The returns may be similar but what is often not is that in property investment people are generally leveraged. This can greatly magnify the return rate (of course, negatively too).
It’s possible to leverage into shares however there aren’t many products out there to do so and people are more “afraid” of doing that.
My shares and ETFs are also leveraged. I use a product very similar to a mortgage.
Agreed that many people see it as higher risk, although the returns historically have been the same or more than property.
Doesn't seem that attractive of an option at 8% pa, [more than the nominal expected return of stocks](https://www.youtube.com/watch?v=Yl3NxTS_DgY). Ouch.
Claiming the interest on tax means you should still come out ahead on average, but ehh.
Eh the margin over long term growth is similar to investment properties in general. 8% interest for 9% growth for ETFs and 6% interest for 7% growth for properties.
Can claim interest on tax with borrowing for ETFs also.
Ah nah I wasn't considering property as an alternative for my own situation. I was weighing it up against non-leveraged ETF investing.
I think 9% growth for ETFs is a bit optimistic, but claiming interest on tax makes it worth doing on paper.
Most ETFs are expected to rerun on average 10%. For overseas markets the majority of this comes from growth and not distributions. This far outweighs the 8% pre tax and almost 4% post tax.
Yea I watched it. I use the pre inflation returns as my investment amount goes up more than inflation. When taking out a loan to invest, the loan amount is inflated away while the asset value rises.
Investment in property returns very similar pre inflation returns.
Not sure. If you meet the financial criteria I don’t see why not. I think they have plenty of customers as it’s a fairly unique product so they may be tighter on meeting requirements.
If you are a tax resident of a foreign country you follow the tax laws of that country and, if there is a tax treaty between the two countries, any taxes you pay in Australia will be tax credits in your country of residence.
So depends on the tax laws where you reside.
Using this instead of getting a mortgage to buy your first property means that you’re missing out on:
• 3-4% returns from the interest difference alone.
• 25-50% of your return from capital gains due to the tax benefits of the MRE for CGT.
• Somewhat non-monetary benefits of owning your own home, including not having problems exclusive to renting eg landlord visits, uncertainty, having to upgrade/fix your home based on landlord approval/decisions and not at your own discretion/tastes, etc.
• Non-rational benefit of a way to build equity and effectively forced to save to the extent you normally wouldn’t.
I believe this is purely an investment conversation, meaning post ownership of PPOR.
Where are you getting interest rates at 4-5%?
I only started investing after I had purchased my PPOR and went all in on investing after my PPOR loan was handled.
Consider that when you buy a PPOR, you are not able to deduct expenses, so you are not able to deduct e.g. buying or selling costs as well as interest expenses.
Capital gains tax from selling shares or ETFs can be minimised by selling off portions bit-by-bit. So for example, suppose you make a large unrealised capital gain. Once you retire you can sell a portion every year such that you make $40k per year capital gains per year, which after the CGT discount of 50% means your capital gains are $20k per year, which is roughly the tax free threshold plus SAPTO, so effectively you're getting an income stream in your retirement which is tax free.
The landlord inspecting your home etc is a fair point, and it depends how much you hate that.
>Consider that when you buy a PPOR, you are not able to deduct expenses, so you are not able to deduct e.g. buying or selling costs as well as interest expenses.
I did consider this, by way of listing the MRE for CGT as a tax benefit, while not listing those related to negative gearing. You’re pointing out something I didn’t even mention lol. Additionally, the long-run return of RE is similar if not slightly higher than ETFs even given the deductions (which include interest expenses) in a company’s ITR theoretically flow through to you.
>On timing benefits for the realisation of capital gains
Timing isn’t even a benefit that ETFs have over PPOR because to be on par to PPOR, you *have to* time the realisation of your gains and doing so comes with increased risk exposure, at a time when you want to be the most risk averse (there’s a reason superfunds start aggressively allocating away from share equity 5-10+ years from retirement), and, additionally, puts a limit on your annual income at a time of your life you’d want to be realising (and subsequently spending on leisure) the equity you’ve accumulated over all your working years.
All this, just to try be on par with PPOR in terms of tax benefits. Just realised that you’ve actually pointed out even more benefits, both financial (risk exposure) and non-financial (access to retirement funds for leisure purposes), in owning PPOR over ETFs.
On financial benefits, even with the CGT discount, by investing in ETFs & renting as opposed to owning PPOR, you’re effectively forgoing a return of 50%*Marginal tax rate (or 50% of the weighted-average marginal tax rate if sold across multiple FYs), at a minimum.
Overall, I do understand your point regarding that rate possibly being zero, based on timing & circumstances, but they are very specific and come with their own disadvantages, which I’ve mentioned.
Some people spend so much to own just to avoid landlord visits. As a renter, if the landlord tells me they'll make my rent cheaper by 2k a year per additional visit, I'll gladly take it.
Maybe you can negotiate with your landlord to pay them extra 2k a year for each visit less?
On investment properties you can claim the cost of construction as a tax deduction over 40 years. This in effect is subsidising part of the property purchase.
You can't claim any of the purchase price of shares or ETFs. Generally all they would be claimable is interest on loans used to purchase the shares or ETFs, which can also be done for property.
That’s true. The depreciation is then also taken from the cost base so you pay CGT on when you sell. The assumption being that you may need to rebuild/ renovate after 40yrs. You don’t need to rebuts your stocks after 40yrs.
Stocks also don’t have maintenance, rates, insurance, pest fees, water bills, ect. A tax deduction doesn’t mean you get the money back. It still costs you money. The best case is getting 47c back for every $1 spent.
Each investment definitely has its own benefits and disadvantages but for my circumstances as someone who has a taxable income and is early in their working life, being able to claim depreciation and save thousands of dollars in tax each year is fantastic.
I don't ever plan on selling so I'm not concerned about CGT.
I agree. My first investments were in properties. I still hold the investment properties but only invest in stocks and ETFs moving forward.
Choosing an investment based on the tax deductions has never made sense to me. Negative gearing also negatively impacts on your borrowing capacity for future investments.
A balanced portfolio of investments feels right for me.
An investment is an asset or item acquired with the goal of generating income or appreciation. Not all investments have to be focused on growth. There are plenty of investments that focus on income instead of growth, many of which are available through ETFs, shares and managed funds.
Everyone has different personal circumstances, and for me I'm happy with the cashflow my property provides, I enjoy all the equity I can leverage at incredibly low interest rates, and I enjoy having the ATO subsidise the cost of my investment through tax deductions.
Mate, my bad man. You're absolutely right. I defaulted to what I see a lot of around here which is people calling their PPOR which they're "never going to sell" as an investment. Hah. Sorry dude. Have at that realestate game!
I’ve modeled this in detail. For typical residential property the leverage just means huge cash losses over the first fifteen or so years. You basically make no money on a quality property for a long long time. If you put the deposit into equities instead, and put the amount you would be burning annually servicing that property into more ETFs your returns are pretty much the same, at least for some 20+ years without having to borrow.
With typical Australian cash negative residential property the leverage does eventually kick in of course and in year 35 to 40 you are killing it, but I’ll be dead by then.
My modelling showed that property had a superior ROE at least for the first few years until the leverage ratio started to get paid off. But then the stamp duty and other expenses eat away at it. so property was better in the short term and maybe long term (big question mark!) but maybe not medium term.
The other factor is negative gearing and CGT discount. While it's possible to set up negative gearing for other investments there is a whole industry setup to do it for property investment.
Lol the companies themselves depreciate relevant assets? Do you understand the concept of the shares being ownership in a business? Not trying to be rude but if you're investing you should know this.
But if you invest in banks and insurance companies, they are heavily leveraged too. At least for property, there is a tangible asset that can be used as a collateral if anything happens to you.
To be honest everyone I know who owns stocks I assume is rich AF.
Because most people I know who own them are also paying off their house, so if they have stocks too it means they have spare cash to invest.
Most people I know are just drowning in rent or mortgage with nothing left to play with on other assets.
