Why Property is Better Than Shares

Good stuff. This is a great effort. Just on observation based on my experience. The rent is quite optimistic. I owned a Melbourne IP for 9 years. Start rent was $280 pw. Year 9 rent was $295 per week. One Perth IP: year 1 $320. Year 2 $440 after reno. Year 4 $340. Year 6 $280.

But then Melbourne and Perth have traditionally produced lower yields, so this may not apply in Sydney, Brisbane and Adelaide for example.

 

Personally, I don't have any problem holding onto a falling asset and I would not check VHY prices hourly. In fact, if I had cash and VHY dropped 30% I would see that as a buying opportunity. I love buying in a down market. That's why I have my current IP. One of my IPs dropped more than 30% so I thought it might be a good time to buy another in the area.

That's not hard. Try having your rent drop from. 440 to 280. That's hard!

 

This depends on strategy and time frame.

 

True but my point was that I don't have any problems holding falling assets. Say I bought BHP and the market crashed and BHP fell 50%. I would see that as a buying opportunity, not as a sell signal. I would be stoked to get BHP at a 50% discount.

 

It's a good point actually it or does go to show the "smart money" is realizing Sydney is not a good place to be. If you are set on investing in property in Australia, Gold Coast in my view is the best place to be moving into now. In terms of shares I would be suggesting Europe, the Hang Seng, and if focussed on Oz consider recourses stocks. Bear in mind I am a value investor. I buy cheap and hold as fair value gets realised. It's really a no brainer reliable way to consistently make money.

 

Property is easier to hold in a falling market because it takes a fair bit of effort and time to sell. Not so with shares.

Regarding LICs and efts, there are some great LICs around and I hold some currently. However in the past there have been many LICs that have folded, Babcock and brown comes to mind, but I'm sure there are others. I also see a lot of financial engineering risk in many efts.

Property prices fall, however it's rare they fall to nothing, and it would be super rare to have them fall while not being allowed to sell them (a trading halt).

 

The ones that will struggle are the chancers who come late to the game without any real knowledge and get shaken out at the first sign of volatility as they realize they have no idea what they are doing, and as a result no conviction. Add leverage and they will be even more jumpy!

Curious to see what you would do in this situation. Holding $10m portfolio of say vanilla ETFs and LICs. No leverage. GFC type event, prolonged 40% drawdown over 12 months. You are a seller?

 

Not fall to zero but certainly chew up all your equity which is almost the same thing. It's won't be the banks share.

 

Yep lots of LICs fold, there is a simple filter for that well covered in the lic thread.

Can you expand on this "financial engineering risk" you mention? Are you referring to synthetic etfs, geared etfs and rubbish of that ilk ? (A minuscule proportion of etf cap)

 

If XJO was still hanging around 4800pts and D&G in the press there would be zero interest in the stock market on this forum aside from a handful who only lurk in the other asset classes sub!

 

True. But if it's perfectly predictable then arguably this should be fully priced in and hence no value left in actually doing it. So the fact you see there being value in this is actually due to the unpredictability (or inability by the market to correctly calculate the value of these predicatable gains).

And I would argue that one could consider the equivalent to adding value by rennovating a property is the same as simply buying more shares in a company you already own.

 

This is purely a mindset issue. As others posted above property is also actually revalued multiple times daily. It's just that investors don't realize it. If you take a long term macro view and if you have a broad enough share portfolio or etfs the short term volitity should not bother you at all. Indeed the beauty of such volatility is that it enables you to buy up cheap from suckers who don't understand value, and who from time to time sell off when they should in fact be buying (and vice versa).

 

I had this happen once in a foreign market. A bought an apartment that doubled in around 2 years. Then, during an economic crisis prices fell back to around my starting value. I held my initial purchase, but nearly doubled down and bought a second. I wished I had as with around 4 years prices hit triple my starting level. Lesson learned ...

 

I would like to think I would have gotten out near the top and significantly moved into cash son that I would be buying in as the market is falling, and then remain in hold/accumulate mode.

 

Great theory. Harder in practice. Particularly if sitting on large capital gains. The market is dynamic...you don't know how far it's going to fall. Stop buying and build cash at high market valuations is more realistic and tax effective imho

 

I would be a definite buyer. I have done it before and would gladly do it again. I love bargain hunting in a down market.

 

Nothing better if you have the cash... nothing worse than being tapped out.

 

Won't know till I'm in that scenario. Easy to say I'd hold and buy more if possible but I won't know what other stresses in life I have at the time. Leveraged or not, watching your net worth vanish is painful for anyone, even if you know stock prices will rise again in time and buying cheap is the quickest way to wealth.

 

I would not like to be tapped out in a downturn. Definitely buying opportunities and no cash/loan capacity would make me annoyed

 

Well it's a sure-fire way of turning a drawdown into a permanent loss of capital. Quite popular during the GFC.