't want to deal with the hassle of property in their older ages.
     
    Observer and Sackie like this.
  14. Sackie

    Sackie Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    25,034
    Location:
    Vaucluse, Sydney.
    Yes but many of them have made millions in equity from real estate over time. They just whinging in their old age :)
     
    Cousinit and Northy85 like this.
  15. Sackie

    Sackie Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    25,034
    Location:
    Vaucluse, Sydney.
    Well perhaps. But the comparison isnt fair imo.

    Lets compare a diversified share portfolio leveraged at 80% VS a diversfied property portfolio leveraged at 80%. Then when markets rumble, see how each one impacts the investor.
     
    craigc and Northy85 like this.
  16. MB18

    MB18 Well-Known Member

    Joined:
    25th Sep, 2018
    Posts:
    1,374
    Location:
    NT
    Share market volatility is basically the other side of the coin that offers instant pricing and liquidity, it's not necessarily better or worse.

    If property prices were publicly updated second by second between 8am and 4pm every weekday with transaction costs of just few dollars, then Im sure we would see a similar result.

    A leverged property investor can live in denial at thier mistakes for longer than a leveraged share investor however.
     
  17. Northy85

    Northy85 Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    444
    Location:
    Brisbane
    Agreed, it's not a fair comparison, mainly because it's theoretical, the banks don't allow the same lending into shares. But people are pulling equity out of property, at home loan rates and debt recycling into the stock market, so they are already exposed to the market crashes with leveraged money.

    I'm definitely with you on the psychology aspect of the stock market though. Second by second updates on your networth is a big hill to get over in the mindset department!

    One big thing I've overlooked, but also adds weight to my earlier comment on the need for investor experience, is that there is potential to manufacture equity. Something you seem to do very well in too.
     
    Sackie likes this.
  18. Brumbie

    Brumbie Well-Known Member

    Joined:
    5th Mar, 2018
    Posts:
    190
    Location:
    Canberra
    "potential to manufacture equity' is a very good point for property. You need skill to do this profitably. Could researching a good company and investing in it long term be thought of as similar to renovating or splitting a block etc. The difference is you are picking someone else to manufacture equity for you. And you hopefully have chosen a management team that are the best in their class to do it. You still need skill to identify the company.
     
    Cousinit likes this.
  19. Sackie

    Sackie Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    25,034
    Location:
    Vaucluse, Sydney.
    Better or worse imho very much depends on the investor and how they react to markets.

    Psychological impacts the stockmarket has (especially if using high margin) when compared to property is very different.

    Imo there is no doubt that a 80% margin loan on stocks is a lot more risky than 80% lvr on a property, simply because for most the psychological impact will be far worse when markets rumble.

    How inherently risky an asset is over anther is one consideration. But imho you need to factor in investor psychology as well.
     
    Northy85 likes this.
  20. Trainee

    Trainee Well-Known Member

    Joined:
    24th May, 2017
    Posts:
    10,258
    Location:
    Australia
    80% lvr shares would have higher expected return than 80% lvr resi property. So not like for like in terms of risk.