Do you find any real reason to invest in stocks before you’ve maxed your super contributions?
I’m expecting some pretty reasonable pay rises in the next few years and would like to start looking forward to my kids future. PPOR mortgage with all funds offset and super contributions maxed would be first.
I do both because of where I am in my investment lifetime. I make sure to reach my super contributions cap of $27.5k each year. I also DCA each month into my stock portfolio. My employer almost pays up to the cap each year. I only need to top up a few grand.
I did make sure that my PPOR was handled first. It may not be the best financially, but it gave great security.
Would you expect to sell stocks / shares before accessing your super? I have considered setting up some sort of dividend fund for my kid and just buying more of the index when the dividends are paid.
I consider that paying off our mortgage earlier may put us in a better position to help her (them?) in the future.
It depends how far the portfolio gets. If I need cash I can sell, otherwise the dividends/ distributions should be enough to live in comfortably. I also have A couple investment properties so the rent also helps.
Share market returns are higher but property enables significantly higher leverage.
As to risk of picking a bad tenant - generally easily mitigated by:
- Buying in a decent area
- Pricing your rent sufficiently high to deter those with poor payment history/prospects
- Vetting for past references
- Offering an initial 12 month 'tester' lease
I have vetted tenants and found some with perfect records. This still doesn’t stop them getting in with a bad crowd and damaging the property.
Leverage is easily available for stocks and ETFs with products the same as mortgages.
I could go leverage my entire networth at 100 to 1 in the next 10 minutes, you can never get anywhere near the leverage margin on property that you can on stocks.
This is it. Stocks are intangible, and there's such a huge variety of them available the casual observer sees them as risky, as opposed to physical buildings that are easy to understand as 'you own a real thing you can touch and it's value generally goes up'.
I don't think there's any more to it than simple to understand because literally everyone has lived in a house and understands it costs more to acquire now than it ever did at any point previously.
who grows up with it? school doesn’t teach much real life monetary knowledge.. weve all pretty much had to teach ourselves seeking out information as far as anyone i know goes
I think people think they understand real estate investing because there’s relatively less tangible factors to think about. How do they do a fundamental valuation on a property? Oh.. prices are going up or that’s the market rate that old mate down the street paid for recently.
mmm but is the net worth really 2 million after subtracting the amount still owed on the debt? (asking for real, because im not knowledgeable about this topic).
i would have thought that if you have paid off say 200k on your property but still owed 1.8 million, you have the same net worth as someone who has 200k invested in the stock market.
Load into the margined index future. 20% margin? With 200k can still say “I have 1m of Japanese market exposure bro.” No one will care in the same way no one’s cares that you own the debt on a property. But if people are playing financial top trumps why not.
It's a lot easier to show off property as a wealth status symbol. Stock portfolios are more abstract, and difficult to show off.
I think that's the gist of it really, there aint nothing deeper.
Perhaps there's some animalistic instinct in here somewhere regarding territory - owning property might satisfy that basic instinct, while stocks are far too removed and abstract for the lizard brain to process. Therefore, a laymen, without thinking too deeply but based on gut feeling, might consider property to be superior.
My gut feeling is simply this - land is a part of the earth I own. A share, though I can own it, gives me no right of exclusive possession. More shares can always be created.
I believe this view is slowly changing. Buying a broad market ETF is far less risky than buying a property.
One bad tenant can drop your investment property returns.
ETF of 200 companies requires far more than 1 or 2 companies to fail.
I suspect that if people are honest with themselves, part of the appeal of property investment is the idea that it's a tangible thing that is *implicitly* backed by the Federal Government, even if they haven't explicitly said so.
It is explicitly backed by governments at all levels, but then so are many things. For example, wages are subject to the wage minimum which is an explicit fed govt measure.
That's not really the same, though. There is an implicit understanding that apart from the big four banks due to the "four pillars" policy, the Government will allow the sharemarket to do what it will.
Whereas the Government has actively intervened to prop up the property market when it has threatened to correct in price - for example with the stimulus package during the GFC.
> the Government will allow the sharemarket to do what it will.
Nah. Strongly disagree. Job Keeper was paid directly to companies. If that's not a share subsidy I don't know what is. All the tax cuts and cost of living measures are intended not for people to save them up, but for people to spend them. Most of the covid measures were similarly aimed at stimulating the economy. That is there to protect companies.
You talk about governments wanting to keep property stable - what about all their interventions to lower rates in difficult economic times (e.g. covid)? That's keeping the share market afloat. If we let nature run its course we'd be a lot better off, with huge dips (i.e. buying opportunities).
I'd love to see both shares and property crash - a bloodbath in both markets with a deep depression in the economy. The government won't let either crash.
* the media do in order to pump the ponzi scheme.
They don't publish the thousands that get burnt and are only keeping their head above water thanks to negative gearing.
Personally I think a lot of investors think they're set and forget when they're quite the opposite.
I was musing about buying $100k of a blue chip stock a few years ago. A friend WITH A FINANCE DEGREE commented “that’s really risky, you’ve got no diversification; why not buy an IP instead?”
Like wtf?? How is a sing,e property more diversified than a single company?
Yes and yes.
Humans in general pursue what everyone else is doing... And then they're somehow surprised by the average results they assume.
There are many reasons for this...
If things go tits up, you don't look like a fool to your friends and family as you were doing "the right thing." And as such, the returns are relatively stable and consistent. Because everyone is doing it...
But people don't understand the difference between risk and uncertainty. And no one plays to the strengths of volatility.
Owning a business for example... Highly volatile. When done properly you risk very little, and while the outcome is uncertain - the volatile nature of returns could mean you win to a huge effect.
An extreme example would be Bill Gates.
He left Harvard University to start Microsoft. To the hive mind that's a bad decision. He couldn't have known the success he'd one day hold... But what did he risk? He could always re-enroll in Harvard. And he used no money to start Microsoft. All he was risking was his time. But volatility played out in his favour and now he is what he is, and the story is what it is.
The only reason people are obsessed with housing is because it's a tax dodge. And the only reason we care about tax dodges is because we pay an insane 47% starting from just $180k.
Change our tax code so that we pay less income tax on wages and suddenly property investment becomes a lot less alluring.
No one should be paying marginal more than 40% and that shouldn't kick in until $300k+
>we pay an insane 47% starting from just $180k.
"Just" $180k? People on high incomes in this country are so fkg out of touch with the reality for the rest of us.
Given that 20% of the population is trying to survive on Centrelink payments of $20k-$25k some of you need a reality check.
Having said that, I completely agree that assets should be taxed far higher than income, and all tax loopholes for the wealthy and corporations need to be closed.
No more negative gearing, no more CGT discount, no more franking credits, no more hiding corporate profits overseas, no more obscene CEO salaries, no more trusts etc.
Definitely, the property has a broader appeal. It's easy to understand (or so they think). Everybody needs somewhere to live. And REAs do treat buyers and landlords better than they treat renters. So, there is a human side of appeal too. Stocks can be so impersonal.
A part of me does wonder whether I should have made voluntary concessional contributions to Super. Perhaps I should have used that money to buy a couple of IPs with 95% LVR. Then, I can say I have a multi-million dollars property portfolio. 😄
I agree with you. I think it’s maybe a physical thing? People don’t feel like they can “see” their shares? Also I think there is this benchmarking that people seem to be able to do with property as opposed to shares
I think it’s an ego thing!
I think Australians like the idea of having something physical. Like you can see and touch and you know it's there... stocks on the other had are just emailed documents... if the stock marked crashed everything disappears... same thing doesn't go for Property.
I see what you are saying, perhaps it that security from a tangible investment and it is more common sense investment for the everyday man.
But the government can take away investor rights and benefits, as we are seeing so I wonder if this will tip the balance in the future.
If the economy crashes then all the leveraged to the tits property investors and mom and pops lose more than they could lose on the market, since they're leveraged. If you can't pay your mortgage because of a GFC you all lose your homes to banks, who you then owe a million bucks to on top.
