Property Versus Shares

If you did not ask, you probably heard that up - "So what is the best investment, property or shares? Forum is typically a backyard barbecue with friends and family and of course it will be interesting to some ardent supporters of one asset class to another, is added to the mixture of its two hundred dollars turned home wisdom.

After hearing too many uninformed answers to this question, I decided to write this short article describing my views on the subject. As an investor of real estate investors and qualified financial planner I hope to give you a more intuitive than what you may have heard in the previous answer.

First let's take a look at the reasons for investing in real estate and stocks, respectively.

Reasons to Invest in Property

Easier to understand 

- Property investment is generally easier to understand that social investment. While real estate investing requires a certain level of sophistication, which does not require the same level of expertise that share investment.

Tangibility 

- Property investment provides tangible evidence that your hard earned money goes. It is much more rewarding hike through property investment in the aisles of a Woolworths store in which you are a shareholder.

Control 

- Investing in property offers investors a greater level of control over your investment. When making investment decisions influence property has total investment compared to stock investor whose influence is as great as their right to vote.

Potential to add value 

 - The property offers an investor the opportunity to improve its value is the renovation or development. This feature is not available for actions short of becoming a board member or create your own publicly traded company.

High gearing 

- Property that relatively small amounts of money to investors to gain exposure to relatively large assets. The property is a unique form of security for banks and in some cases can be fully funded without recourse beyond the property. Shares on the other hand are usually funded up to 70% and the lender has recourse through margin calls against the investor in the LVR is violated.

Low volatility

  - The property has always provided low volatility relative to equities, despite the rarity of valuation bias the results.

High long term returns

  - The property has always provided high returns over the long term, especially compared to fixed interest and cash.

Tax efficiency 

 - The property has a high degree of tax efficiency for a number of reasons. First, the returns are composed of a growth component that can be imposed on preferential terms (if held for more than 12 months) with the reduction of capital gains taxes. Second, the property can be strongly oriented resulting in a high deductible interest component. Third, the property allows the deduction of depreciation of a component for the construction of the slab and equipment that improves performance after taxes.

Reasons to Invest in Shares

High liquidity 

 - Stocks often provide greater liquidity to the property. While a line of credit secured by a property can help with the problem, which is not always desirable to increase loans when you need the money.

High Divisibility 

- A stock portfolio is much easier to divide a property portfolio as well as small amounts of cash requires an investor can sell shares for a similar value of shares when a real estate investor is forced to sell a property.

Low minimum investment 

- Stocks offer the opportunity to invest small amounts of money from the property. If you only have $ 5,000 to invest you will not have trouble finding stocks to buy, but good luck finding an investment property for that amount of money.

Low transaction costs 

- Actions involve transaction costs well below those assets. The only costs involved in intermediation shares are traded both in the acquisition and disposition. Property change involves stamp duty, statutory inspections and in relation to the purchase and sale commission legal advertising, agent.

Low ongoing costs 

- Actions involve significantly lower cost of ownership. Indeed, direct participation involves no ongoing costs, while the property may involve community costs, insurance, property taxes, rental costs, maintenance costs, management fees, rates and repair costs.

Diversification 

 - Due to the decline in share price in relation to the property, it is possible to achieve greater diversification by investing their money in stocks. For example, if you have $ 100,000 to invest, you can choose to issue $ 5,000 in packs of 20 companies from 20 different market sectors. For an equivalent amount of money you would have the opportunity to buy a property without a team.

Timely performance appraisal 

 - The shares of listed companies allow investors to make a rapid assessment of the quality and performance of your portfolio. The investor of action may simply call your broker or see your portfolio value online when the real estate investor has to obtain market valuations and appraisals or all of their property before assessing the performance and value of its portfolio.

High long term returns 

 - Like the real estate stocks have historically provided higher returns over the long term, especially in comparison with fixed interest and cash.

Tax efficiency 

- The shares have a high degree of tax efficiency for a number of reasons. First, the returns are composed of a growth component that can be imposed on preferential terms (if held for more than 12 months) with the reduction of capital gains taxes. Second, actions can be relatively buoyant resulting in a relatively high deductible interest component. Third, many Australian stocks offer dividends franking credits that can be used to compensate investors with tax obligations. In other words, income per fully paid share dividends provides a tax free income to investors of the action in the marginal tax rate of 30%.

