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  1. #11
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    Runswif: [8D]


    Aspex: Totally agree with your examples of gearing and the sharemarket. I would like to comment that the examples you have given are faitrly advanced trading techniques and the average mum & dad (and "who" exactly we are hypothetically talking about is just another perfect example of why copmparing these asset returns against each other is very much a waste of time) investor is hardly going to run out and jump straight into that kind of thing. People who excell at the kind of share trading you are talkign about tend to have a higher understanding of general finance & mathmatics, have a higher risk profile along with the ability to analysise and minimise risk and generally probably be a little more intelligent than your average mum & dad. (ok so i am generalising, but thats all one can do in this context and its all IMO).

    this is not to say your points arent right on the button. There is alot of money to be made in the sharemarket and leverage is a great tool when used correctly and not just limited to property.

    i think macd's point originally is that for your average person its easier to understand, find information about and enter the property market and make decent long term average returns with leveraged investment property. I dont disagree with him at all really, but i think, that everything has its place depending on the person and the circumstances/opportunities/experience and you cant really try and argue either way.

    In regards to your comments about risk, just like the sharemarket you can make property investment as risky or conservative as you like at the expense of returns.

    For instance you could buy a low yeilding property in a good area that is solid, put 40% deposit down to ensure that the low yeild covers all outgoings and then put the property on a 20 year principal and interest loan. In this scenario regardless of any capital gain,worst case scenario (within reason) at the end of the 20 years the house is owned outright and the income is ours, and we only paid 40% of the initial capital but the income paid off the rest. The returns are low comparitively, but with very little risk and a clear goal. Obviously the preferable option for someone like myself (young - no kids) is to gear up 100% and go interest only on the term - but the risk is much greater. There are an infinite amount ways to structure these things, with both shares and property, but each person has to work out where they fit into it by analysing their age, sleep-at-night, capital requirements, income, family situation etc etc etc.

    Does anyone actually want to make the statement that property is better than shares or vice versa? IMHO its much more complicated than that statement.

    All I can say, is start as young as possible, with no family to feed and learn as much as you can and you would be unlucky (or stupid) to not make it to where you want to be.

    Regards,

    (Sunburnt) Sauce [}]


    [8D][8D][8D]

  2. #12
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    Aspex, while I agree totally with nearly everything you have said in this thread, if you are insinuating that buying a property UT is ALWAYS better than buying a rental property, then I definitely disagree. Its all covered in my above posts so I wont bother repeating [^]

    Anyway, im over this topic, ive heard his all before a thousand times and its just all so predictable! But good luck to you all, and Aspex i'm sure if you stick to the sharemarket it will be fantastic for you, but don't discredit direct investment in property as an investment, even if your not into it (personally I love both!), alot of people make alot of money in property, both residential and commercial and while some people might fall over over the next year or two because they went too to many richmastery seminars and got carried away, plenty of people will continue to make smart moves in the industry and outperform the rest - I see it every day []

    Regards,

    Sauce [}]



  3. #13
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    quote:Originally posted by Sauce

    Macd -

    Saying that property doesnt go down in value is one of the most common misconceptions around.

    Property values trend up and down in VERY real terms. There have indeed been many falls in property values, as a whole accross NZ (and elsewhere) and of course some individual cases are worse than others. People also do loose their shirt in property.
    Yes indeed! Just ask Matthew Ridge.
    \"The overweening conceit which the greater part of men have of their own abilities [and] their absurd presumption in their own good fortune.\" - <b>Adam Smith</b> - <i>The Wealth of Nations</i>

    The information you have is not the information you want.
    The information you want is not the information you need.
    The information you need is not the information you can obtain.
    The informaton you can obtain costs more than you want to pay.

  4. #14
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    RMBBRAVE, Mathew ridge is a good example of getting into something with limited knowledge and high expectation. macdunk

  5. #15
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    Thanks guys I've enjoyed reading this thread it is a very interesting topic.

    I agree that both property and shares can be profitable and enjoyable and both have advantages over the other.