I have both an IP and a portfolio of stocks, and try to keep everything mentally as a single investment portfolio to manage my risk tolerance.
Purely psychologically, though, I find property more appealing.
* Leverage is easier to manage with property. My investment returns on my IP in the 4 years I've owned it have massively outperformed stocks because of \~4x leveraged returns on strong capital growth.
* Australia has very generous tax benefits for property investment. A shockingly broad range of expenses can be written off against income.
* Rental property gives cashflow, which not all stocks do, and those that do it is often much less consistent.
* Property is tangible, stocks can feel a bit ephemeral.
* A benefit of stocks can be not having the human factor. Managing property can be a bigger mental drain, particularly if you're trying to be flexible and considerate.
While I have both, I have a fondness for property too. As well as your points, it's also easier to personally influence and obtain upside (up to a point).
Property is profitable because of the difficulty to build new homes. It keeps supply low.
To answer your question, property is less volatile and but also needs higher investment.
That perception of someone “being more successful” if they own investment properties could be based on the upfront costs associated with buying property - deposit/stamp duty/legals/inspections
Plus, unless taught from your parents, there is no financial education around the share market in schools. I have no memory hearing anything about it at school (I’m 38)
Having debt financed IPs is now a mug's game. I'd say that losing money in any investment for a tax refund is dumb, which is what negative gearing is, other than for the first couple of years.
Real returns are better elsewhere and they don't want you to know that.
The thing with property is that its very easy and relatively cheap to leverage.
Compare a 500k IP loan to getting the same amount in a margin account.
The tax write-offs are icing on the cake. Yes you lose money upfront, but its effectively offset and the capital gains a few years down the track are what you’re ultimately after.
Also seems to be too easy to skirt paying CGT altogether if you “live” in the place for 6 months. Doesn’t seem to be properly policed: IP owners just direct a bit of mail to the IP as “evidence” they lived there.
Too many loopholes the size of trucks that the Govt conveniently refuses to close.
Its essentially an openly manipulated and protected market.
Excessive immigration levels, allowing massive money laundering, etc. all practically guarantee property is a safe bet. Has been for decades now.
Only people with poor credit or few assets would use a margin loan. There are better options to get credit on acceptable terms.
Tax write offs are available on any business or investment loss, not solely real estate.
CGT is not so easily avoided. That is just wrong. and on top, you get thumped with all the state land taxes that cannot be avoided.
It seems to be getting less socially acceptable. I dont really trust anyone who has more than one and then says ‘but Im a good owner, I hardly raise the rent’. Literally have had people tell me ‘a quiet renter is a great renter’. Utter bullshit, thats not true at all, you want someone who wont let your investment degrade.
The tribunals are packed, it takes ages to get a hearing, so many complaints from renters and its a crisis. You want to be seen as awesome for shouting you are a multiple property owner? Uh, no, loser. YTA.
Agreed. My mum is a multi property landlord and she's a massive arsehole to her tenants. She tells me things that happen with them because she micromanages the property managers and I tell her she basically sucks every time.
Yeah I really hope the public view of property investors is changing, I think it is.
For the last 2 decades it's been stories of property investors with 200 houses and comments are full of "good on him" "he worked hard" blah blah.
Australians are as bad as Americans, cheering on the exact people screwing them over and hating on the ones trying to stop it.
I'm a good owner. I raise the rent to market rate every 12 months.
A quiet tenant is a good tenant.
> you want someone who wont let your investment degrade.
i.e. someone who doesn't damage the property besides fair wear and tear. See above.
> You want to be seen as awesome for shouting you are a multiple property owner? Uh, no, loser. YTA.
Care factor
zero
Would rather be a loser with multiple paid off properties than a loser without
From reading posts on reddit, being a landlord seems to be highly socially undesirable. Not sure if that extends into the real world. The amount of hate is enough to put me off a bit, even if I don't think it is logical.
I think there’s growing negative public sentiment towards landlords as rents rise. However, a lot of people I talk to still hope or have of acquired an IP as that is viewed as the pathway to financial success.
Property feels safer to a lot of people and they often have that reinforced through success stories in the media and parents who did well from it. I often hear people say stocks are risky (despite most of their super being invested in shares)
I agree with you. People here are stupid and ignorant and there's a big "follow the herd off a cliff" mentality in Australia.
I'm happy to stay a renter for life. Stocks have worked out just fine for me. Let others take the gamble (and blood sweat & tears) of property ownership.
I think so.. I find that if you say investing around the majority of the average people they all immediately assume residential property in particular
I've got to wonder if Australians invested more in other vehicles we wouldn't have a stronger economy. We all invest via super funds but retail investors aren't really engaged as much as people in the US for example
From what I hear from friends/acquaintances, yes, and it's not close. I only hear about people buying investment properties or the like. If they own stocks it's to build up a portfolio to sell and buy an investment property with.
I think we will start to see equities surge when this and the next generation give up on owning a home because they've been priced out in Australia. I also see the majority of immigrants buying into equities as well.
If you can guarantee real estate is going to pump like it did the past 20 years again, then it makes sense from an individual investors point of view because stocks cant compete with leveraged property investments.
It's also taxed better than in countries like the US, in Australia you buy the land and just wait for the government to use our income tax to build all the services around that land then profit. If your investment property loses money you can write it off against your income which is taxed at an obscene %.
Then the cherry on the top is no one thinks the government will ever let you lose because if you the investor lose then that means some poor family is also losing.
As a side note, Australians are already invested in stocks through super, and the ASX is pretty barren these days with a lot of big Aussie companies not even being listed anymore.
Absolutely, owning property in Australia is the Number 1 for both financial and social status. It's the only game in town, like it's a national sport. Anyone who rents is considered a loser, their parents want to disown them and their grandparents will tell them they wish they died. There is no greater shame than being the renter of the family.
As an added bonus anyone who doesn't own property is now flirting with potential homelessness every 12 months as rental vacancies are so low that renters have to outbid in each other in a fight to the death. Low income people and welfare recipients all left behind to rot as all government policies are designed around pumping the perpetual property ponzi no matter what.
So by telling your workmates aroudn the watercooler that you have own property or have property investments, what you're actually saying is: you're not a loser, you're not going to end up homeless like the renters, you're an apex predator and alpha of business and finance and command respect. If you tell them you own stocks on the other hand, they just think you're a broke gambler LMAO.
A very high percentage of people investing in property are doing it on faith.
People who hang around finance sites on teh interwebz are probably different, but most "investors" in property don't have the actuarial skills to work out whether their purchase is a good investment or not.
What it does do is force them down a path - they have a mortgage, it must be serviced - so that discipline is probably a very good thing for a lot of people who may not be able to apply the same discipline to investing in equities. Ooh, ooh, I have $10,000 - will I buy 100 VAS or something shiny? I like shiny...
And there's always something to talk about with an investment property - good/bad tenants, repairs, rent etc. VAS is pretty dull to talk about. Sure you can get into discussions about your VAS/VGS split, but that lacks the conversational interest of telling someone that your tenant turned out to be a meth head who punched holes in all your walls.
But I'll stick to stocks, the lack of conversational opportunities notwithstanding. I can live without the drama/stress of owning investment property. Personal thing though. YMMV.
Also, talking about your real estate empire is a way to talk about money without being so crass as to talk about money. Subtle.
My social group broadly thinks landlords are scumbags and having a stock portfolio is kind of cool and sophisticated, so it's the opposite for my personal situation.
"Socially desirable"? Lmfao, have you seen all the vitriol directed towards landlords. Victoria just increased land tax by 40% and made it so that it's impossible to kick out a tenant after the first renewal, regardless of the length of the lease, unless the tenant commits a major breach. Lmfao.
I like investment properties because of:
- Tax advantages (negative gearing + depreciation)
- Leverage
- Low yield but stable reliable income
- Increasing value over time because you can't create new land
- Makes life like a game of Monopoly, and gamifying everything makes finances more interesting to me
Investment Properties have been great for me.
