Investment options

[supersunbird]

Rental property? Pffff. What a waste of money. Rates and taxes. Repairs and paint jobs. Tenants ducking after trashing the place or defaulting on payments and squatting leaving you with months of no income and plenty of expenses.
Foord, Coronation and other UT's will cost you as they try to beat the markets. They never do on the long run but charge you anyway.
So why not just invest in the indexes they are trying to beat? Most cannot.
You are comparing a mere 6% or minus 6% on rental property that could lead to a coronary infarction with the stress to 30% gains made by ETF's over long term without any cardiac events.
You go on your own journey.

Pfffft indeed!

I have already showed that my rental property will give me around a 300% return if I sell it now. No bank would have given me money to buy a bunch of shares.

The only fund that beat that over the past 7 years is the Coronation Industrial Fund at 313.05%. The next best fund I have info on over the 7 years is Stanlib Property Income Fund at 253.56%, the next 5 funds are also Property Unit Trusts at 249.19% to 231.58%. Yes, that's property, just not direct, but still, the bank won't give you a bond on that...

FYI, the Satrix Industrial ETF did 230% over the past7 years which aint too shabby either.

I'm sure there are people who have done even better with rental property and also others who have done much worse in rental property, and I don't even want to think of those that invested in resource funds, the Satrix Resi having given a -29% return over 7 years. I nearly invested there 2 years back because it was SO low and couldn't go lower... went even lower since then, glad I dodged that.

I agree that if one has a lumpsum, go for a diversified portfolio of funds in different asset classes, but if you find a good rental property that the bank will finance 100% and tenants will want, then you can think of doing the rental thing, use other peoples money to make some for yourself, don't use your own lumpsum for it.

 

[F40]

Pfffft indeed!

I have already showed that my rental property will give me around a 300% return if I sell it now. No bank would have given me money to buy a bunch of shares.

The only fund that beat that over the past 7 years is the Coronation Industrial Fund at 313.05%. The next best fund I have info on over the 7 years is Stanlib Property Income Fund at 253.56%, the next 5 funds are also Property Unit Trusts at 249.19% to 231.58%. Yes, that's property, just not direct, but still, the bank won't give you a bond on that...

FYI, the Satrix Industrial ETF did 230% over the past7 years which aint too shabby either.

I'm sure there are people who have done even better with rental property and also others who have done much worse in rental property, and I don't even want to think of those that invested in resource funds, the Satrix Resi having given a -29% return over 7 years. I nearly invested there 2 years back because it was SO low and couldn't go lower... went even lower since then, glad I dodged that.

I agree that if one has a lumpsum, go for a diversified portfolio of funds in different asset classes, but if you find a good rental property that the bank will finance 100% and tenants will want, then you can think of doing the rental thing, use other peoples money to make some for yourself, don't use your own lumpsum for it.

Your first completely bollocks comment is that "no bank would have given me money to buy a bunch of shares". Where on earth do you get that from?? Please get your facts straight before making statements that expose your ignorance in this area.

BTL "investors" also without fail have their number crunching ready and can quote returns to the 7th decimal to try and prove their point.

BTL residential is like Rookie 101. It is hit or miss "investing" for unsophisticated investors and typically very fashionable as a sign of an "investor" around the braai under the thatch lapa.

It is quite easy to spot a BTL "investor".

 

[Oopsie]

supersunbird. If you got 300% gain on your property, you must have bought it from Jan van Reibeeck.

 

[gimpex]

supersunbird. If you got 300% gain on your property, you must have bought it from Jan van Reibeeck.

Not really. I bought a place for 137k in 1994. Units going now from 950k.

Lost only 2 or 3,months rent in all those years.

 

[supersunbird]

supersunbird. If you got 300% gain on your property, you must have bought it from Jan van Reibeeck.

Put R100 000 in, get R400 000 out after the sales/CGT costs, R300 000 profit, aka 300%. Just not as quick to sell as shares, so not very liquid at all.

Look, sometime it will be less, sometimes even more, sometimes over a longer period, sometimes less. Other people might even have at a loss, like Magnus Heystek has shown. Just like with shares.

Property is not nearly as easy as shares, its a bit more like a part time second job.

I am strongly considering selling mine next year, because it will thus give me a lump sum and I would then be using that to invest in equity (local and foreign) and listed property funds (all of which I already invest in).

 

[supersunbird]

Your first completely bollocks comment is that "no bank would have given me money to buy a bunch of shares". Where on earth do you get that from?? Please get your facts straight before making statements that expose your ignorance in this area.

BTL "investors" also without fail have their number crunching ready and can quote returns to the 7th decimal to try and prove their point.

BTL residential is like Rookie 101. It is hit or miss "investing" for unsophisticated investors and typically very fashionable as a sign of an "investor" around the braai under the thatch lapa.

It is quite easy to spot a BTL "investor".

So what type of security does one put up for the bank to give you a lowish interest rate loan? Is there a name for this type of loan or does it work in some other way? A normal personal loan will easily cost at minimum 15% or probably much more (23%). You might get a loan to buy a business but talk about stress and risk and maybe one just doesn't have the skills for that.

