Why Property is Better Than Shares

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

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  1. Perthguy

    Perthguy Well-Known Member

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  2. Gockie

    Gockie Life is good ☺️ Premium Member

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    Thread bump. Time for me to re-read and re-evaluate these thread contents with my new found investing hat on.
     
  3. c_west

    c_west Well-Known Member

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    Property is good for CG so that you can invest in shares later on in life. Setup property so that CGT is minimal upon sale.
     
  4. Chris Au

    Chris Au Well-Known Member

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    Slightly confused here from my quick read of this post??? If the goal is to make this biggest profit from the property and at the simplest level CGT is sales price - purchase price, how could you minimise CGT on sale?

    Agree that both property and shares are needed in the overall plan, and interested in how to maximise the use of each! :)
     
  5. MTR

    MTR Well-Known Member

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    50% discount if you sell after 12 months, purchased in personal names

    Trust structure if operating as a business ie developer etc. you pay 30% on profits after all costs deducted.
     
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  6. Chris Au

    Chris Au Well-Known Member

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    Thanks @MTR , was wondering if there was anything I was overlooking. Certainly factoring in the 50% deduction!
     
  7. Terry_w

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

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    No you don't!
     
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  8. AlexV_Sydney

    AlexV_Sydney Well-Known Member

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    Sorry for stupid questions...

    1)
    I see that we compare leveraged property with nil leveraged shares which is (I think) incorrect. What happens if property price for IP (80% LVR) drops by 50%? Would bank ask to top up the deposit to get that 80% LVR against a new price, or buy a mortgage insurance, or both, or do nothing?

    2) why don't we consider non-nil leveraged shares? I understand we may have a margin call if leverage is high, but we can set it lower at safe level. E.g. Dow Index dropped from 14,000 to 6600 within 5 months(!) during GFC, an investor had plenty of time to change the strategy from leveraged shares to non-leveraged shares in such volatile market, or sell the shares and hold cash till global economy is in good shape again.

    The largest daily drop in NASDAQ composite index was -11% in 2000, so if leverage is not too high and stop-loss order was in place, it's quite safe strategy.

    BTW,
    Dow index was increased by 7 times over last 25 years.
    NASDAQ index was increased by 10 times over last 25 years.

    Quite impressive results... and if leverage it with safe ratio (1:2 or 1:3) and add some protection (stop-loss order) against quick drops >10%, it would be much better.
     
    Last edited: 20th Apr, 2017
  9. Silverson

    Silverson Well-Known Member

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    Could you go into this abit more please mate?
     
  10. AlexV_Sydney

    AlexV_Sydney Well-Known Member

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    Even if property investment doesn't have 'margin call' like shares, the sudden drop in property prices will cause a drop in rental income as tenants would start moving to other cheap properties, and as result an investor may be not able to cover the losses, so they would need to sell the property and fix the loss which is similar to margin call. Also such huge drop usually means fundamental problems in economy, so the job can be lost (or salary may be decreased at least) which will also may result in inability to pay for loans.
     
  11. Terry_w

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

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    MTR's post on trusts paying 30% tax is wrong.

    Trusts generally do not pay tax at all. If the income of the trust is distributed then the beneficiaries pay tax at their marginal income - which could be 0% to about 49%.

    If the trustee retains income it will be taxed at the top marginal rate of 45%.

    I think MTR may have been thinking about companies - but even in this case the company may pay tax at 30% but if dividends are paid out there could be extra tax to pay or even tax back so the final tax rate won't be 30%.
     
  12. Alex Straker

    Alex Straker Financial Life Coach Business Member

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    AMEN to that! No one can achieve ideal market timing realistically even though it sounds easy in theory. If you are an investor (as opposed to trader) timing is not something you need to try to perfect. Of course we all try to time the purchase of any asset to some degree as common sense and research can give us reasonable clues about when things are perhaps a little cheaper or more expensive buts lets face it.....no one knows for sure or it would all be too easy :)

    Better off not focussing what is 'best' as an asset class, or absolute returns or timing. Instead put focus on big picture strategic structure, protecting known risks, holding a variety of assets & sub-categories, managing yourself, surrounding yourself with as much genuine expertise as possible, being in good financial habits and ensuring you hold high quality, well researched propositions for future performance.
     
