Why not borrow 100% and use 'deposit' for managed funds income?

[alexlee]

By the way if your property dropped in value by 20% for a year would you sell it?

Not now I wouldn't but that's because I have unrealised gains on it. I'd have to pay at least that much to sell and buy back again.

I built these up gradually DURING a boom, though. Would I max out my gearing now, near if not at the top of the cycle, to buy property and shares? Probably not. If I had nothing now and was just starting, I'd do what I did in 2000. Find a cheap property I could afford, buy one with a deposit, then wait and see how the numbers worked and then buy another, being fairly careful with LVRs.
Alex

 

[MJK]

But on the other hand.... do you need to worry about margin calls with property?

No we dont but at a 50% LVR margin loan the worry is fairly remote also.

MJK

 

[MJK]

Not now I wouldn't but that's because I have unrealised gains on it. I'd have to pay at least that much to sell and buy back again.

Yes, I'm in the same luxurious position. Its a lot harder for those starting out now.

I built these up gradually DURING a boom, though. Would I max out my gearing now, near if not at the top of the cycle, to buy property and shares? Probably not. If I had nothing now and was just starting, I'd do what I did in 2000. Find a cheap property I could afford, buy one with a deposit, then wait and see how the numbers worked and then buy another, being fairly careful with LVRs.
Alex

Horses for courses I suppose. Personally I belive there is money to be made in shares and managed funds over the next 12 months.
But the debt recycling idea works even in a flatish market where distributions are being paid and interest is being capitalised.

I have no personal debt, but for those wanting to get into a PPOR for the first time some such strategies may be of some benifit.

MJK

 

[monster24]

hi there,

we did the same and draw the equity from our PPoR into some managed funds (property funds). They were the best for years with 30%+ on an average of 5 years ...5 star morning star ratings for years and a highly recommended product. Guess what ?? -20% (!!!!!) in the last 10 month !! You cannot gurantee an income from managed funds....we sold right in time as they have made even more losses. The funny thing was it was property equity fund...
Nope, not with me...we took the money and used it for a deposit of our new IP we going to build ...

just my two cents...
Thomas

 

[Belu]

how can you be upset with that return?

say you invested $10k, thats $46k after 5 years at 30% compounding annually, even if you loose 20% its still $37k on the original $10k investment.

 

[crc_error]

But on the other hand.... do you need to worry about margin calls with property?

not if you keep a 50%-60% LVR.

 

[crc_error]

hi there,

we did the same and draw the equity from our PPoR into some managed funds (property funds). They were the best for years with 30%+ on an average of 5 years ...5 star morning star ratings for years and a highly recommended product. Guess what ?? -20% (!!!!!) in the last 10 month !! You cannot gurantee an income from managed funds....we sold right in time as they have made even more losses. The funny thing was it was property equity fund...
Nope, not with me...we took the money and used it for a deposit of our new IP we going to build ...

just my two cents...
Thomas

I think you had the wrong view when you entered the managed funds. Do you re-value your IP's every day and when you get a valuation which is -20% do you sell up shop?

No you don't, you have a 5-10 year view with IP's, and the same should be applied to managed funds..

If you want regular income from managed funds, you need to look at unlisted property trusts. They will pay 'rent' each month or quarter regardless of their capital value. They own direct commercial property, with paying tenants.. so its much the same a owning residential IP's.

Look at the medium price of south yarra http://www.myrp.com.au/viewFreeRepo...&productId=1&step=getRecommend&state=VIC&y=13

In July the medium price was 1.3 million and August the medium dropped to 867k. Did you sell up then because you lost your whole deposit and more in a space of 1 month?

 

[monster24]

maybe you are right ...but funds are somehow different to property in my view. If the value of the property does not grow - or even declines y- ou don't see it straight away black on white. But if you log in into your managed fund account and then see black - oh no ...red on white I should say, then this really hurts. I couldn't stand watching this account loosing more more and every single day. With property you don't see that unless you get a proper valuation done. Maybe it's the psychology playing a role here. I used the money from the managed fund for a deposit of a block of land and house. The land has increased quite substantially within the 8 month and ROI% completly is beyond the managed funds. Yes, there are some good property funds out there, but I think I personally like to be in the drivers seat to get the best return for my money...

 

[alexlee]

maybe you are right ...but funds are somehow different to property in my view. If the value of the property does not grow - or even declines y- ou don't see it straight away black on white. But if you log in into your managed fund account and then see black - oh no ...red on white I should say, then this really hurts. I couldn't stand watching this account loosing more more and every single day.

That's just an emotional response. If you're going to invest in shares and funds you have to manage that.

With property you don't see that unless you get a proper valuation done. Maybe it's the psychology playing a role here. I used the money from the managed fund for a deposit of a block of land and house. The land has increased quite substantially within the 8 month and ROI% completly is beyond the managed funds. Yes, there are some good property funds out there, but I think I personally like to be in the drivers seat to get the best return for my money...

And how much would it cost you to sell the property? Are you including that when calculating your 'gains'?

In both of the above, until you sell it doesn't matter. Warren Buffet said that he prefers companies with higher average growth but lumpier earnings than smoother but lower growth earnings.

As an investor, you have to train yourself to suppress the emotional response. Otherwise you make decisions based on those emotions.
Alex