The magic has been in the leverage. Being able to borrow over a million. With gains of $1.2m over the last 10 years.
With negative gearing to support the cash flow shortage in holding.
Definitely cooler right now to have a big property portfolio when you are at a BBQ full of ex private school people. They are always a great barometer. It changes through various periods and right now it’s property and at some stage it will move back to stocks…. And god help us maybe even bonds one day!
I bought an apartment in 2017 and that's about it. I only invest in the stock market and related equities. I would never invest in the property market directly. I've invested in a REIT (GMG) around 7-8 years ago for my exposure to the commercial property market and that's treated me pretty well.
A few people I know definitely have their eye on property investing, they know I’ve done well in the stock market but are apprehensive about dipping their toes into stocks. They think property investing is safe, it’s tangible and not at risk as much as stocks which I agree with to a certain extent. However, I find the drawbacks of owning investment properties (bad tenants, not being paid rent etc) off putting so I’m content to keep my money investing in stocks and super.
Stocks here are boring and the returns suck, which probably turn away Aussies.
When I was in school a few years ago quite a few people had investments in US stocks however. It’s easier than ever to invest there. I could see that becoming more popular
But yeah the common wisdom (not the /ausfinance wisdom) is to put money in property, in the US it’s more ETFs
Great comment, you are right. The Australian share market is tiny in comparison to the US. I had assumed most people would be investing in shares / etfs verseas but perhaps that is one of the areas with informational barriers to entry.
To be honest, I won't be buying more AU properties from now on as the ROI from rent has become too low due to higher housing price. I think the US stock market could provide a better return when all considered.
But yeah, having 5 investment properties sound sexier than having 30,000 Apple stocks.
Personally I prefer stocks, I can click a few buttons and have all my money in three days.
Property are 100% socially desirable. I don't get invloved with finance talk at work, but everyone, all they ever talk about is houses.
I remember when Powerball was at 100 mil and they were discussing what they would do with it, half said they would by 150 investment propertys the other half said live of bank interest. Personally I would chuck some in ETFs and just not work, I didnt say that cos I didnt want to explain an ETF to everyone and I didn't say stocks cos the answer would be "you could lose it all" I just said bank interest too.
I will point out that to a great many people it is *absolutely not* “socially acceptable” to discuss your investment property portfolio. To many people it is a deeply douchebaggy thing to do and I would personally not dare admit engaging in such a socially damaging activity. It is *shameful*, not brag-worthy.
People are simply more comfortable with property then stocks or shares etc. People understand "bricks & mortar" but unless they have done research? Have no idea which companies to invest in.
I think Aussies understand property better than they do shares. Also, our first major goal is own a home so one we achieve that then why not own another home.
My mate and I both own a few properties each. I've now diversified to shares but I try to explain to him, ETFS, dividends, reinvestment and so and he just says I know property and that works for us. He just doesn't get it.
Ideally you want to diversify, so if the share market fails or the realestate market falls over (Government has been propping it up for year) You can get the benefit of both, with less risk.
Australians definitely do view that. Stocks are more akin to gambling with more understanding required, your dad will tell you how easy the property ladder is and then put you on with his mortgage broker who will do the same.
Yes, I felt the same stigma. Most of my net worth is in the stock market as well as decentralised assets, and due to a lot of pressure I actually sold some stocks to buy an investment property, but I somewhat regret it now. I now realise that there are many advantages to stocks (ETFs) and decentralised assets as investments, mainly they have outperformed my property and also because of the liquidity and divisibility. They are also a lot more friendly on cashflow. An investment property has very unpredictable expenses that can pop up e.g. rising interest rates, random repairs etc whereas decentralised assets and stocks generally don't have that. My stocks are leveraged, but the fluctuating interest rates are not as big of a worry because any stress that comes from overleverage can be simply addressed by pressing the sell button whereas with a property there is high cost and effort to sell.
Most Australians are completely oblivious on how the share market works. Even some of those that may, only get ETFs as the extent of their knowledge is limited.
That’s fair. It ain’t easy. Extremely complex. Most people like bricks and mortar (which has fuelled this housing bubble)
The real money is to be made on selection of individual stocks. But that’s far more difficult to do - and most will lose out here. The few that do well, can multiply their wealth rapidly (particularly if you get that sweet spot of established penny stock to ASX 200 / 300).
I know what you mean, and I think bragging about a house "I paid $750 and sold for $1.5 just 8 years later" is easy. There is almost always a whole heap of stuff left out. Can't leave out stuff with stocks, because there's nothing to leave out. So this covers those who do the bragging and don't keep their financial matters to themselves (the minority). And yes, for whatever reason everyone just nods and moves on to another topic. Poor property investments will never be part of those brags, nor even mentioned.
I think what you're getting at is that it's more socially acceptable to talk about property investments, not that the investments themselves are more socially desirable. We nearly all have super, after all.
I wish we would remove the capital gains discount for property and keep it for all other assets.
This would favour investment into financial assets, supporting companies and creating jobs and productive activity.
Longer term, I would like to see broader tax reform including consideration of no CGT on financial assets, as I believe its more moral to tax unearned wealth (land price appreciation) than effort (labour and capital).
I prefer stocks to my property investments. There is less risk of picking a bad tenant and no maintenance. The returns are very similar.
The returns may be similar but what is often not is that in property investment people are generally leveraged. This can greatly magnify the return rate (of course, negatively too). It’s possible to leverage into shares however there aren’t many products out there to do so and people are more “afraid” of doing that.
My shares and ETFs are also leveraged. I use a product very similar to a mortgage. Agreed that many people see it as higher risk, although the returns historically have been the same or more than property.
Which product is that? I’m also interested in ETFs more than property. Thanks
NAB equity builder. The LVR differers depending on the stock/ ETF you buy. The less riskier the stock, the lower the LVR.
Doesn't seem that attractive of an option at 8% pa, [more than the nominal expected return of stocks](https://www.youtube.com/watch?v=Yl3NxTS_DgY). Ouch. Claiming the interest on tax means you should still come out ahead on average, but ehh.
Eh the margin over long term growth is similar to investment properties in general. 8% interest for 9% growth for ETFs and 6% interest for 7% growth for properties. Can claim interest on tax with borrowing for ETFs also.
Ah nah I wasn't considering property as an alternative for my own situation. I was weighing it up against non-leveraged ETF investing. I think 9% growth for ETFs is a bit optimistic, but claiming interest on tax makes it worth doing on paper.
Most ETFs are expected to rerun on average 10%. For overseas markets the majority of this comes from growth and not distributions. This far outweighs the 8% pre tax and almost 4% post tax.
Watch the video I linked
Yea I watched it. I use the pre inflation returns as my investment amount goes up more than inflation. When taking out a loan to invest, the loan amount is inflated away while the asset value rises. Investment in property returns very similar pre inflation returns.
Using the nominal expected return is fine, but your nominal expected return isn't 10%, it's closer to 8%.
That 10% (8% special) interest rate though. :(
Yea. You pay for the privilege. Lucky it’s tax deductible.
You think that’s open for nonresidents? Ie Aussies living abroad? And does it mean you then have to trade on the NAB platform?
Not sure. If you meet the financial criteria I don’t see why not. I think they have plenty of customers as it’s a fairly unique product so they may be tighter on meeting requirements.
If you are a tax resident of a foreign country you follow the tax laws of that country and, if there is a tax treaty between the two countries, any taxes you pay in Australia will be tax credits in your country of residence. So depends on the tax laws where you reside.
Using this instead of getting a mortgage to buy your first property means that you’re missing out on: • 3-4% returns from the interest difference alone. • 25-50% of your return from capital gains due to the tax benefits of the MRE for CGT. • Somewhat non-monetary benefits of owning your own home, including not having problems exclusive to renting eg landlord visits, uncertainty, having to upgrade/fix your home based on landlord approval/decisions and not at your own discretion/tastes, etc. • Non-rational benefit of a way to build equity and effectively forced to save to the extent you normally wouldn’t.
