Here's a great example of why....

Just to give you some background.. Mark actually promotes investment property as a living.. so he isn't exactly a financial planner, but a realestate agent with 'investment' arm.

 

I think thats a bit harsh...

Mark is a qualified financial planner working for a reputable firm...

while he promotes real estate as one of his investment options, i would be 99% assured if you went to him with a very low risk tolerance (ie you dont like borrowing) you wouldnt walk away with a property, or even direct shares...

everything should be made in context

 

I am a financial planner (well, actually a paraplanner but yeah) I work in the industry, I've always been very open about this since InvestEd first started up and I'll always be open about it, I have nothig to hide.

Last time I checked, a $160,000 return on top of $100,000 invested is 160%. Happy to be corrected.

As I made absolutely clear in the post here: "Percentage return (on money invested) - 160%. Note that this percentage return is based on the cash that they put into the deal themselves, it does not take into account borrowings." Thought I'd bold it for you since you must've missed it when you read the post.

Yes there are plenty of funds that offer this, but we're not talking about funds, we're talking about property. Also, these investments are relatively high risk, much higher risk than direct property investment, in my opinion. As I've already stated several times in this thread, this is not a property vs. shares discussion. This is about investing inside super vs. investing outside super. I don't really know how I can make it anymore clear.

What exactly about the post is garbage? People questioned the % returns and I posted some info relating to the query. Where is the 'divisive talk'?

Mark

 

Hi Rob,

Maybe I didn't make it clear enough in the other post. You wanted percentage returns, so here is how I got the 160%. There is one fundamental difference between investing inside super and investing outside super: leverage. So here we need to compare apples with apples.

The reason I used the return on $100,000 is because in both scenarios (re: investing inside super and investing outside super) people had $100,000 to start with. The whole point of my original post was WHY IT IS BETTER FOR ACTIVE INVESTORS TO NOT BE PUTTING EXTRA MONEY INTO SUPER. Leverage is one of those reasons. Hence the 160% return - as this is calculated on the cash amount that was invested, as I very clearly stated in the post.

So in conclusion: to get $160,000 in 18 months based on the amount invested, someone who invests using leverage of 90% needs to achieve a return of 11% p.a. as per your post but someone investing in super needs to achieve *about* 120% p.a. for the same result.

Even though I've already made it very clear, this discussion is not about property vs. shares, I like and invest in both. I encourage anyone who'll listen to do the same. You can have your cake and eat it too. The point of the thread is to show that in my view, investing outside superannuation is the better option for active investors.

Mark

 

I wasn't trying to be harsh nor did I say he doesn't work for a reputable firm. I'm just saying his business is selling IP. And he isn't a conventional Financial planner selling managed funds etc as the OP said.

He sells realestate, which makes him a realestate agent.. and he packages up as a investment.. and he is a qualified para planner to be able to do so..

 

Just thought about this. Does anyone else see the irony of someone who works in the financial planning area being attacked for encouraging people to invest in direct property rather than super?

Seems you're damned if you do and you're damned if you don't.

Mark

 

Hi Mark,

It does look like your taking a beating for promoting property.
I do see the irony...I'm actually ROFL as it's hilarious.
Usually we get beaten up for promoting managed funds...nice change...lol

Also for everyone, you'll note that Paraplanners are much more precise than financial planners as they do the hard work, ie, crunching the numbers and being quite exact (coming from a financial planner who has been a paraplanner).

IMHO the only difference is the tax rate, marginal tax rates outside super vs super tax rates inside super. But hey that's mho...

I'll start a new thread called "Stop beating Mark"

Cheers,

Dan

 

Why stop?
He needs to toughen up
Cheers
Bill

 

I know the thread started with greater freedom for active investors outside super.

I know you want to stay off the property v shares topic.

BUT ... I just can't resist it ... humour me ?

1. If you are advocating high gearing for high returns why stay off listed securities which are a bit higher volatility and higher returns in the long term.

2. Even if direct property has a better risk/return at a given gearing level, what about the risk of needing to sell a property to pay down debt - its not very liquid and associated costs of disposal (and CGT) are very high.

3. Now that you have steered my parents' money from super to highly leveraged property, I am inquiring what level of insurance cover planners generally have ? (NO JUST JOKING ON THIS POINT - couldn't resist !!!)

