Does property offer better returns vs. risk for beginners?

[jjbinks]

Hey asfers,

This is something I've been thinking about for a while. Do stocks or property offer me who is a beginner better options.

My situation I think would be similar to many others.

I have 50,000 to invest. If I wait another year should have close to 100k.

Options
Shares - realistic return 5-10% pa over long run.
At 10% that would be 5000 but it is uncertain and could be much less.

Buying own home or investment property- I can get a home lone with 10% deposit. So can safely buy something worth 400k.
Realistically I should be able to better the interest rate by at least 1-2%.
So that would give me 4,000-8,000 return.

So basically a conservative underestimate of property returns is as good or better than returns from shares due to the extra leverage.

Of course one could get a margin loan but the risks are too high for beginners like myself.

Summary: property offers leverage at lower risk and so offers safer and higher returns for beginners.

 

[TheUnknown]

5%-10% pa? why would you bother and risk it if you are aiming for that go put it in a term deposit

 

[Zedd]

I think similar returns can be made from both asset classes, with the less risk in property price movements being weighed against the higher liquidity of stock. And leverage increases risk (and returns) regardless.

I think the question you need to ask is what makes you think you can pick real estate any better than you can pick stocks?

 

[jjbinks]

I think the risk of leverage with shares is disproportionately high due margin calls.

So property offers a much safer way to leverage your investment.

I agree that liquidity of share is a big plus but if you have clear long term focus and plan your life expenses I don't think that matters
that much.

 

[Klogg]

So property offers a much safer way to leverage your investment.

...really? That's not really how I see it.

On property returns:
The property market generally moves as a whole and you generally have an agent telling the vendor what their house is worth. Therefore, it's very, very hard to find a 'bargain'.

In the stock market, even though you have financial advisors (lol), you don't have anyone who really knows every stock. So if you dig through enough mud and dirt, you'll eventually uncover something worthwhile.
If you do this well enough, you'll absolutely smash any property returns (unless you start building/renovating).

On leverage:
Debt is debt, the bank can theoretically call in their loan when they feel there is no longer sufficient equity. They just don't do it with property because it'll trigger a domino effect.
Not to mention that a loan on a house takes up a considerable amount of your disposable income, locking you into that particular investment for a while.

And finally, Sirosisofliver (Not 100% on the spelling) and a few others wrote a thread on investment basics and some examples of PPOR vs IP. It's one of the greatest pieces I've seen on the pros/cons of each, so I'd definitely read that if I were you.

 

[VSntchr]

Im choosing shares over property. I have no fear of renting for the foreseeable future..mainly as I dont know where Il be in the next 12 months as I may change careers/go overseas.

Thats my personal situation but theoretically I still prefer shares. I think the potential returns are much much better and the only reason property even comes close is due to the massive leverage. The latest property boom has been very kind to those who took up the leverage - but currently and going forward I think we are seeing the impact of what happens when the leverage remains and the growth stops.

I have many friends who thought they were being "switched on" and "pro-active" and "ahead of the game" by using their money to buy houses in 2008-2010ish....(these are people in early 20's).
Not one of them is ahead after taking inflation into account - they are about flat...and they have been paying interest the whole time.....

Meanwhile Ive been in the market and while this latest financial year has been my first year of BUMPER returns - I have learnt far more than those who simply throw their money in a property and think they are ahead of the game...

Basically I feel like I am getting a thorough education on investments and getting some nice compensation along the way...so for me its shares for the win!

 

[FlyingFox]

...
Realistically I should be able to better the interest rate by at least 1-2%.
...

Only if you are guaranteed 6-8% capital growth. On income alone, the majority of properties' net rate of return will be at or below current interest rates. Of course you can find some good positive geared ones but this is the minority.

Unless you will save a big chunk in negative gearing and are assured of good capital gains, I would seriously reconsider investing in property (but I am biased so take it with a big grain of salt).

Why not have a diversified portfolio. TD + stock and whatever else takes your fancy.

 

[TheUnknown]

How about best of both worlds?

Develop property & sell most of it
+
Shares.

 

[robz7777]

Hey asfers,

I have 50,000 to invest. If I wait another year should have close to 100k.

Buying own home or investment property- I can get a home lone with 10% deposit. So can safely buy something worth 400k.

Summary: property offers leverage at lower risk and so offers safer and higher returns for beginners.

Really comes down to a lifestyle choice.. Own home vs renting, then if renting property, shares, other...

Gotta remember no capital gains on the own home... And you don't want to pay mortgage insurance if you have a deposit of less than 20%...