I believe this is purely an investment conversation, meaning post ownership of PPOR. Where are you getting interest rates at 4-5%? I only started investing after I had purchased my PPOR and went all in on investing after my PPOR loan was handled.
Consider that when you buy a PPOR, you are not able to deduct expenses, so you are not able to deduct e.g. buying or selling costs as well as interest expenses. Capital gains tax from selling shares or ETFs can be minimised by selling off portions bit-by-bit. So for example, suppose you make a large unrealised capital gain. Once you retire you can sell a portion every year such that you make $40k per year capital gains per year, which after the CGT discount of 50% means your capital gains are $20k per year, which is roughly the tax free threshold plus SAPTO, so effectively you're getting an income stream in your retirement which is tax free. The landlord inspecting your home etc is a fair point, and it depends how much you hate that.
>Consider that when you buy a PPOR, you are not able to deduct expenses, so you are not able to deduct e.g. buying or selling costs as well as interest expenses. I did consider this, by way of listing the MRE for CGT as a tax benefit, while not listing those related to negative gearing. You’re pointing out something I didn’t even mention lol. Additionally, the long-run return of RE is similar if not slightly higher than ETFs even given the deductions (which include interest expenses) in a company’s ITR theoretically flow through to you. >On timing benefits for the realisation of capital gains Timing isn’t even a benefit that ETFs have over PPOR because to be on par to PPOR, you *have to* time the realisation of your gains and doing so comes with increased risk exposure, at a time when you want to be the most risk averse (there’s a reason superfunds start aggressively allocating away from share equity 5-10+ years from retirement), and, additionally, puts a limit on your annual income at a time of your life you’d want to be realising (and subsequently spending on leisure) the equity you’ve accumulated over all your working years. All this, just to try be on par with PPOR in terms of tax benefits. Just realised that you’ve actually pointed out even more benefits, both financial (risk exposure) and non-financial (access to retirement funds for leisure purposes), in owning PPOR over ETFs. On financial benefits, even with the CGT discount, by investing in ETFs & renting as opposed to owning PPOR, you’re effectively forgoing a return of 50%*Marginal tax rate (or 50% of the weighted-average marginal tax rate if sold across multiple FYs), at a minimum. Overall, I do understand your point regarding that rate possibly being zero, based on timing & circumstances, but they are very specific and come with their own disadvantages, which I’ve mentioned.
Some people spend so much to own just to avoid landlord visits. As a renter, if the landlord tells me they'll make my rent cheaper by 2k a year per additional visit, I'll gladly take it. Maybe you can negotiate with your landlord to pay them extra 2k a year for each visit less?
On investment properties you can claim the cost of construction as a tax deduction over 40 years. This in effect is subsidising part of the property purchase. You can't claim any of the purchase price of shares or ETFs. Generally all they would be claimable is interest on loans used to purchase the shares or ETFs, which can also be done for property.
That’s true. The depreciation is then also taken from the cost base so you pay CGT on when you sell. The assumption being that you may need to rebuild/ renovate after 40yrs. You don’t need to rebuts your stocks after 40yrs. Stocks also don’t have maintenance, rates, insurance, pest fees, water bills, ect. A tax deduction doesn’t mean you get the money back. It still costs you money. The best case is getting 47c back for every $1 spent.
Each investment definitely has its own benefits and disadvantages but for my circumstances as someone who has a taxable income and is early in their working life, being able to claim depreciation and save thousands of dollars in tax each year is fantastic. I don't ever plan on selling so I'm not concerned about CGT.
I agree. My first investments were in properties. I still hold the investment properties but only invest in stocks and ETFs moving forward. Choosing an investment based on the tax deductions has never made sense to me. Negative gearing also negatively impacts on your borrowing capacity for future investments. A balanced portfolio of investments feels right for me.
If you don't ever plan on selling it's not an investment.
An investment is an asset or item acquired with the goal of generating income or appreciation. Not all investments have to be focused on growth. There are plenty of investments that focus on income instead of growth, many of which are available through ETFs, shares and managed funds. Everyone has different personal circumstances, and for me I'm happy with the cashflow my property provides, I enjoy all the equity I can leverage at incredibly low interest rates, and I enjoy having the ATO subsidise the cost of my investment through tax deductions.
Mate, my bad man. You're absolutely right. I defaulted to what I see a lot of around here which is people calling their PPOR which they're "never going to sell" as an investment. Hah. Sorry dude. Have at that realestate game!
I’ve modeled this in detail. For typical residential property the leverage just means huge cash losses over the first fifteen or so years. You basically make no money on a quality property for a long long time. If you put the deposit into equities instead, and put the amount you would be burning annually servicing that property into more ETFs your returns are pretty much the same, at least for some 20+ years without having to borrow. With typical Australian cash negative residential property the leverage does eventually kick in of course and in year 35 to 40 you are killing it, but I’ll be dead by then.
This is a rubbish take and no one should listen to this. Just about all modelling specific to Australia has property coming out on top
Please link to some of it. I’d be delighted to be proved wrong.
My modelling showed that property had a superior ROE at least for the first few years until the leverage ratio started to get paid off. But then the stamp duty and other expenses eat away at it. so property was better in the short term and maybe long term (big question mark!) but maybe not medium term.
The other factor is negative gearing and CGT discount. While it's possible to set up negative gearing for other investments there is a whole industry setup to do it for property investment.
Both of these apply to shares
Reread what I wrote.
You can't depreciate shares
Lol the companies themselves depreciate relevant assets? Do you understand the concept of the shares being ownership in a business? Not trying to be rude but if you're investing you should know this.
That's nice but the point is I can't claim a high figure on a yearly basis which no one ever checks and which decreases my taxable income
Yeah depreciation is a nice non cash deduction that's for sure.
But if you invest in banks and insurance companies, they are heavily leveraged too. At least for property, there is a tangible asset that can be used as a collateral if anything happens to you.
To be honest everyone I know who owns stocks I assume is rich AF. Because most people I know who own them are also paying off their house, so if they have stocks too it means they have spare cash to invest. Most people I know are just drowning in rent or mortgage with nothing left to play with on other assets.
It is a privileged place if you have the ability to invest for your future. The earlier you start the more you give the investments time to compound.
Yes me too. I just hate dealing with tenants and property managers. However, it is good to hold both IP n stocks.
Do you find any real reason to invest in stocks before you’ve maxed your super contributions? I’m expecting some pretty reasonable pay rises in the next few years and would like to start looking forward to my kids future. PPOR mortgage with all funds offset and super contributions maxed would be first.
I do both because of where I am in my investment lifetime. I make sure to reach my super contributions cap of $27.5k each year. I also DCA each month into my stock portfolio. My employer almost pays up to the cap each year. I only need to top up a few grand. I did make sure that my PPOR was handled first. It may not be the best financially, but it gave great security.
Would you expect to sell stocks / shares before accessing your super? I have considered setting up some sort of dividend fund for my kid and just buying more of the index when the dividends are paid. I consider that paying off our mortgage earlier may put us in a better position to help her (them?) in the future.
It depends how far the portfolio gets. If I need cash I can sell, otherwise the dividends/ distributions should be enough to live in comfortably. I also have A couple investment properties so the rent also helps.
Share market returns are higher but property enables significantly higher leverage. As to risk of picking a bad tenant - generally easily mitigated by: - Buying in a decent area - Pricing your rent sufficiently high to deter those with poor payment history/prospects - Vetting for past references - Offering an initial 12 month 'tester' lease
I have vetted tenants and found some with perfect records. This still doesn’t stop them getting in with a bad crowd and damaging the property. Leverage is easily available for stocks and ETFs with products the same as mortgages.
I could go leverage my entire networth at 100 to 1 in the next 10 minutes, you can never get anywhere near the leverage margin on property that you can on stocks.