    One advantage with direct property investment that I think you've over looked is that when you've made a capital gain you can borrow most of it against the property so that you don't need to sell to realise it.
    I guesss you could borrow some against a capital gain in shares but a much lower percentage of it and selling either property or shares to realise the capital gain leaves you open to be labelled a trader and suffer the taxation consequences of that. [V][xx(]

    Thanks for the topic. Food for thought.

  6. #16
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    PORT HILLS, You have now woken up to the fact go for it. Most people never see that best of luck macdunk.

  7. #17
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    You can borrow against anything that a lender is happy to have interest over as security. I can (and do) leverage out capital gains up to 70% of my portfolios value.

    the LVR (loan to value ratio) that most banks allow on property is 80%. Hardly much difference at all. Plus as already gone over, these are such very small points that dont conclude anything is better than anything else. The interest rates might be slightly better, and some shares you cant borrow against, but the same applies to property. Properties with company share titles, apartments less than 50m2 and all sorts of other examples of property that banks have lower or varied lending criteria for.

    The best way to look at investment is from a business/finance perspective - understand the tools, the critieria, the debt and security aspects and utilise it to your advantage. Be wise and dont overstretch yourself. Once you get the hang of it you soon realise that owning a hotel, a small business, a share portfolio, exposure to derivatives, a rental or two, debt instruments like fixed interest, loan agreements - its all just business and the more you understand about how each one works the more you will see that they are not so different.

    In regards to taxation, I disagree with your comments regarding borrowing from or selling shares or property. There is no such thing as "capital gains tax" only "income tax" on gains made where your intentionis to trade the gains for "income" purposes (dividends excluded which are of course already taxed) rather than investment. I borrowed 80K on margin against some shares to fund a loan agreement with an associate to achieve an interest rate spread of 21% per annum in my favour, this does not make me liable for tax at all. I sell shares all the time to re-arrange my portfolio, and sometimes to send me off to a remote island.

    In fact even if i bought a mercedes with that money I would still not be liable for tax because my intention when I bought it was long term investment. Same if it was against my properties.

    And another point in favour of shares, at least you CAN exit and re-enter easily. Anyway going round in circles again.

    selling either property or shares to rearrange your portfolio, buy a car, buy a new house or go on holiday would not make you liable for "income tax" on your "capital gains".

    On the other hand if you bought a property, did it up, on sold at a profit, and then bought another one etc etc etc you could quite likely be liable for gains tax.

    If you wash dividends, trade on TA trends regurlarly and exit and enter stocks intra-day/week etc and live off the proceeds then you could well catch the eye of the IRD as well.

    Regards,

    Sauce [}]




    quote:Originally posted by port hills


    One advantage with direct property investment that I think you've over looked is that when you've made a capital gain you can borrow most of it against the property so that you don't need to sell to realise it.

    I guesss you could borrow some against a capital gain in shares but a much lower percentage of it and selling either property or shares to realise the capital gain leaves you open to be labelled a trader and suffer the taxation consequences of that. [V][xx(]

    Thanks for the topic. Food for thought.

  8. #18
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    Also i would note that you can cross collatoralise security do all sorts of things. Debt, leverage, gearing etc it comes in many forms.

    As you go from a growth phase to a consolidation phase your investment strategies will change also. Generally age and family/work requirements are what will influence this.

    We havent even touched on commercial property (which for interest banks LVR is only around 60% on commercial and generally has an interest rate as high as 1.5% above residential- I have done some cross collatorised deals against residential property to garner a better interest rate and to allow a higher level of gearing against some retail space- this is a good example of how debt and equity can be used smartly to ensure the maximum benifit).

    MArgin can be expensive in comparision but has the benifit of its ease of use and repayment (i.e. no fixed terms, breaking fees, and also being able to simply transfer it to your account over the internet).

    Credit is handy to have access and it comes in many forms, shapes and sized.

    Sauce [}]

  9. #19
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    And as apex has also mentioned in another, you can also borrow against property and use the money to buy shares.

  10. #20
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    Sounds like a revolving credit loan?

    Revolving credit is available from most major lenders against property. Great facility to have much like margin against shares. Not so good for people who are not good at controlling their spending, but at the same time I would guess not too many people that take the time to read this site reguraly are all that financially inept all though I could be wrong .

    Regards,

    Sauce [}]

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