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Property or Managed Funds?

Discussion in 'Managed Funds & Index Funds' started by johk, 19th Aug, 2008.

  1. johk

    johk Member

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    I spoke to a financial planner last week - re. buying investment home or what to do with our equity.
    He said that the house market is going down at the moment and that we should start putting money into managed funds etc as you can get them cheap. Offcourse he tried to get us to join the fund provider he was associated with.
    But from what I read in this thread he might have been a bit wrong - it is better to hold off until we see the market turning around.

    Thanks
    Jonas
     
  2. crc_error

    crc_error The Rule of 72

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    thats funny, my house has continued to go up, last month went up 3%..

    using his logic, shares are also going down, so you should stay out...

    If you are going to enter share funds, move in gradually.. don't buy up big now..

    houses in blue chip suburbs in melbourne are still going up...from what I can see..
     
  3. Billv

    Billv Getting there

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    CRC
    That's the median price and IMHO not a very good indicator



    Good point, that way even if there are further falls you won't risk losing much.

    Cheers
     
  4. AsxBroker

    AsxBroker Well-Known Member

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    Hi JohK,

    It sounds like your financial planner is one sided. The reasoning behind it is self-defeatist. I'm sure if you see a lender / mortgage broker, they will tell you to borrow to buy property.

    If housing prices are falling aren't you getting better value buying in low?

    Reality is over the long term you going to do well in growth assets. Whether you invest in shares or property, over time the capital will grow as well as the income.

    Both property and shares will start coming back up as interest rates drop and investors come back to both markets.

    Obviously there are always duds in both markets.

    Good luck,

    Dan
     
  5. samaka

    samaka Well-Known Member

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    Your financial planner will get a commission from your managed funds - unlike anything you put towards a property.
     
  6. crc_error

    crc_error The Rule of 72

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    I know, its the realestate agent which makes 7-8% PA commission.
     
  7. samaka

    samaka Well-Known Member

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    Yeah I know crc_error - although personally I can justify that because they are actually working for it (albeit for the seller, not the me as the buyer).

    However in my experience the (admitedly few) financial planners I dealt with dump some numbers into a spreadsheet and generate a document with some managed funds to join - hardly worth the commission they would receive.
     
  8. crc_error

    crc_error The Rule of 72

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    I disagree. I sold a house, and the agent had a 1 month marketing campaign had opens each weekend, the sold at auction, for that they collected $10,000.. I don't think this is fair reward for their efforts.

    The 1/2% trail planners collect is hardly lots of money.. you especially if you consider all their complience costs, and wages they need to pay to run their business.
     
  9. AsxBroker

    AsxBroker Well-Known Member

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    I must agree with CRC,

    7% to 8% purely for moving some money from one bank account to another is excessive for say $400 per week being approx $30. Not bad for 2 seconds work every week. With no compliance.

    Ironically, you'll find that the 7% or 8% on the income/cashflow is similar to the 0.5% on an asset. You'll never get a Statement of Advice from a real estate agent even though they'll tell you that a property is a wonderful investment. Ironic?

    ASIC needs to pull up it's socks and protect investors who invest in property. It's time they put back the "Investments" in ASIC.

    Cheers,

    Dan
     
  10. crc_error

    crc_error The Rule of 72

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    yeh I don't see how come agents can promote property as 'an investment opportunity which comes once in a lifetime'

    the 7-8% the agent collects for simply accepting payment on your behalf is very high. Any other service they offer, like re-letting suddenly incurres further fee's.
     
  11. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I think you misunderstand exactly what is involved in property management. It's typically a low margin game and involves far more than just "moving money".

    Unless you have a brand-new property and perfect tenants, then property managers actually tend to do quite a bit of work. Property management is essentially a people-management exercise (tenants), which involves quite a bit of skill and organisation.

    I owned a real estate agency at one point a few years back, and while I didn't work in it - I did spend enough time there to appreciate just how hard the property management team worked. I also know how much work my PM does with managing my own IPs.

    That being said - I still don't think most property managers are worth what little money they are paid ... there are very very few competent property managers around :(
     
  12. ilori

    ilori Well-Known Member

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    I may be a little off-track from the original question... but another thought... it seems to me that figures comparing managed funds with real estate are often skewed. I've seen figures comparing the overall return of managed funds with the 'return' of real estate - and the managed funds appear superior.