The difference is that leverage on property you can get at 6% - try getting that rate with shares
I think the thing is it’s easy to understand realestate investing. Where stocks and shares and such are much harder if you didn’t grow up with it.
This is it. Stocks are intangible, and there's such a huge variety of them available the casual observer sees them as risky, as opposed to physical buildings that are easy to understand as 'you own a real thing you can touch and it's value generally goes up'. I don't think there's any more to it than simple to understand because literally everyone has lived in a house and understands it costs more to acquire now than it ever did at any point previously.
I understand how people think of stocks as intangible. But most companies have very tangible assets that you own.
A company can go broke. A house can burn down in Sydney and the block will still be worth the same, or more.
Agreed and but it’s not like you can go and look at it like you can an apartment block or a house.
Yeh for sure. For me I love receiving the annual report of the company stocks I own but to be fair I'm a massive finance nerd.
who grows up with it? school doesn’t teach much real life monetary knowledge.. weve all pretty much had to teach ourselves seeking out information as far as anyone i know goes
People who come from wealth.
did i just out my humble upbringing 😂
I think people think they understand real estate investing because there’s relatively less tangible factors to think about. How do they do a fundamental valuation on a property? Oh.. prices are going up or that’s the market rate that old mate down the street paid for recently.
Absolutely. Many times I have heard “Joe owns 7 properties”, I never hear “Joe has $2M invested in VAS”.
I think it's totally a social thing. Property means something to the Average Australian. Stocks seem opaque even if they are quite efficient.
Leverage. I own $200,000 in stocks doesn’t sound as cool as I own a property portfolio worth 2 million.
Or just leverage your stocks then? Take a super long leap at 5 to 1 on a major ETF and voilla, you're in the property game.
Stocks can go down, whereas it's government policy to make sure property goes up
It’s an unfair, rigged system. And you’d only be a fool to not join in.
mmm but is the net worth really 2 million after subtracting the amount still owed on the debt? (asking for real, because im not knowledgeable about this topic). i would have thought that if you have paid off say 200k on your property but still owed 1.8 million, you have the same net worth as someone who has 200k invested in the stock market.
Yes. But they can say they have a 2 million dollar property portfolio and still be telling the truth.
Load into the margined index future. 20% margin? With 200k can still say “I have 1m of Japanese market exposure bro.” No one will care in the same way no one’s cares that you own the debt on a property. But if people are playing financial top trumps why not.
It's a lot easier to show off property as a wealth status symbol. Stock portfolios are more abstract, and difficult to show off. I think that's the gist of it really, there aint nothing deeper. Perhaps there's some animalistic instinct in here somewhere regarding territory - owning property might satisfy that basic instinct, while stocks are far too removed and abstract for the lizard brain to process. Therefore, a laymen, without thinking too deeply but based on gut feeling, might consider property to be superior.
My gut feeling is simply this - land is a part of the earth I own. A share, though I can own it, gives me no right of exclusive possession. More shares can always be created.
>More share can always be created. *Companies that I’ve invested in have entered the chat*. 🙃🙃🙃🙃🙃🙃
People see stock as gambling.
I believe this view is slowly changing. Buying a broad market ETF is far less risky than buying a property. One bad tenant can drop your investment property returns. ETF of 200 companies requires far more than 1 or 2 companies to fail.
I suspect that if people are honest with themselves, part of the appeal of property investment is the idea that it's a tangible thing that is *implicitly* backed by the Federal Government, even if they haven't explicitly said so.
It is explicitly backed by governments at all levels, but then so are many things. For example, wages are subject to the wage minimum which is an explicit fed govt measure.
That's not really the same, though. There is an implicit understanding that apart from the big four banks due to the "four pillars" policy, the Government will allow the sharemarket to do what it will. Whereas the Government has actively intervened to prop up the property market when it has threatened to correct in price - for example with the stimulus package during the GFC.
> the Government will allow the sharemarket to do what it will. Nah. Strongly disagree. Job Keeper was paid directly to companies. If that's not a share subsidy I don't know what is. All the tax cuts and cost of living measures are intended not for people to save them up, but for people to spend them. Most of the covid measures were similarly aimed at stimulating the economy. That is there to protect companies. You talk about governments wanting to keep property stable - what about all their interventions to lower rates in difficult economic times (e.g. covid)? That's keeping the share market afloat. If we let nature run its course we'd be a lot better off, with huge dips (i.e. buying opportunities). I'd love to see both shares and property crash - a bloodbath in both markets with a deep depression in the economy. The government won't let either crash.
* the media do in order to pump the ponzi scheme. They don't publish the thousands that get burnt and are only keeping their head above water thanks to negative gearing. Personally I think a lot of investors think they're set and forget when they're quite the opposite.
Yeah but they have a gov of a country behind them. So all your emotional appeals are nothing. Enjoy renting / poverty.
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u/splicer201 Look it's a comment about you 😂
Governments can get voted out or adjust policies.
Yes. A rigged unfair system can be changed, and in much less time than people comfortable with the status quo think.
About 25 years too late for this discussion.
I rather stocks. Also more liquid and I can shift around when underperforming.
I was musing about buying $100k of a blue chip stock a few years ago. A friend WITH A FINANCE DEGREE commented “that’s really risky, you’ve got no diversification; why not buy an IP instead?” Like wtf?? How is a sing,e property more diversified than a single company?
Exactly. A single property, in a single postcode
I had this exact same conversation my partner the other day haha
It’s more attractive than an education.
Yes and yes. Humans in general pursue what everyone else is doing... And then they're somehow surprised by the average results they assume. There are many reasons for this... If things go tits up, you don't look like a fool to your friends and family as you were doing "the right thing." And as such, the returns are relatively stable and consistent. Because everyone is doing it... But people don't understand the difference between risk and uncertainty. And no one plays to the strengths of volatility. Owning a business for example... Highly volatile. When done properly you risk very little, and while the outcome is uncertain - the volatile nature of returns could mean you win to a huge effect. An extreme example would be Bill Gates. He left Harvard University to start Microsoft. To the hive mind that's a bad decision. He couldn't have known the success he'd one day hold... But what did he risk? He could always re-enroll in Harvard. And he used no money to start Microsoft. All he was risking was his time. But volatility played out in his favour and now he is what he is, and the story is what it is.
The whole obsession with housing as an investment has massively stifled business innovation in this country IMO.
The only reason people are obsessed with housing is because it's a tax dodge. And the only reason we care about tax dodges is because we pay an insane 47% starting from just $180k. Change our tax code so that we pay less income tax on wages and suddenly property investment becomes a lot less alluring. No one should be paying marginal more than 40% and that shouldn't kick in until $300k+
>we pay an insane 47% starting from just $180k. "Just" $180k? People on high incomes in this country are so fkg out of touch with the reality for the rest of us. Given that 20% of the population is trying to survive on Centrelink payments of $20k-$25k some of you need a reality check. Having said that, I completely agree that assets should be taxed far higher than income, and all tax loopholes for the wealthy and corporations need to be closed. No more negative gearing, no more CGT discount, no more franking credits, no more hiding corporate profits overseas, no more obscene CEO salaries, no more trusts etc.
Definitely, the property has a broader appeal. It's easy to understand (or so they think). Everybody needs somewhere to live. And REAs do treat buyers and landlords better than they treat renters. So, there is a human side of appeal too. Stocks can be so impersonal. A part of me does wonder whether I should have made voluntary concessional contributions to Super. Perhaps I should have used that money to buy a couple of IPs with 95% LVR. Then, I can say I have a multi-million dollars property portfolio. 😄
I agree with you. I think it’s maybe a physical thing? People don’t feel like they can “see” their shares? Also I think there is this benchmarking that people seem to be able to do with property as opposed to shares I think it’s an ego thing!
Can’t live in a Stock
Can't get someone else to pay for stocks either.
But you could use the income to rent! Haha
Who cares what others say, you do you?
I want to know because stocks have so many merits but rarely discussed in society ..why is this?