The Returns

At the end of the day you can have all the benefits we have spoken, but the bottom of most investors yields. Although we all know that past performance is no guarantee of future results, we are still interested in how they played the asset classes in the past. So now let's turn our attention to the property and share the historical returns.

Over the years, I have seen both sides of the ardent supporters of research in the air waving camp support its assertion that the preferred asset class has always offered the best performance. Some have shares owned and some have slightly exceeding slightly surpassing shares or property taxes on or before the tax base station.

How is this possible you may ask? Well, back to the period of evaluation of research. As with all other asset classes, real estate securities and stocks move in cycles. It is therefore logical that the measurement period that incorporates more peaks and valleys less provide superior performance for the period. Due to the property and generally actions do not move in harmony with each other, each have peaks and valleys at different times of the cycle. Different periods of measures that capture and therefore can provide significant variations in the results.

These are the results of a report commissioned by ASX Perrin Cities. The evaluation period is only one year apart and used for a considerable amount of time to provide the most relevant information.

10 Years To December 2003

Property 12.7%

Shares 8.0%

20 Years To December 2003

Property 15.1%

Shares 11.7%

10 Years To December 2004

Property 11.6%

Shares 11.7%

To December 2004

Property 12.9%

Shares 13.2%

Source: ASX Investment sector performance report Perrin Cities

So what can we do with these results. Okay, enough with that property and shares each provided a long-term relatively high beyond all other traditional asset classes provide.

Conclusion

Property or shares? Given the comparability of historical returns and the many benefits they have everything it should be obvious that the question should not be owned or actions, but rather how and what parts of the property.

So next time you're at a barbecue and misinformed friends pipes up near the property or shares is far superior to the other, be kind to them their ignorance and encourage them to seek professional help finance!

Oh, and when it comes to buying merchandise for your portfolio, do not pay the retail price as everyone else, to acquire property intelligently by extending absolute costs developers. It's easier than you think .

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Mistakes to Avoid when Buying or Rental Property

If you are looking to invest in a vacation? With the housing market in the dumps, many entrepreneurs looking to buy cheap rent. Indeed, in this market, tight credit, if you have cash available, you can pick up a small house or even a duplex at a decent price, you can rent.



However, for those of you looking to jump for the first time, you must understand the risks of owning a rental. This is a true friend Jay knows that covers some of the mistakes that many novice investors make horror story of my good rental. This is not to scare you. However, it is intended to inform you about the risks with the intention of making a smart investor. If you know what to look for, you can avoid these mistakes that made ​​my friend.

In late 2004, Jay was desperate to get into the real estate game. I had read about real estate investment in the last year and was ready to go and start. As we all remember, was the height of the real estate market.

Mistake ( 1 ):

 - Do not choose tenants carefully. It is imperative that steps are taken to protect your investment by paying attention during the hiring process. While you must comply with the laws of landlord / tenant in its anti-discrimination, you have the right to require a good credit history and rental references.The inspection report indicates that the repairs were necessary for roofing, siding and furnace. However, my friend assumes that none of these elements was urgent and would be able to take care of them later down the road. In addition, the owner sold "as is" no negotiations. One day after closing, Jay received a call from a tenant in a panic saying that your oven is dead. The average estimate of HVAC contractors to replace the furnace is $ 3,000.

Mistake( 2 ) and ( 3 ):

 - Allow the seller to make all decisions in the negotiations and not be educated by the high cost of some repairs. Make sure you know what are the typical costs and if you can afford it. Never pay full price for the property has deferred maintenance. Remember you can always walk if the seller is willing to work with you, if the market is high or low.The ownership of Jay and the adjacent triplex used to be on a parcel tax. Before the sale, the former owner divided the property, which is more common than people realize multifamily properties. Neighborhood with an easement granted to the adjacent triplex was recorded with the county. The easement is for the use of parking. Jay and lot owner is responsible for their maintenance (keeping clear the snow and ice in winter and fixing potholes). However, the adjacent landowner and his tenants free use of the land and tenants Jay often struggle for a place to park. No maintenance of the common elements of the contract or covenants, conditions and restrictions (CC & Rs) in place governing the use of the parcel. There are no restrictions on the shelves of tenants, is synonymous with clients or maintenance required contributions for adjacent lot. Jay has all the responsibility without anything in return.