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  13. Realist35

    Realist35 Well-Known Member

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    My thoughts so far from this thread..

    Historical performance over the last 20 yrs of shares vs property has been very close, as shown in the recent report by Russell Investments:
    Investing Facts: Shares vs Property | The Wealth Guy | Expert Financial Adviser

    Further, as @truong has shown in his analysis, the widely held belief that leverage makes property a better investment, is flawed.

    All this makes me think that diversification across both asset classes is the key. For my next step on the journey it is a decision between buying a property or investing 100k in shares. I just don't think I know enough about shares to take the plunge:).
     
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  14. Gockie

    Gockie Life is good ☺️ Premium Member

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    One answer... Peter Thornhill. Read everything you can about him. It worked for me.

    Re: shares vs property: If you can leap into property in a rising market, or do renos/manufactured equity/buy below market value etc that's solid. If you can't, or can't borrow for a IP purchase... definitely look into shares.

    Of course, if you have a PPOR and a LOC, look to buy shares using the LOC. There's a Peter Thornhill slide on that too (you'll find it on the Peter Thornhill thread or LIC thread or a shares thread).

    @Anne11 did a really great post earlier today with a link to the retireondividends.com website, I recommend looking at that as a good starting point.
     
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  15. Realist35

    Realist35 Well-Known Member

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    Thanks Gockie, I'll look into this:).

    I've found a very interesting link today:
    The 4% Rule: The Easy Answer to “How Much Do I Need for Retirement?”

    Basically the guy achieved FI by investing in index funds, within a very short time. His website is full of actual numbers and spreadsheets. I especially found interesting his 4% rule.
     
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  16. Gockie

    Gockie Life is good ☺️ Premium Member

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    Hmmm. I think that assumes you'll spend your capital gradually over time? (I need a graph to confirm). Which is fine if you don't want to leave any bucket of money to any kids or charity.

    I'm going for the $2 mill figure to give $100k income (5% return) without having to touch the capital.

    Edit: This is what it's based on:
    "So where does this magic number come from? At the most basic level, you can think of it like this: imagine you have your ‘stash of retirement savings invested in stocks or other assets. They pay dividends and appreciate in price at a total rate of 7% per year, before inflation. Inflation eats 3% on average, leaving you with 4% to spend reliably, forever."
    So he's not eating into the capital, yet is also saying it's ok if your capital is the same at the end of your life plus inflation. Eg. If you started with a 500k nest egg, you could still have that 500k plus inflation when you die.

    Now, I reckon in Australia we can get more than 7% (Total return franked dividends and share price appreciation). Stick to the industrial shares. :)
     
    Last edited: 30th Apr, 2017
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  17. Gockie

    Gockie Life is good ☺️ Premium Member

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    Hey @Realist35.... I just gave this more thought. I think it maybe possible for me to retire sooner than I thought...

    If I have 1.2mill in investable money and my partner has the same, then we'd each have reasonably safe and secure 60k passive incomes (minus taxes).

    The taxes on 60k each wouldn't be too bad. That money would be fine to live on as the mortgage isn't huge.
    (Side note: And in 20 years I can finally get my hands on my super money....)

    Add some extra income generators like a studio in the backyard... I think it could be a winner. :)

    I think I need to do some maths in the morning. :)
     
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  18. Jack Chen

    Jack Chen Well-Known Member

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    It was a huge lightbulb moment for me. Given dividends reliably grow faster than the rate of inflation (historically over the long term it's been 7% y/y), you'll never need to sell capital to fund lifestyle. $1.2m in unencumbered blue chip dividend paying stocks is all you'll need for early retirement.

    Compare to roughly 2.5m in unencumbered property to get the same result (assuming 4% yields and allowing 35% for outgoings, which includes provisions such as vacancies and upkeep/renovations).

    This is why for my end game I've transitioned from a live off rents strategy to a live off dividends strategy.

    I'd have to wait 7~10 years for another property cycle to execute a live off rents strategy whereas I could execute on my dividends strategy right now and declare myself retired.
     
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  19. Terry_w

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

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    With a discretionary trust holding the shares it may be even better because of the flexibility
     
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  20. mcarthur

    mcarthur Well-Known Member

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    I'm coming to the same conclusion - LoD rather than LoR. I can't see LoR for two more cycles and I haven't got that time :eek:.
     
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