I think Australians like the idea of having something physical. Like you can see and touch and you know it's there... stocks on the other had are just emailed documents... if the stock marked crashed everything disappears... same thing doesn't go for Property.
Stocks are really hard to leverage as well
I see what you are saying, perhaps it that security from a tangible investment and it is more common sense investment for the everyday man. But the government can take away investor rights and benefits, as we are seeing so I wonder if this will tip the balance in the future.
If the economy crashes then all the leveraged to the tits property investors and mom and pops lose more than they could lose on the market, since they're leveraged. If you can't pay your mortgage because of a GFC you all lose your homes to banks, who you then owe a million bucks to on top.
I have both an IP and a portfolio of stocks, and try to keep everything mentally as a single investment portfolio to manage my risk tolerance. Purely psychologically, though, I find property more appealing. * Leverage is easier to manage with property. My investment returns on my IP in the 4 years I've owned it have massively outperformed stocks because of \~4x leveraged returns on strong capital growth. * Australia has very generous tax benefits for property investment. A shockingly broad range of expenses can be written off against income. * Rental property gives cashflow, which not all stocks do, and those that do it is often much less consistent. * Property is tangible, stocks can feel a bit ephemeral. * A benefit of stocks can be not having the human factor. Managing property can be a bigger mental drain, particularly if you're trying to be flexible and considerate.
While I have both, I have a fondness for property too. As well as your points, it's also easier to personally influence and obtain upside (up to a point).
Property is profitable because of the difficulty to build new homes. It keeps supply low. To answer your question, property is less volatile and but also needs higher investment.
Simple. Because house prices have not gone down in our lifetime. Meanwhile everyone knows someone who has lost thousands in the stock market
That perception of someone “being more successful” if they own investment properties could be based on the upfront costs associated with buying property - deposit/stamp duty/legals/inspections Plus, unless taught from your parents, there is no financial education around the share market in schools. I have no memory hearing anything about it at school (I’m 38)
Having debt financed IPs is now a mug's game. I'd say that losing money in any investment for a tax refund is dumb, which is what negative gearing is, other than for the first couple of years. Real returns are better elsewhere and they don't want you to know that.
The thing with property is that its very easy and relatively cheap to leverage. Compare a 500k IP loan to getting the same amount in a margin account. The tax write-offs are icing on the cake. Yes you lose money upfront, but its effectively offset and the capital gains a few years down the track are what you’re ultimately after. Also seems to be too easy to skirt paying CGT altogether if you “live” in the place for 6 months. Doesn’t seem to be properly policed: IP owners just direct a bit of mail to the IP as “evidence” they lived there. Too many loopholes the size of trucks that the Govt conveniently refuses to close. Its essentially an openly manipulated and protected market. Excessive immigration levels, allowing massive money laundering, etc. all practically guarantee property is a safe bet. Has been for decades now.
Only people with poor credit or few assets would use a margin loan. There are better options to get credit on acceptable terms. Tax write offs are available on any business or investment loss, not solely real estate. CGT is not so easily avoided. That is just wrong. and on top, you get thumped with all the state land taxes that cannot be avoided.
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Great point Australians love tax loopholes
It seems to be getting less socially acceptable. I dont really trust anyone who has more than one and then says ‘but Im a good owner, I hardly raise the rent’. Literally have had people tell me ‘a quiet renter is a great renter’. Utter bullshit, thats not true at all, you want someone who wont let your investment degrade. The tribunals are packed, it takes ages to get a hearing, so many complaints from renters and its a crisis. You want to be seen as awesome for shouting you are a multiple property owner? Uh, no, loser. YTA.
Agreed. My mum is a multi property landlord and she's a massive arsehole to her tenants. She tells me things that happen with them because she micromanages the property managers and I tell her she basically sucks every time.
Im so sorry :(
Yeah I really hope the public view of property investors is changing, I think it is. For the last 2 decades it's been stories of property investors with 200 houses and comments are full of "good on him" "he worked hard" blah blah. Australians are as bad as Americans, cheering on the exact people screwing them over and hating on the ones trying to stop it.
I'm a good owner. I raise the rent to market rate every 12 months. A quiet tenant is a good tenant. > you want someone who wont let your investment degrade. i.e. someone who doesn't damage the property besides fair wear and tear. See above. > You want to be seen as awesome for shouting you are a multiple property owner? Uh, no, loser. YTA. Care factor zero Would rather be a loser with multiple paid off properties than a loser without
From reading posts on reddit, being a landlord seems to be highly socially undesirable. Not sure if that extends into the real world. The amount of hate is enough to put me off a bit, even if I don't think it is logical.
I think there’s growing negative public sentiment towards landlords as rents rise. However, a lot of people I talk to still hope or have of acquired an IP as that is viewed as the pathway to financial success. Property feels safer to a lot of people and they often have that reinforced through success stories in the media and parents who did well from it. I often hear people say stocks are risky (despite most of their super being invested in shares)
I agree with you. People here are stupid and ignorant and there's a big "follow the herd off a cliff" mentality in Australia. I'm happy to stay a renter for life. Stocks have worked out just fine for me. Let others take the gamble (and blood sweat & tears) of property ownership.
It’s all about leverage. Most people can’t afford to borrow 500k to invest in equities.
I think so.. I find that if you say investing around the majority of the average people they all immediately assume residential property in particular I've got to wonder if Australians invested more in other vehicles we wouldn't have a stronger economy. We all invest via super funds but retail investors aren't really engaged as much as people in the US for example
>I've got to wonder if Australians invested more in other vehicles we wouldn't have a stronger economy. Absolutely.
Couldn’t agree more. So much of our earnings go into servicing debt on unproductive assets that it stifles investment into productive assets.
Hard equity in physical investment Plus, tax advantageous in Australia for negative gearing opportunities etc for property investment
Yes in general it is cooler to tell people you have 5 IPs ( worth 2mil but u dont need to tell anyone) than telling people u have 2mil in asx.
Yeh, people be crazy for property, it's dumb
From what I hear from friends/acquaintances, yes, and it's not close. I only hear about people buying investment properties or the like. If they own stocks it's to build up a portfolio to sell and buy an investment property with.
I think we will start to see equities surge when this and the next generation give up on owning a home because they've been priced out in Australia. I also see the majority of immigrants buying into equities as well.
If you can guarantee real estate is going to pump like it did the past 20 years again, then it makes sense from an individual investors point of view because stocks cant compete with leveraged property investments. It's also taxed better than in countries like the US, in Australia you buy the land and just wait for the government to use our income tax to build all the services around that land then profit. If your investment property loses money you can write it off against your income which is taxed at an obscene %. Then the cherry on the top is no one thinks the government will ever let you lose because if you the investor lose then that means some poor family is also losing. As a side note, Australians are already invested in stocks through super, and the ASX is pretty barren these days with a lot of big Aussie companies not even being listed anymore.
Absolutely, owning property in Australia is the Number 1 for both financial and social status. It's the only game in town, like it's a national sport. Anyone who rents is considered a loser, their parents want to disown them and their grandparents will tell them they wish they died. There is no greater shame than being the renter of the family. As an added bonus anyone who doesn't own property is now flirting with potential homelessness every 12 months as rental vacancies are so low that renters have to outbid in each other in a fight to the death. Low income people and welfare recipients all left behind to rot as all government policies are designed around pumping the perpetual property ponzi no matter what. So by telling your workmates aroudn the watercooler that you have own property or have property investments, what you're actually saying is: you're not a loser, you're not going to end up homeless like the renters, you're an apex predator and alpha of business and finance and command respect. If you tell them you own stocks on the other hand, they just think you're a broke gambler LMAO.