Cheers,

Rob

 

I think that there are more issues to consider if one should put their money into a IP over super than just 'IP makes 160% ROI'

Firstly a IP is going to be taxed when you sell it. Say you sell an IP to live off the cash at retirement (or convert it into a income asset like commercial property), you will be hitting top marginal tax rates pretty quickly. Say you have $500,000 equity in the property.. Everything over $180k (providing you didn't earn a income in that year) will be taxed at 50% of the 45 cents in a dollar.. you will loose 22.5% of your $500,000 over 180k.

Money in Super is TAX FREE after the age of 60 (I think it is) So any capital gains and dividends you took during the course of the years, are ALL TAX FREE at withdrawal.

Secondly if your a low income person, how are you going to afford a second property? Most people struggle with 1 mortgage, let alone 2.

Another point to consider is diversification. Are you going to be happy to put all your eggs into one property? With managed funds, you can invest in numerous asset classes spreading your risk.

Something else which will block the IP idea is the costs involved of buying one. I would say one would need at least $50,000 to put a deposit and pay costs to purchase a decent IP in a good capital growth area. How many people do you think have a spare $50,000 sitting in the draw for a IP?

Super is great for those 'non active investors' who wish to boost their retirement funds. If your a low income earner, even average earner, the government will match your contribution up to $1.50 for your $1 up to $1500. This can give you a instant 150% return upon contribution. Super is also flexible. You can contribute as much or as little as you want. With IP, its quite a significant commitment for most people, with no flexibility of how much to contribute to the investment.. ie if one looses their job, has a baby, etc.

You can't just say 'Property gives you 160% return so its better than super' As a financial planner I'm sure you know everyones situation and goals are different. The job of a planner is to review the situation and objectives of the investor, and make a recommendation accordingly. Which may be to get a IP or it could be to make a extra $500 per year contribution into super.

If its gearing your recommending for the client (which matches their risk profile), then consider geared share funds, warrents or other instruments which employee gearing within super.

Tom.

 

Rob,

See my answers in bold.

Mark

 

In May last year, I put $100K into Super (more than I had to but I am over 50 and it was coming up to June) and I bought an asset (so we don't get into the property vs shares debate, I won't say any more). This week, I sold the asset for $400K. So, I made $300K in 18 months.

If I had purchased the asset outside of Super (say in my name or a trust), the CGT would be $75,000 (approx) and my after tax return would be $225K.

As I had the asset in Super, the CGT will be $30,000 and my after tax return is $270K. So I am better off by $45K or 20% by having my extra money in Super.

Thank God I had put the money into Super. As I owned my own business and it has an overdraft, I could say that I (or the business) 'borrowed' the $100K - so I didn't put any of my own money in but let's not go there.

Based on this, I could say here is a great example of why to put extra money into Super.

In July this year, I bought a second business using completely borrowed funds. It has already made around $325K profit ($230K after tax) in the first 4 months. And that is income... That previous owner broke even for the same four months last year - so I am guessing the value of the buisness has already risen (but really it is too short a time to say).

Based on this, I could say here is a great example of why to put extra money into a business.

In fact, I now have:

1. Two business for generating cash and cashflow,
2. Two properties trusts for buying buy-and-hold properties (using negative gearing) and,
3. SMSF for buying and selling shares and managed funds (international shares) due to the reduced CGT.

I recalculate my net worth at the end of every Quarter and I have done it for more than 5 years. Looking back, there has been times when my properties has been better than my shares and vica versa, there are times when my Super investments have done better that my non-Super investments and there are times when my business has done really, really well and times when it hasn't (even made a loss one year).

I am so sick of the property vs shares vs direct business debate and the in-Super vs out-of Super debate. I can't predict the future - so I have made it my business to educate myself (still doing this) and I use them all to reduce the risk of my net worth falling.

The main thing is that my bottom line (my net worth) is going up - anyone can do it for a month, a quarter, a year, even 18 months. I have done reasonably well over the last five years or so (could have done better if I had hindsight) and I am aiming to improve my performance over the next five when I will proabaly retire.

Don't take the above as advice (as I am not qualified). As we all know, we are all different in regards to goals, age, income, assets, risk profiles, etc. In my opinion, I would recommend that everyone creates a well-balanced, "financial independence" plan based on their unique circumstances, execute it and monitor it on a regular basis (I do this Quarterly) and adjust where necessary. The key words here are "plan and execute" - easy said but harder to do.

Have a great weekend.

KieranK

 

Hi Kieran,

Great post, it's good to see that your investments have done so well, congratulations! I agree entirely with that above quote - everyone has their own particular strategies they use and no one strategy is better than all the others - as long as the strategy being employed is set up in such a way as to help the individual achieve their personal goals.

Mark