Mistake ( 4 ):

- Not due diligence in the special conditions of the property. Each time you find a property that has been subdivided into an adjacent property, or any property or equipment shares common characteristics, to ensure that maintenance of the common areas necessary agreements are in place before the sale. Ask the seller to provide all documents and agreements should not have been recorded and carefully inspect the report title.In the fourth year of ownership, the property does not charge flow. There are many turnovers housing, rents are difficult to maintain and reserves are depleted. Jay also thought I would be able to manage the property yourself to save money. Shortly after the purchase, he soon realized that he had to hire a manager to collect rent and eviction process for tenants who do not pay. Management fees significantly eat into their monthly rental collections and Jay is out of pocket to cover part of the mortgage and property taxes.

Mistake( 5 ):

- No analysis of projected cash flows of the property. You can avoid paying too much for creating a proforma adequate cash flow. When you buy an income property, you should analyze income and expenses of the property from the actual data provided by the seller, and then make adjustments to take into account the loss of vacancies and potential credit repair. You must also take into account the management fee, because if you're new at this, chances are you're not ready to be a property manager. If rents are not sufficient to cover these expenses, ask yourself if you are really willing to pay the bill every month.There is one last error that Jay has done and that is what has caught much in this crisis.

Mistake ( 6 ):

- Taking the wrong mortgage for investment. Get adequate funding is so important to any investment you are considering, whether it is an investment in real estate or a new business. The issue is larger, then this article may be covered. Furthermore, very few innovative financing options are dangerous these days. However, obtaining financing is crucial to your cash flow and stability of your investment.***Jay still struggling to dig its way out of your investment. He appears as a short sale for $ 49,000 less than they paid for it. He had already lost thousands of dollars in repairs, legal fees and lost rents. If this is the case, is likely to sell another hit $ 20,000 to $ 30,000. It would then be facing a potential deficit judgment if the lender decides to sue you for the difference between the outstanding loan balance and the sale. At a minimum, you should expect to pay taxes on the "gain", the amount remitted by the lender in a short sale.When Jay heard his friend speak to benefit from low prices and jump into the game, you will be invited to enjoy a coffee or a beer to share their experiences in hopes of discouraging. My hope is, however, not prevent, but we urge anyone considering buying a rental caution and perform due diligence. Familiar with landlord / tenant state laws, property management companies and research to know what cash flow you can expect. Holiday apartment can be a great investment and good way to get into the property set. Make sure you do not pass after the first roll of the dice.

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Property Investment as a Business

 How to Plan and Start

 

PropertyInvestment Business Plan

Property Investment: a Business

If you plan to invest in the property of one of the key concepts to remember is that you are, in effect, to go into business. Buying a property is not the same as buying stocks and putting them in the top drawer. The investment property is much more active, even if you hire a professional property managers and maintenance that you should always consider your investment property as a company staff. Your customers are your tenants and their actions are your rental properties. Any book small business will tell you that if you do not plan you plan to fail. You need to start your career in real estate investment not hang open houses and real estate offices, but with a business plan.

Your Property Investment Business Plan:

What are your goals with your real estate business? Many people, after deciding that the property is for them, jump to take a look at the local level "for sale" lists of websites, newspapers and magazines property. This is not a good place to start. Instead, you must decide what you want your new business. Every good business begins with a business plan. What is your goal: to create a source of income for retirement? Would you buy an asset to live or to sell? Want to access tax benefits? A good goal is a SMART goal is: 

Specific 
Measurable 
Achievement 
Realistic 
Time -bound. 

So, from an idea - I would invest in real estate, through the exercise: Specific: This type of property, apartments, houses, you want captial gains, rental returns at once? Who will know when you have achieved your goals: measure your income tax, capital gains, how? The plan is feasible - can not afford the payments without compromising your current lifestyle? What if you lose your job, get sick - you have the proper insurance in place. What is your schedule? When do you want your plan implemented in five, 10, 20? Is it realistic, feasible?The whole process is circular - you can start at the end - you could X million worth of goods in the year Y - but if it is going to require a capital increase twice the average of the last 10 years required to commit 50% of your current income? Do not return to work, tips take more than one iteration - even if you install on a plan that should not be a static document gathering dust in the bottom drawer. Instead of reviewing at least annually, if not quarterly - is still working - has changed the real estate market? Is this your family situation?

