Why Real Estate?

[Bill.L]

Hi all,

At the risk of covering some old ground(not that I think it is a bad thing), as this is turning into a shares vs property thread, lets run through with some general numbers.

Assumption: I have $50,000 to invest and a well paid secure job.

1. Buy Ip for $300,000 with low deposit.(10%?)

OR

2. Buy share portfolio for $100,000 with 50% leverage.

At the end of 10 years with only a 5% pa growth rate, the property will have grown in value to ~ $488,000.

At the end of 10 years with a 10% pa growth rate, the share portfolio will have grown in value to ~ $259,000.

If I then subtract my borrowings from both scenarios(for accounting purposes only), I find the following;

1. Property asset value = $218,000
2. Share portfolio asset value = $209,000

So the only real questions are,
Can I find a share portfolio that will grow on average 10% pa for the next 10 years.?? Will that be more difficult to find than a property that grows at 5% pa.???

If the share portfolio had contained BHP, ANZ, WOW, and NCM shares only for the past 10 years, it would have performed well in excess of the 10% pa.

If it had contained QAN, TLS(last 5 years), PDP(now ANN), PAS, and HIH the story would have been entirely different( A negative return over the 10 years )

Is it possible to find 1 single metropolitan HOUSE, that has shown a negative return over the last 10 years?

The answer for me is that property is much easier for the same level of return over the longer term and yes as Likewow said boring. But if I really want excitement I can always go bungee jumping.

bye

 

[geoffw]

I don't know a lot about shares, and my share picking performance has been less than stellar. But I also cannot buy a property with an amount of money less than a deposit- even if it's a substantial amount- and I cannot put any of my SMSF towards a property unless I buy 100%- so I put some of that towards share funds- mostly Steve Navra's and Peter Spann's- two different philosophies but with good growth prospects.

We've just received several statements back from mainstream funds, and in the middle of a huge share boom, they've performed at less than 3% pa. Steve's fund has done better than that in a single month.

 

[Aceyducey]

I dont know much about shares and when I tried a few years ago I got burnt.

Here's a comment paraphrased from Peter Spann in the seminar I just went to.

--------
When adults attempt something, if it fails most of us then shy away from it & never try it again, pointing at how we got burnt.

A baby learning to walk or a child learning to do some activity like riding a bike or climbing doesn't give up straight away - they go back & try again & again until they get it right.

Why do adults give up so easily & then create so many barriers for ourselves?
--------

I'd suggest that if it's possible for someone to learn how to be a good property investor it's possible for that person to learn to be good at other investing as well.

The only thing holding us back is ourselves!

(BTW: Peter also said: I got 40% return on my share investments in the last year - anyone do that well on their residential property?)

Cheers,

Aceyducey

 

[likewow]

Hi all,

At the risk of covering some old ground(not that I think it is a bad thing), as this is turning into a shares vs property thread, lets run through with some general numbers.

Assumption: I have $50,000 to invest and a well paid secure job.

1. Buy Ip for $300,000 with low deposit.(10%?)

OR

2. Buy share portfolio for $100,000 with 50% leverage.

At the end of 10 years with only a 5% pa growth rate, the property will have grown in value to ~ $488,000.

At the end of 10 years with a 10% pa growth rate, the share portfolio will have grown in value to ~ $259,000.

If I then subtract my borrowings from both scenarios(for accounting purposes only), I find the following;

1. Property asset value = $218,000
2. Share portfolio asset value = $209,000

So the only real questions are,
Can I find a share portfolio that will grow on average 10% pa for the next 10 years.?? Will that be more difficult to find than a property that grows at 5% pa.???

If the share portfolio had contained BHP, ANZ, WOW, and NCM shares only for the past 10 years, it would have performed well in excess of the 10% pa.

If it had contained QAN, TLS(last 5 years), PDP(now ANN), PAS, and HIH the story would have been entirely different( A negative return over the 10 years )

Is it possible to find 1 single metropolitan HOUSE, that has shown a negative return over the last 10 years?

The answer for me is that property is much easier for the same level of return over the longer term and yes as Likewow said boring. But if I really want excitement I can always go bungee jumping.

bye

How hot is it out there today, must be 50 frickin degrees!!

Thats true Bill, bungy jumping is very exciting (i did the pipeline in NZ @ 120m) but it doesnt make you money. Luckily most people investing in shares actually love it and would probably do it for a hobby anyway. Even paper trading is more exciting then property. (for me anyway)

I dont want this to turn into an endless property v shares debate as i think both are essential to a healthy strategy and as i said the synergy betweeen them is great as they tend to move in different cycles.

DOC,

Theres heaps of them out there. Heres a few for starters, but theres heaps.

www.hotcopper.com.au

www.ozestock.com.au

www.commsec.com.au (forum/chat link)

http://www.paritech.com.au/forums/cgi-bin/ultimatebb.cgi

http://www.aussiestockforums.com/forums/

You said youve read a few books so you would have a basic understanding of technical analysis and fundmental analysis, bothare needed to make money in the market.