    Need to check what 'return' means and the characteristics of investments. Example, I've often seen figures saying real estate gives a 'return' of 4 or 5% and therefore is inferior to managed funds. However need to factor in a few things:

    * the 4 or 5% 'return' was yield only (ie. rental income)
    * need to add capital growth
    * need to consider leverage of property (a powerful advantage of this investment medium is ability to borrow money - anywhere in the world lenders actually advertise in wild competition to lend to property)

    also,
    * stability - real estate is a more stable investment
    * you have the potential to enhance the value of your property investment - cannot do this with shares etc.
    * at the end of the day - it is shelter if you need it

    PS - I'm not in favour of any particular investment - they all have advantages and disadvantages - but think comparisons should be balanced and 'apples with apples' (especially if they are being done by people who hold themselves out as experts).

    Just on a personal note - I have heard several times of financial advisors talking people into selling real estate to invest in funds/shares - they can mount plausible arguments. I saw an actual occurrence of this about 12 months ago when friend of mine was convinced to sell his investment property in quality Melbourne suburb and put all money into shares - the justification apparently being that property had run it's course?!?!? The ethics of this sort of thing are disturbing - my friend had the cost of selling a stable investment, then he put the proceeds into a less stable investment (as demonstrated by a major crash almost immediately) - the advisor got his commission and my friend has lost the bulk of his wealth.

    Regards,
    Ilori
     
  13. crc_error

    crc_error The Rule of 72

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    Ilori, You can also leverage shares, so that feature isn't unique to property. Difference with shares and property is the cost of entering and exiting. Its very expensive to buy and sell property, unlike shares where is can cost only $19.95 to buy and sell. The benefit of property is the lower cost of borrowing, and no margin calls (neither do warrents on that matter), so you can typically leverage higher. Property also has deprication benefits which shares dont, however shares have franking credits, property doesn't.

    I certainly wouldn't recommend selling a existing property to put the money into the market, as you have already paid the large entry costs, so that financial adviser is useless. The adviser should have recommended a draw down of equity and put some of it into the market.
     
  14. Alwayslooking

    Alwayslooking Well-Known Member

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    Hi
    If you do decide to go down the road of Managed Funds have a read of
    "How to beat the Managed Funds by 20%", (Dale Gillham), some very interesting information that may help you.


    Cheers, AL
     
  15. jirimail

    jirimail Guest

    In general, most brokers and fund managers in australia charge a large commissions.
    For example, just seeing my superannuation fund going down and they still charge me commissions!
    That's a very bad structure, as the people in charge don't really care if you get or lose, because they get their money anyway.
    Look for funds overseas when you don't pay any fees, no commissions.
    In general, you will be only charge a small percentage on profits.
    That way, you at least know, they are motivated to increase your assets.
     
  16. johk

    johk Member

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    Thanks guys I appreciate your input.

    I spoke to another person prior to the meeting with the financial planer and he said to watch out as they always (almost) try to seel you something. The financial planner sort of turned the table around and started to talk about insurances etc and showing us that we maybe should improve/increase our covers - offcourse he could help us doing that as he has good deals with "his" people.

    As I mentioned in another thread I am looking into what's the options for us when we refinance our mortgage beginning of next year.
    http://www.invested.com.au/7/investing-managed-fund-35089/#post64620
    Thanks
    Jonas
     
  17. AsxBroker

    AsxBroker Well-Known Member

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    Hi Ilori,

    If your friend thinks their planner has done wrong they can complain and ask for compensation, if the planner/licensee isn't helpful they can complain to FIO.

    Cheers,

    Dan
     
  18. AsxBroker

    AsxBroker Well-Known Member

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    Hi Jirimail,

    You've got super choice (for over 3 years).
    http://fido.asic.gov.au/asic/pdflib.nsf/LookupByFileName/Super_Choices.pdf/$file/Super_Choices.pdf

    You can choose your super fund, you can choose your fund manager and you can choose if you have a financial planner.

    Cheers,

    Dan
     
  19. crc_error

    crc_error The Rule of 72

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    I don't understand these type of comments? You go to a financial planner for a financial plan, then when they recommend one, they get accesed of trying to sell you something..

    When you go to a car dealership, don't you think they are going to offer you their products and services? If you don't want the products the planner is offering, then don't go to him. If you think your 'smarter' than a planner, then do it yourself..

    Insurance cover is essential for anyone with a proper financial plan. Anyone who doesn't have at least basic income protection insurance is insane.