Would you still invest in Property if Growth is say 2% p.a.?

Discussion in 'Investment Strategy' started by Terry_w, 22nd Apr, 2020.

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  1. wylie

    wylie Moderator Staff Member

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    This is pretty much how we went into our property journey. Our plan was to slowly pay off the IPs with the rent and the capital gain was a bonus. Our end game was to have the houses paid off by the time we retired to provide a decent income and not rely on the pension.

    Then 22 years ago we bought a house on a block that could be developed. Bought the neighbouring one 14 years ago, but couldn't afford to develop it until now.

    I still like this idea, because I don't understand shares enough to dabble, but I have always believed that had we put the same money into shares as we have into property (borrow to buy shares) we'd be in about the same position financially as we are now.

    But... I think if we held shares through the many times we didn't have two nickels to rub together, we would have sold the shares, so I do think houses have worked better for us than shares.

    The big difference that has become very apparent over the past say seven or eight years, is that land tax threshold never seems to increase, so land tax is eating into our income so much that we are aiming to sell down (not everything), reduct debt and invest elsewhere.

    But with shares being so volatile, I'm not sure how to go about investing and being able to sleep at night. We are not ready to sell just yet, and have some homework to do before we take this action.
     
  2. 2020 Property Investor

    2020 Property Investor Active Member

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    Disclaimer: Anything discussed below is not financial advice.
    You will need to do your own research and seek professional advice.

    The answer will depend on your knowledge and skill in the other asset classes (business/equities). For instance, a skilled equities investor can use leverage too (which hasn't been discussed from what I can see).

    Say you had $100,000.
    • You could directly invest $91,000 and leverage $9,000 at 10:1 = $90,000
    • With $91,000 directly invested and $90,000 leveraged, your portfolio would be $181,000 with an LVR of roughly 50%.
    • Therefore (using the average that some others have said earlier on) an average of 7.5% market return would in effect be a 15% return on your capital

    Remember though as with property, leverage can accelerate growth, it can also accelerate declines too.
     
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  3. Beano

    Beano Well-Known Member

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    With the impact of the covid-19 on the economy a zero growth in commercial property I would now consider good . Yields are likely to rise despite low interest rate.
    Purchases made decades ago seem reasonability stable as there is the capacity to drop rentals to keep tenants.
     
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  4. PropDir

    PropDir Well-Known Member Business Member

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    Yep, absolutely. As Beano noted in his post, provided the cashflow is good, it would be worth holding the property. The 2 basic variables for me would be capital growth and cashflow.

    It's a good question about at which point taking the effort to buy something would be sub optimal. I am sure there is some type of formula that could be used that takes into account cashflow and capital growth to determine if its a good choice..there must be some sort of Net Present Value formula or something similar which could take into account other variables such as your risk profile? If someone has any thoughts regarding this I would love to explore it more.
     
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  5. PropDir

    PropDir Well-Known Member Business Member

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    Yep, this is why I never got much into the share market, and stuck with property investing only. The fluctuations and craziness of the stock market just makes me too uncomfortable.
     
  6. JValk87

    JValk87 Member

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    Minus ongoing finance & property maintenance/depreciation expenses?
     
  7. MWI

    MWI Well-Known Member

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    If the numbers stack up by all means yes, what else is there ATM? If the numbers stack up then yes.
    'As safe as houses' investment.
    If ever negative interest rates are introduced then the deal may be even sweeter.
     
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  8. Beano

    Beano Well-Known Member

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    Once you have a mature stable portfolio you don't seem to look at future capital growth or do future calculation .
    The focus is on the bottom line "profitability of the company" !

    When you never sell the focus is on "profit".
     
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  9. Terry_w

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

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    We could be entering into a period of low or no growth or even negative growth in areas like Sydney.

    Is property still worth it?
     
  10. Beano

    Beano Well-Known Member

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    Need to look at properties you can add value and improve the rental .
    Refer ..Yields , market rentals uplifts
    On face value it looks like there is $1m pa left on the table to work on.

    The answer to your question YES it is worth it and it is fun working on rental improvements too ! :D
     
    Last edited: 10th Jul, 2022
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  11. Piston_Broke

    Piston_Broke Well-Known Member

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    As in an expected 20yr growth if 2% as buy and hold forever...Nope.
    PPOR probly anything else no.

    As for all the hypotheticals, how much would the bank be willing to lend on asset with a long term avg growth of 2%?

    I would argue that that type of work is not fun and could be very bad for your health as well.
     
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  12. Beano

    Beano Well-Known Member

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    If the results are good then the hard work becomes fun :p
     
  13. igor1234

    igor1234 Well-Known Member

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    maybe sydney can go into -10, i could afford a bigger ppor LOL
     

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