Property or Shares!

Hi Everyone if you borrowed say $300k or more to invest in a property or Share portfolio what would you do?

I am considering a property in Queensland good growth in the South East Area. but am also thinking about LPT's or something similar, any ideas?

 

In my corner of the property market yield is too low for the price they are getting so for me I see more value in shares and managed funds.

Your milage may vary though.

 

Hi Triu

Not sure anyone could give a definitive answer as it prob depends on the property and its characteristics (is there major growth or improvement potential to contribute to your goals, land scarcity in the area, local plans / expansion, what sort of rental market and yield available to cover expenses)

By good growth in the $300K SEQ property do you mean it has experienced good growth to date or you expect good growth from now on ?

I'm a little wary of regional areas at the moment, but I would always remain pretty confident about in the suburbs close to the CBD and anything near the water.

Good luck

 

Property or Shares?

It depends on your risk and return profile. In general, solid direct real estate investments (at prime properties at strong locations and growing markets) are considered less risky than property shares, the movements of which are subject to the influences of global economic and financial forces and investor psychology and not exclusively on the performance of the properties these companies own and manage. On the other hand property shares have provided in the long-term and in the recent years higher returns than direct real estate.

Petros
Profitable Property Investing in Perspective

 

Leverage is one issue to consider which may make the difference.

$300k could buy you $1.5m of property at 80% LVR (ignoring costs)

$300k could buy you $600k of shares/funds at 50% LVR.

Of course using debt would need to be consistent with your cashflow and risk profile....but there's a substantial difference once you throw some debt into the mix...

Something to think about...and of course get good advice.

Cheers
N.

 

80% LVR in property would be a killer in negative gearing, so if your planing on funding $30k a year in losses... good luck!

50% LVR in shares would be cash flow neutral, so it wont affect your valuable cash flow.

Either way, you can gear shares up to 70%, and I wouldn't suggest gearing property any more than 60-70% either...

 

I guess that depends on the property and your strategy.

50% in shares may or may not be CF neutral...it would depend on the dividend yield of the shares in question and prevailing margin loan rates.

Yes you can gear shares up to 70% and some like BHP, RIO, WOW etc can go to 75%, but like you I wouldn't recommend it. You can however gear property to 95-97%. Which makes a HUGE difference in your return on equity. Whether you should or not depends upon your free cash flow and risk tolerance. What you won't be exposed to though with property is a margin call. In my view if you're not gearing property to the max you're missing the point of property...property is about 3 things:

1) max leverage
2) value add/change of use
3) non-cash deductions i.e. depreciation (and yes this is a very distant third!)

Shares ARE better if you're not going to gear up. A big statement but the liquidity and tax advantages of franked dividends make shares better.

My 2.2 cents worth

Cheers
N

 

I am still geared at 74.78% for shares with me pushing things hard I have doubled this year what my starting capital said was posiable, I never managed to do that with property.

I wouldn't recomend what I am doing either it is high risk stuff but at current rates of growing the portfolio I may end up with an extra 400k equity for the year

Hybrid income securities and cash based funds you can get a 90% LVR on, I wouldn't use high cost borrowed money for them but they are fairly capital stable.

 

I'm just under 60% and am enjoying things too, but make sure you've got cash in your pocket to meet the margin call when the music stops.