Why Property is Better Than Shares

Absolutely. This is a limitation of the spreadsheet whereby you assume rent to be a fixed percentage of property value and therefore force it to grow at the same rate as values. Reality is yields have been falling for many years and will tend to fall further.

 

I did a redraw on the mortgage in late 2011 to buy ARG and AFI. Like a muppet, I had no idea about quarantining the debt or anything like that! Anyway, they were totally on the nose back then, so I'd back myself to do the same again knowing far more now than back then.

 

Totally agree. We bought our first IP in 1992 for $125,000. At best, its value didn't move (at worst, it went backwards) for the remainder of that decade.

Our accountant at the time told us that we had bought a 'lemon'. We were so busy starting up a new business and getting it to grow, we never got around to offloading it.

Seventeen years later, it is worth around $620,000. If one could sell property by just making a phone call (like with shares), 17 years ago, we would have missed out on $500,000 capital growth. Thank God, we were too busy and it wasn't that easy .

 

I don't know what XJO is but I am not looking into listed securities because of anything other than income. I was under the illusion that I would be able to accumulate enough resi property to live off rent. Then one of my IPs dropped from $440 pw to $280 pw over a 3 year period. That's a serious wakeup call! How am I supposed to retire on that?

So I started looking at alternatives. I am not interested in direct shares but ETFs such as VAS or VHY would provide some stableish income streams long term.

Only problem is that they seem quite overpriced at this point to me. Based on current purchase price to last years dividend payments, a million dollars would by me an income of around $45k per annum. That's not spectacular. I am not quite ready to buy in yet but when I do I will be looking for better value than that. But I am less than a beginner so I could have all of this wrong.

My point is that I am not looking at listed securities because the stock market is high or whatever. I am looking for a reliable income for retirement.

 

I don't know what ARG or AFI are but that's awesome! Buying good companies when they are 'on the nose' is smart.

 

Yep, during the last GFC, my sister 'panicked' and sold all of her shares. Still invested in cash today!!!

Me, never sold a thing. I didn't buy any listed shares at that time but I spent a bucket load of money doing a strategic purchase of another business. I merged it with my existing business and sold both just under 3 years later.

No prizes for guessing whose net worth has increased the most over the last 8 to 10 years - my sister's or mine?

 

If you had invested $125,000 in the all ords and reinvested all dividends it would be worth $1.2m

 

You many not know when the market is going to fall. But it is relatively easy to calculate when a market is overvalued. So provided you either exit at that point, or you have a good way to determine how long the upward part of a cycle above fair value will last before getting, you are good. And again provided you can determine fair value, it's fine to buy in a falling market, even though you don't know how it will fall. Time, objectivity and patience are a value investor's best friends.

 

As a contrast. Sydney median was $183,300 in 1992. Sydney median now is $1.2m.

Growth rates are 9.6 times ( all ords ) versus 6.54 times ( property ). That's with a 25 year horizon so a good time comparison.

 

Value investors are holding stocks, not etfs or LICs. Decisions are at stock level, where valuation is more straightforward. Even still, going all cash is rare, and not something the likes of say Buffett has ever done.

The problem with market valuation metrics is markets can go from overvalued, to very overvalued, then earnings catch up and over time fair value returns. Meanwhile you are on the sidelines with less capital due to crystallized capital gain! Next time those low valuations return the market is at a higher base.

In the real world (ie taxable environment) going all cash and market timing like that just doesn't work imho.

 

I only have CBA & WBC from 1992, $125K DRP 30% tax rate.

CBA $5,221,427.72 .........................Income (gross) last year $350K
WBC $3,704,574.72.........................Income (gross) last year $285K

a couple form 1999

ASX $2393,440.66........................Income (gross) last year $120K
TLS $905,912.48...........................Income (gross) last year $78K

 

Not sure if 'better' is the right word. At times the richest man in the world is a share investor.

But yea, the only reason property is different to shares is because you can leverage without being margin called. Then again those who thought that in 1991 Aus, 1997 SEA or 2008 USA paid dearly.

 

Nice story @kierank !!!

 

Don't look

 

The kicker is when you want to put your feet up. The $620,000 property most likely gets $550 a week rent at best. Take out 20% for expenses that leaves $22,880 net.

Having the dividends paid out @ 4% gives me $48,000. Subtract expenses....oh hang on.

Am I missing something here???

 

Don't forget with that property, I borrowed 100% of the purchase price and use my own cash for just the buying costs. I am happy that I turned a couple of grand into $500,000 of net worth in 25 years

Not the best investment I ever made but it is a long way away from the worst. I bought shares in a company that I thought was safe and it went belly-up. Did all my dough.

Back in 1992, I wouldn't had the guts to borrow $125,000 and put it all into shares. I would have to had survive margin calls and panic attacks with events like the GFC, 9/11, ...

I certainly wouldn't have the guts to do it today; at age 60, my risk appetite is a lot smaller.

Don't get me wrong - I am not against shares. My strategy was always to buy property outside of Super (in our own names and trusts) using OPM and to buy shares in our SMSF using our own cash. Our SMSF nows funds our retirement lifestyle; the grandchildren will ultimately get the properties in our trusts.

 

Well in some cointried, HK, Singapore, dividends and capital gains are not taxed at all, making the tax considerations of entry and exist a non-issue.

As for ETFs, they are certainly bought by value investors, myself included. They are a very good vehicle for entering and existing indexes you feel are over and under valued. Also a good vehicle for stable dividends, especially if you go for a high yield blue chip etf.

A good example of use of a ETFs as a value investor was when I bought US stock ETFs back in the 2008 crisis. I didn't know for sure which individual companies might go under, especially banks etc but I knew for sure the overall market was very cheap. ETFs were the most efficient and practical answer.

 

If you invest broadly in shares you will never lose all your money. In fact over time you will do wel. All these stories about people investing in a stock and "losing all their money" to me just indicate lack of knowledge in the principle of diversification.

Mainly go for very stable blue chips but I put a smaller amount into higher risk stocks. One recent year, out of a portfolio of 10 or so high risk stocks I had 2 that delisted but 3 or 4 that went up 3-4 times in value and one that went up 8x. If I focussed only on the losses I would be wel down but of course as a whole that portfolio was way way up.

Shares over time have been shown to outperform stock (followed by property, followed by bonds, followed by cash). The key of course is a diversification.

 

Tell me more please.

 

same here @Excalibur1 , can you borrow in personal name (not trust)? I currently have a margin loan with ANZ,