How much Equity needed in IPs for share income 150k?

I think your assumption here is incorrect. The long term PE average of the ASX is 14, currently we are slightly above that sitting at 16.. I would hardly say things are looking expensive.

Expensive is the PE which we had prior the 87 crash, which was 30.

So at present the market represents fair value, not cheap, certainly not expensive. Cheap was in 2003.

 

Totally agree here, this is why I don't think residential property is the best vehicle for wealth creation. In managed funds you can easily sell of enough to close out your margin loan, then focus on direct income with no interest expenses.

If your serious about creating wealth at the moment, invest into booming markets like china, india, russia and global resources in general. its easy to make 20%+ PA here at present.. and this in exchange of IP low return of 12% PA.. easy choice really! less all the large expenses associated with transacting IP's.

 

Hi Crc

Yes managed funds are much more liquid than property. A major advantage of funds/shares. Expenses are higher with property too!

But gearing, as I've noted before, is key. I'll take 12% return on a much larger asset base against 20% on a much smaller asset base any day.

I'm not saying one is better or worse...they just have different characteristics which in my view make it slightly easier to make money in property.

With respect to your second statement about 20%+ from RIC and global resources...that's probably achieveable and is being achieved...but not without risk. Is it sustainable long term? Only time will tell. In contrast, direct resi property has track record (for what that's worth).

Cheers
N.

 

Yes, I agree property can be a good quick stepping stone for someone without any cash. However the high gearing on IP is limited by your income.. Then comes the problem accessing equity once you reach your serviceability.

If you can service a number of IP's geared at 90% for the next 5 years, then thats a good option to get a large amount of exposure to a growing asset base.

The other thing you need to consider is diversification. Do you want everything hedging on IP's? Or will you mix it up with some funds on other asset classes. I think a mix of both is the best stratergie.

One thing people forget with IP is the large initial costs with IP. This can impact your short term result, so you do need to hold your IP for 7 years plus so these costs are absorbed to become a not noticeable amount.

As for you taking 12% on a larger base.. lets look at the simple figures.

I have $50,000 to invest. I can invest into a $300k property or I can invest into $120k worth of funds. $36k return PA with property $24k return with the fund..

However this is where property comes back to line with funds. Interest cost on property is $21k and $6.3k with the fund. End result. $15k profit with property and 14.7k with funds. Pritty much the same result. (gearing of 90% on IP and 60% with the fund)

 

PE = Price to Earnings?

 

Yep.



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