Heres a guy who has been mentioned recently on the forum,

www.alanhull.com

download his course notes, its good stuff and hes a guru.

Finally use your knowledge to paper trade for a while (3-6 months) and when you get good at it, use small amounts of your own money for a while and then gear into shares if you do well using your own money.

I educated myself because i made some classic mistakes in the late 90s and lost a quite a bit, this has turned out to be a blessing in disguise as i had to educate myself comprehensively and hence have made my losses back and then some.


Garry,

I told her and explained that i was lucky Colorado was on an upward trend. she said i could have bought any rising stock, which is true but i liked the irony of the whole thing Id say i would be able to pull that one off maybe 1 in 20 attempts.

Heres a beautiful chart: (or as PK would say ' a beautiful set of numbers' )

http://www.investorweb.com.au/Marke...4+2:19:24+PM&SecNumber=13376&Type=pic&Style=0

 

[ren-A]

Put your reasons downon paper

G'day WealthyJay,

I had similar thoughts and wanted to document my thoughts. They're contained in this thread:

http://www.somersoft.com/forums/showthread.php?t=17220&highlight=shares

"Know yourself"

May I suggest a half hour exercise? Write down at the top of a piece of paper "Investing in Property". Seperate into two columns and write "Pros" and in the other put "Cons". Then start writing.

Do the same for shares or other asset class.

This is purely your own personal opinion but will tell you where your expertise, preference and source of fun might lie.

Happy investing

 

[Sunfish]

.
Other than the IP's, we invest (not trade) in speculative resource stocks (gold,cooper etc). It is educational trying to understand drill results etc, but mainly rely on a good broker.

GarryK

Garry, Don't do it! You cannot "invest" in spec miners. It is an oxymoron.

I trade them and as LW says it's fun. Better than the pokies. But you simply can't afford to read the morning's paper to find out your coaler has had an underground fire and is in the hands of the recievers. (GYM) A bad example really, because I don't think shareholders had a window of opportunity to bail out but I regularly pick up good/bad vibes that are tradable.

If you don't scan HotCopper in the morning before watching the market open, then you should be a little higher in the food chain. IMHO, of course.

Thommo

 

[DOC]

Hi likewow,

Thanks for the reply.


Cheers, DOC.

 

[Bill.L]

Hi all,

Likewow,

You may have missed the point I was trying to make. That being making money has nothing to do with excitement. Money making is a repetitive activity. (ie find something that works and repeat). For excitement look elsewhere. If what makes you money is boring, it doesn't matter, just keep doing it. Don't change things to bring "excitement" into the equasion.

If you want excitement in the markets, commodity trading is the go, because the leverage is huge. (mind you when a futures contract goes limit against your position for a few days in a row, it kind of loses its excitement )

bye

 

[likewow]

Hi all,

Likewow,

You may have missed the point I was trying to make. That being making money has nothing to do with excitement. Money making is a repetitive activity. (ie find something that works and repeat). For excitement look elsewhere. If what makes you money is boring, it doesn't matter, just keep doing it. Don't change things to bring "excitement" into the equasion.

If you want excitement in the markets, commodity trading is the go, because the leverage is huge. (mind you when a futures contract goes limit against your position for a few days in a row, it kind of loses its excitement )

bye

Bill,

Has it occured to you that the above is your experience of making money, not everyone elses.

I get a fantastic buzz from making money and find it very exciting, wether in business, property or shares....or even at the races (thats an exciting way to lose money tho ). I'd say most people get excited about making money and its common for wealthy entrepeneurs and business people to remark that its the challenge and buzz of the deal that matters and money is only a way of keeping score. Maybe if it doesnt excite you, you arent extending yourself enough and would probably make a lot more with more risk/excitement because you obviously finding it too easy to make money as it is. (Does that make sense ? )

 

[wealthyjay]

G'day WealthyJay,

I had similar thoughts and wanted to document my thoughts. They're contained in this thread:

http://www.somersoft.com/forums/showthread.php?t=17220&highlight=shares

"Know yourself"

May I suggest a half hour exercise? Write down at the top of a piece of paper "Investing in Property". Seperate into two columns and write "Pros" and in the other put "Cons". Then start writing.

Do the same for shares or other asset class.

This is purely your own personal opinion but will tell you where your expertise, preference and source of fun might lie.

Happy investing

Thanks, and I had a read over your points, very good analysis. I didn't really intend for this thread to turn into a property vs shares debate as I was more into finding peoples personal motivations behind property ie emotional etc

May I also suggest an extension to the pros and cons exercise? This is something that was taught to me a few years ago by my mentor Dr John Demartini. You have four columns, first write the pros, then the cons in the third column, then you write down the drwbacks to the pros in the second column, and then the benefits to the cons in the fourth. You should work until you have equal pros and cons, and that is the truth of the matter. this is an emotion equilibrating exercise and also makes for a very good intellectual exercise to understand anything better. If you want to knwo more PM me.

