Why Shares are Better Than Property

Why Shares are Better Than Property



Property has the following negatives

- High stamp duty on purchase

- Conveyancing fees

- Buyers agent fees

- Management fees

- Insurance

- Strata

- Repairs

- Agents fees on sale

- Conveyancing on sale

- Tenant disputes

- Tenant litigation

- Low yields

- Land tax

- Stamp duty on transfer



Shares have the following advantages

- Higher yields

- Lower purchase costs

- Lower sale costs

- More volatile so can purchase on dips and sell on gains

- Easy to sell small parcels to fund retirement

- Easy to implement debt recycling strategies

- Easy to implement spousal transfer strategies

- No agents needed

- No running costs

- No stamp duty

- No land tax

- No chance of getting sued in relation to the investment



To see why property is better than shares see Why Property is Better Than Shares

 

Cons:
Telling your mum you have a share portfolio instead of a house.
Or worse, you borrowed against your house to buy shares.

 

- Leverage is easier with property (it is easier to buy property with leveraged funds than to buy shares with leveraged funds)
- Capital growth for property can be higher for limited periods i.e. the last Sydney boom
- it is easier to take a loan with property as security
- it is easier to borrow against rental income than against dividends
- it is easier to manufacture equity through renovations, subdivisions and development with property than with shares
- rents are fortnightly, dividends are qquarterly if you are lucky!
- new builds have depreciation, shares don't

But you are right about the returns, they are low! With property:
- typically expenses can eat up 30% to 40% of an already low yield
- there can be negative growth (Perth) or no growth for extended periods (Sydney 2003 to 2013)
- GST on the sale of new builds can significantly erode profits

I suggest the following strategy:
- borrow to buy property
- add equity by renovating, building or buying at the start of a boom and holding (preferably all 3)
- at strategic times, borrow against the property to buy shares, ETFs or LICs (or a combination)
- at strategic times, sell down property, pay down loans and re-borrow to buy more shares, ETFs or LICs (or a combination)

Unless you are a very high income earner who can dump significant funds into listed securities over 10 to 15 years, you will probably need the boost from manufacturing equity in property and/or riding a boom

If you believe in timing the market, there are strategic times to buy and sell property and there are strategic times to invest in listed securities. The best time to buy property and the best time to buy listed securities is not the same. I don't know where each occurs in the overall cycle so that aspect of this strategy needs further refining

 

I think something very severe would have to happen for a property to be worth $0 whereas a company you own shares in could be worth $0 tomorrow.

 

Property bought at 80% LVR and sold for a 30% profit (after costs but before tax) after 10 years works out to be about 150% ROI on cash injected.

Now the question is how hard is it turn a 30% gross profit with property over a 10 year period - I say not very. Now try that with shares.

 

Almost both here - pick up a bargain!!
Nathan Tinkler’s Brisbane estate slashed to half the price

Not only that, he's bankrupt to boot.

 

This has happened to me. Tried my hand at 'day trading' back in 2009 just before the GFC. Went to $0 within 3 months with nothing to show for it. Although did managed to salvage some capital losses 2 tax returns ago.

Still have a share portfolio now (got back in 2013) but go through a financial planner. Fees are higher and haven't seen any returns worth writing home about but the funds are more spread out with exposure to Aus shares, International shares, property, etc.
The portion of the portfolio made up of my funds is highly geared whilst the ML portion is more conservative.

And now... we play the waiting game.......

 

What the chance a tenant trash your place and cost you 10K-30K to fix, lost time and insurance etc.. ? that equivalent of one stock gone belly up.

You don't put all your money in share in one stock, you spread them out in 20-30 stocks or more

 

This is a very effective strategy if you know how to use it
I used it for decades, you get cheap debt at 4%-7% and your return 10-15% plus dividend. Hell a lot better rate than margin loan and NEVER get margin call

the worse part of your thinking is someone gamble on the stock market with their house

But at the end of the day properties and shares they all have their advantages and disadvantages, pick one that you are comfortable with and if you comfortable with both you get best of the both world

 

I would say both are good if you get the timing right.

For those who purchased property in Sydney or Melbourne in 2013 most have probably doubled their money today.
For me property has been amazing only because I rode the booms, still am now in USA.

I am sure there are those who could say the same with shares if they got the timing right.

MTR

 

Well more than doubled.
Eg. Hypothetically buy something low end in Sydney 2012 for 300k. For arguments sake you put in 70k for deposit and closing costs. (You can do it with less if you want to but let's be conservative). You sell for 600k now. You have say 20k in closing costs so 600k-20k-300k = 280k.
280k-70k = 210k profit on a 70k investment. For every $1 you put in you come out with $4.
Much better than simply a doubling of money.

 

Good analysis,

 

.... Yes I know, you can do much better than doubling, and that is why timing the market is EVERYTHING

 

Love the tangible nature of property as an investment - starting to despise the human element and the ever increasing ongoing costs.

Shares are looking more attractive every day.

 

My point is, with property it's easy to leverage. Shares, not so much. Go with shares when you hit a wall and can't leverage with property.

 

Do both but the current negative gearing and CGT concession makes properties more attractive
but sooner or later the burden is too great on the budget and they will reduce it.

Once that kicks in share market will have the tax advantage and money flow the other way much like the US market

position yourself before that time arrived and ripped the reward

 

I think something pretty severe would have to happen for a company to be worth $0 tomorrow too. Something like that would be a speculative stock where you would otherwise spend that money at the casino.

Good businesses don't go broke. Good LIC managers don't gamble on those types of speccy's.

 

You must be forgetting the $100-$200 excess to claim landlord insurance?

 

What about if you don't buy direct shares? It would take a catastrophic event to occur for a fund like VAS to VHY to be suddenly worth $0 overnight. I can't beat the performance of professional fund managers as I have neither the interest or the time to do so. So I will invest in a range of managed funds.

 

That's ok if you are selling but perhaps the return on current value stinks? What would the rent be on a $600k house that was purchased for $300k?