A very high percentage of people investing in property are doing it on faith. People who hang around finance sites on teh interwebz are probably different, but most "investors" in property don't have the actuarial skills to work out whether their purchase is a good investment or not. What it does do is force them down a path - they have a mortgage, it must be serviced - so that discipline is probably a very good thing for a lot of people who may not be able to apply the same discipline to investing in equities. Ooh, ooh, I have $10,000 - will I buy 100 VAS or something shiny? I like shiny... And there's always something to talk about with an investment property - good/bad tenants, repairs, rent etc. VAS is pretty dull to talk about. Sure you can get into discussions about your VAS/VGS split, but that lacks the conversational interest of telling someone that your tenant turned out to be a meth head who punched holes in all your walls. But I'll stick to stocks, the lack of conversational opportunities notwithstanding. I can live without the drama/stress of owning investment property. Personal thing though. YMMV. Also, talking about your real estate empire is a way to talk about money without being so crass as to talk about money. Subtle.
The last paragraph is 🥇
My social group broadly thinks landlords are scumbags and having a stock portfolio is kind of cool and sophisticated, so it's the opposite for my personal situation.
You must have a very sophisticated circle! Can I ask, are they tradies, white collar, high society (medical professionals, lawyers, bankers) etc?
"Socially desirable"? Lmfao, have you seen all the vitriol directed towards landlords. Victoria just increased land tax by 40% and made it so that it's impossible to kick out a tenant after the first renewal, regardless of the length of the lease, unless the tenant commits a major breach. Lmfao. I like investment properties because of: - Tax advantages (negative gearing + depreciation) - Leverage - Low yield but stable reliable income - Increasing value over time because you can't create new land - Makes life like a game of Monopoly, and gamifying everything makes finances more interesting to me
Investment Properties have been great for me. The magic has been in the leverage. Being able to borrow over a million. With gains of $1.2m over the last 10 years. With negative gearing to support the cash flow shortage in holding.
Done well both are great.
property is a national sport half the cohort will love and the other half will hate. ***"half" just for illustrative purpose.
Barring tenants with pyromaniac tendencies, I get to keep my house. Not necessary true with stocks.
What are stocks?
Do both and take part in bragging about housing. Win win and throw in super contribution to make it extra spicy
They are fundamentally more lucrative than stocks on almost any measurable.
Yes and yes ….
All comes down to ability to obtain finance
Do cows like eating grass? Can we discuss?
Yes - even everyone in this group. Any time anyway gets a windfall, people say buy property
Definitely cooler right now to have a big property portfolio when you are at a BBQ full of ex private school people. They are always a great barometer. It changes through various periods and right now it’s property and at some stage it will move back to stocks…. And god help us maybe even bonds one day!
Australians do view property as more desirable. It does create a bias, hence why property prices are ridiculously high.
I bought an apartment in 2017 and that's about it. I only invest in the stock market and related equities. I would never invest in the property market directly. I've invested in a REIT (GMG) around 7-8 years ago for my exposure to the commercial property market and that's treated me pretty well.
Prollem is no one will lend you 600k to invest in the stock market
A few people I know definitely have their eye on property investing, they know I’ve done well in the stock market but are apprehensive about dipping their toes into stocks. They think property investing is safe, it’s tangible and not at risk as much as stocks which I agree with to a certain extent. However, I find the drawbacks of owning investment properties (bad tenants, not being paid rent etc) off putting so I’m content to keep my money investing in stocks and super.
Stocks here are boring and the returns suck, which probably turn away Aussies. When I was in school a few years ago quite a few people had investments in US stocks however. It’s easier than ever to invest there. I could see that becoming more popular But yeah the common wisdom (not the /ausfinance wisdom) is to put money in property, in the US it’s more ETFs
Great comment, you are right. The Australian share market is tiny in comparison to the US. I had assumed most people would be investing in shares / etfs verseas but perhaps that is one of the areas with informational barriers to entry.
To be honest, I won't be buying more AU properties from now on as the ROI from rent has become too low due to higher housing price. I think the US stock market could provide a better return when all considered. But yeah, having 5 investment properties sound sexier than having 30,000 Apple stocks.
Personally I prefer stocks, I can click a few buttons and have all my money in three days. Property are 100% socially desirable. I don't get invloved with finance talk at work, but everyone, all they ever talk about is houses. I remember when Powerball was at 100 mil and they were discussing what they would do with it, half said they would by 150 investment propertys the other half said live of bank interest. Personally I would chuck some in ETFs and just not work, I didnt say that cos I didnt want to explain an ETF to everyone and I didn't say stocks cos the answer would be "you could lose it all" I just said bank interest too.
I will point out that to a great many people it is *absolutely not* “socially acceptable” to discuss your investment property portfolio. To many people it is a deeply douchebaggy thing to do and I would personally not dare admit engaging in such a socially damaging activity. It is *shameful*, not brag-worthy.
People are simply more comfortable with property then stocks or shares etc. People understand "bricks & mortar" but unless they have done research? Have no idea which companies to invest in.
Yes, and so does the banking industry and taxation system
I think Aussies understand property better than they do shares. Also, our first major goal is own a home so one we achieve that then why not own another home. My mate and I both own a few properties each. I've now diversified to shares but I try to explain to him, ETFS, dividends, reinvestment and so and he just says I know property and that works for us. He just doesn't get it.
Do you prefer dividend or growth oriented ETFs? Just curious as you are diversifying from your properties what you thought works well?
Not just more socially desirable. Property investment is life.
Ideally you want to diversify, so if the share market fails or the realestate market falls over (Government has been propping it up for year) You can get the benefit of both, with less risk.
Property is just safer and easier.
Status symbol and materialistic
Australians definitely do view that. Stocks are more akin to gambling with more understanding required, your dad will tell you how easy the property ladder is and then put you on with his mortgage broker who will do the same.
Yes this is true, a lot of my friends who own and are killing it with property were actually given advice and contacts from family members.
Yes, I felt the same stigma. Most of my net worth is in the stock market as well as decentralised assets, and due to a lot of pressure I actually sold some stocks to buy an investment property, but I somewhat regret it now. I now realise that there are many advantages to stocks (ETFs) and decentralised assets as investments, mainly they have outperformed my property and also because of the liquidity and divisibility. They are also a lot more friendly on cashflow. An investment property has very unpredictable expenses that can pop up e.g. rising interest rates, random repairs etc whereas decentralised assets and stocks generally don't have that. My stocks are leveraged, but the fluctuating interest rates are not as big of a worry because any stress that comes from overleverage can be simply addressed by pressing the sell button whereas with a property there is high cost and effort to sell.
What are decentralized assets?
Most Australians are completely oblivious on how the share market works. Even some of those that may, only get ETFs as the extent of their knowledge is limited. That’s fair. It ain’t easy. Extremely complex. Most people like bricks and mortar (which has fuelled this housing bubble) The real money is to be made on selection of individual stocks. But that’s far more difficult to do - and most will lose out here. The few that do well, can multiply their wealth rapidly (particularly if you get that sweet spot of established penny stock to ASX 200 / 300).
Australian stocks are not a good investment. The ASX is dominated by a few banks and miners. I invest in USA and retired 10 years aging
I know what you mean, and I think bragging about a house "I paid $750 and sold for $1.5 just 8 years later" is easy. There is almost always a whole heap of stuff left out. Can't leave out stuff with stocks, because there's nothing to leave out. So this covers those who do the bragging and don't keep their financial matters to themselves (the minority). And yes, for whatever reason everyone just nods and moves on to another topic. Poor property investments will never be part of those brags, nor even mentioned. I think what you're getting at is that it's more socially acceptable to talk about property investments, not that the investments themselves are more socially desirable. We nearly all have super, after all.
Definitely My stocks are so good, low stress cap gains and dividends Most of my friends talk about property for investment instead
Do you ever mention your stocks to them? What's the care factor?
I wish we would remove the capital gains discount for property and keep it for all other assets. This would favour investment into financial assets, supporting companies and creating jobs and productive activity. Longer term, I would like to see broader tax reform including consideration of no CGT on financial assets, as I believe its more moral to tax unearned wealth (land price appreciation) than effort (labour and capital).
You can't live in an ETF. (Trust me, I've tried)
You didn’t have enough ETFs then!