I have done this, and my position is that shares and real estate are equal modes of investments. My feelings is that any investor should endeavor to have both in their portfolio or you end up with an unbalanced portfolio which may open you up for emotional stress.

 

[Garry K]

Garry, Don't do it! You cannot "invest" in spec miners. It is an oxymoron.

I trade them and as LW says it's fun. Better than the pokies. But you simply can't afford to read the morning's paper to find out your coaler has had an underground fire and is in the hands of the recievers. (GYM) A bad example really, because I don't think shareholders had a window of opportunity to bail out but I regularly pick up good/bad vibes that are tradable.

If you don't scan HotCopper in the morning before watching the market open, then you should be a little higher in the food chain. IMHO, of course.

Thommo

I agree. When I said "invest" i was indicating that I tend to hold, assuming that the project tracks along ok. eg OXR, bought at .14c 2001 and still holding. IGO bought at .35c 2002, sold on Tuesday.
But you are right about the risks, can go belly up anytime for all sorts of reasons.
And, yes, I am a HC member, but I find the broker knows more than those guys about the stocks I'm in. Are you a poster?

Regards

GarryK

 

[Lplate]

Here's a comment paraphrased from Peter Spann in the seminar I just went to.

--------
When adults attempt something, if it fails most of us then shy away from it & never try it again, pointing at how we got burnt.

A baby learning to walk or a child learning to do some activity like riding a bike or climbing doesn't give up straight away - they go back & try again & again until they get it right.

Why do adults give up so easily & then create so many barriers for ourselves?
--------

I'd suggest that if it's possible for someone to learn how to be a good property investor it's possible for that person to learn to be good at other investing as well.

The only thing holding us back is ourselves!

(BTW: Peter also said: I got 40% return on my share investments in the last year - anyone do that well on their residential property?)

Cheers,

Aceyducey

Acey

Agreed. Maybe it's another case of limiting beliefs, but towards non-property investments this time.

I like property but the cycle doesn't go property, property, property, property - so IMHO other asset classes have to be considered. Likewise when investing in property, IMHO it could be limiting to invest solely in residential.

But maybe others can build on this.
Lplate

I'm not a property trader nor a share trader....

 

[XBenX]

Getting off topic...

When adults attempt something, if it fails most of us then shy away from it & never try it again, pointing at how we got burnt.

A baby learning to walk or a child learning to do some activity like riding a bike or climbing doesn't give up straight away - they go back & try again & again until they get it right.

Why do adults give up so easily & then create so many barriers for ourselves?

Haha AC - Nice post - Reminds me of a story - I went through a period last year where I was in hospital 3 times in 6months due to snowboarding

Once in Nth America (thank god for decent travel insurance)

My treating Dr in Australia - same ortho twice - didnt mention anything positive about me not seeing barriers, not having limiting beliefs - infact he commented about my stupidity and asked me when I was going to grow up...

I just grinned and replied "never" - thinking of hearing Warren Miller's voice - "Im XX yrs old and I still dont know what Im going to do when I grow up" =)

Its always my rule - first day back from injury to go session the same feature that you injured yourself on - no use not learning and growing from the experience.

Im stupidly perceiverant...

 

[ren-A]

All Industrials up about 33%

Hi all,

Had a look at my own portfolio - looked really good, with all investments in profit from 5% (NAB) to 100% (Ramsay Health Corp).

Overall return about 25% in the past year - thought I was some kind of genius. Looked at the All Industrials index and saw it went up by around 33% in the same timeframe. Brought my ego back into line.

Now, if only NAB would bloody perform...

(Lesson: "don't confuse genius with a bull market")

 

[Aceyducey]

(Lesson: "don't confuse genius with a bull market")

The same applies for property!

There's been lots of 'genius' property investors in the last five years

Cheers,

Aceyducey

 

[Beach Bum]

I agree with Bill that RE investments can be quite boring and slow way to make money.
If just "making money" excites you, then maybe something is missing in your life.
I do many other things to enjoy my life than think about how much money I'm making every day. There sometimes is excitement is the transaction activities, but I would'nt want to deal with RE's, banks and auctioneers too often, not to mention contractors.... lifes too short.

cya at the beach

 

[House_Keeper]

I'm neither pro-property or pro-shares (I use both like many others in this forum). However, I would like to point out a few observations from what I have seen posted in this type of debates.

Many people claim that property allows for greater leverage. that is true initially. If you borrow 80% of purchase price, you initial gearing is 76% (80/105). However, as property price go up, your gearing goes down. You can re-draw against the equity IF you have the borrowing capacity (ie, strong cash flow). if you don't, you effectively can't access the equity. With shares, you can margin lend up to 70% for many stocks. This means 60% in practice to leave a 10% safety buffer. However, with shares, you can increase your borrowing (ie, maintain your gearing) as your share portfolio grows. No application fee, no questions asked.

The tax benefits of property are often emphasized. However, shares provide similar benefits, in the name of franking credits.

I don't intend to re-ignite the debate, simply to point out a few observations.

Cheers,