Create your team:property investment business plan

Although it probably will not now be used you will definitely need some professionals to be on your team. Try to develop relationships with professionals who can relate and most importantly understand your real estate goals. Professionals that you should look at the development of relations with are: accountant, attorney, property manager, mortgage broker, maintenance experts, Realtors.

Now Implement your plan: property investment business plan

Although many into investment properties without considering the plan, others are trapped in the planning and suffer "analysis paralysis" - but not always planning act. Fear that the best returns are missing and too late on the market for profit. There is some truth in the old real estate remained "Now is the best time to buy" - but they would say no!

    How ever, now has a plan that you know in which direction - it is easy to focus on what you want: if your goal is to acquire a student flat you know the suburbs to buy in. If you want to buy a property and then just renew search "renovator's delight." It is not easy, but at least you have a plan to work with.

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Property finance

The One Percent Rule for Investment Property Financing

 

Analyzing Your Next Investment Property

The conditions of the market to consider purchasing an investment property, namely, single-family homes. First, there is a large supply of homes available across the country. Second, interest rates on mortgages of movables and investment rates are very favorable. And finally, there are many people who have lost their homes and need a place to live. The recent housing bust has created an increased supply and increased demand in the market for rental properties.

There are many things to consider when buying a rental property. Is this the right place? Do I have to make repairs? How I can rent the property? Who will manage the tenants? Will I have a cash flow in this property? I can? Obtain favorable financing? And so on and so forth. There are many advantages to owning rental properties, ie the cash flow and tax benefits. Perhaps the most important factor is the financial side of real estate investments. After all, it is a business and businesses are designed to make money.

The Rule

When researching potential rental properties, it is a quick way to determine the financial potential of an investment property, the percentage rule One ,One percent applies if the financing of the purchase of the property you are interested in cash flow generation. (Why did not want to charge you some people and companies have so much money that they want the tax benefit to investment real estate offer.) This rule is simple: the monthly rent should be higher than expected or equal to one percent of mortgage amount. The calculation of back-of-the-napkin looks like this:

Scheduled Monthly Rent / Mortgage Total> = 1%

or (simply)

Rent expected> = 1% x Amount of mortgage
The advantage of this rule is:

      1 - The simplicity of the calculation, for rapid assessment.
       2- All you need to know is the monthly rent for your target market.
       3- This allows to calculate a bid price of the investment property or otherwise how to rent your property

The Assumption

The only case of this rule is that the investment loan is a fixed rate mortgage to 30 years. That's it. Now back to the towel.

Other Considerations

Usually there are exceptions to the rule worthy (otherwise it would be a law). In this situation, there are exceptions and considerations. Things to consider when using this rule:

1. Interest rate mortgages
2.   Home owners association fees
3. Property taxes and home owners insurance
4. Maintenance contract rates (i.e. weekly lawn mowing)
5. Property Management Fees

As you can see, the percentage rule One does not replace due diligence. Always assess your situation, understand your mortgage and meet their expenses. It is simply an approach back-of-the-towel to remove weak properties economically.

For Example

2 bedroom, 1 bath single family home is listed at $ 100,000 (for the sake of simple calculations). Currently, my lenders require 20% down on mortgages investment properties. Therefore, the loan amount would be $ 80,000. Therefore, applying the rule of one percent 1% of $ 80,000, the monthly rent expected to be $ 800. In other words, would have to rent this house for $ 800 a month to have a positive cash flow. After researching your market that is expected for this type of rental, we can determine the financial solvency of the investment property. In some cases, you can make money with less than 1% of the mortgage amount. However, for simplicity, when you are looking for real estate investment, the 1% rule will give a quick and dirty the place where the property is understanding.

And Finally...

If you need to finance your real estate investment, the one per cent rule can help you in your evaluation. Remember, the weakest method of risk purchase of the entire property is 100% down plan. The higher risk and a higher return on investment (ROI) is the 0% down regime.
I used this rule with two family houses I own. It worked very well to provide a cash flow and a cushion for unforeseen maintenance costs. Currently I'm in the market for another investment property and this rule has served me well in my evaluations. Of course, depending on your market, it takes more time to find the right property, but the long term benefits are worth it.

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