I am never above learning something new.

 

[Hamster]

So what type of security does one put up for the bank to give you a lowish interest rate loan? Is there a name for this type of loan or does it work in some other way? A normal personal loan will easily cost at minimum 15% or probably much more (23%). You might get a loan to buy a business but talk about stress and risk and maybe one just doesn't have the skills for that.

I am never above learning something new.

My credit card can give me an instant 15% loan

 

[supersunbird]

My credit card can give me an instant 15% loan

That's more than my VirginMoney CC

 

[Hamster]

That's more than my VirginMoney CC

Yes but eBucks

 

[Verde]

So what type of security does one put up for the bank to give you a lowish interest rate loan? Is there a name for this type of loan or does it work in some other way? A normal personal loan will easily cost at minimum 15% or probably much more (23%). You might get a loan to buy a business but talk about stress and risk and maybe one just doesn't have the skills for that.

I am never above learning something new.

Any investment asset can be levered up. Even cash deposits. (see the carry trade)
It is actually much easier to get leverage on listed securities than BTL property- some even have leverage built in.
You don't even have to talk to your bank manager.
See margin accounts, futures, options, CFD's etc.

The imputed interest rate on these products is generally lower than the prime rate.

 

[alqassam]

Any investment asset can be levered up. Even cash deposits. (see the carry trade)
It is actually much easier to get leverage on listed securities than BTL property- some even have leverage built in.
You don't even have to talk to your bank manager.
See margin accounts, futures, options, CFD's etc.

Derivatives can give you very high risk exposure

 

[Verde]

Derivatives can give you very high risk exposure

Agreed. I don't advocate the use of leverage - neither for investments in securities or BTL.
Leverage increases risk at least in direct proportion to the increased expected return. If the interest rate is higher than the risk free rate, the risk increases exponentially.

In which of the below investment scenarios can you lose more than your original investment:
1. call option on Impala platinum giving you exposure to 20 times the premium paid.
2. BTL property financed with a 90% bond.
Hint - only one of the above scenarios exposes the investor to losses greater than the original investment.

So which is riskier?

 

[supersunbird]

Any investment asset can be levered up. Even cash deposits. (see the carry trade)
It is actually much easier to get leverage on listed securities than BTL property- some even have leverage built in.
You don't even have to talk to your bank manager.
See margin accounts, futures, options, CFD's etc.

The imputed interest rate on these products is generally lower than the prime rate.

Thanks, I'll go try to read up on these again, and hope my head doesn't hurt and it doesn't turn out to be more trading than investing...

 

[FrankieK]

Agreed. I don't advocate the use of leverage - neither for investments in securities or BTL.
Leverage increases risk at least in direct proportion to the increased expected return. If the interest rate is higher than the risk free rate, the risk increases exponentially.

In which of the below investment scenarios can you lose more than your original investment:
1. call option on Impala platinum giving you exposure to 20 times the premium paid.
2. BTL property financed with a 90% bond.
Hint - only one of the above scenarios exposes the investor to losses greater than the original investment.

So which is riskier?

You can not lose more than 100% if you buy-to-open an option. It can expire worthless but you can not lose more than the premium. Selling-to-open a naked option is of course a different kettle o' fish.

With BTL you can actually end up with more than 100% of investment loss.

 

[RogueTr00per]

You can not lose more than 100% if you buy-to-open an option. It can expire worthless but you can not lose more than the premium. Selling-to-open a naked option is of course a different kettle o' fish.

With BTL you can actually end up with more than 100% of investment loss.

Edit: I was confused but then I realised Google is my friend.

 

[dunkyd]

With newly built BTL you should factor in quality / lifespan before major expenses are needed...Anything built lately will need roof timber repairs, barge boards, a few tiles, damp repairs due to no gutters, painting, subsidence repairs, window repairs if wood etc all before 10 years have passed

 

[whatwhat]

With newly built BTL you should factor in quality / lifespan before major expenses are needed...Anything built lately will need roof timber repairs, barge boards, a few tiles, damp repairs due to no gutters, painting, subsidence repairs, window repairs if wood etc all before 10 years have passed

Also, connectivity. People need their 3G, VDSL, Fibre etc. Unless the places you are buying to rent out is in these connected neighbourhoods you are going to battle to get renters or buyers for it as people get more demanding in what they need.

I will one will not rent or buy any place that doesn't have at least 20 MB connection and LTE coverage by at least 2 networks.

 

[zerocool2009]

supersunbird. If you got 300% gain on your property, you must have bought it from Jan van Reibeeck.

If you do your homework right, you might get a bargain. I bought a property not long ago. The previous owner was building a house in midrand and he sold his existing house what he paid for in 2010.

In my eyes property investing is way better than shares. Lets take 2015 as an example, the JSE was on 55000 points in april this year. It is now struggling to get above 50 000 points only. Overall the JSE is -5% in the red year to year

SuperSunBird, you are spot on if you say property investing is like a second job. Nothing comes for free, and that is the truth

 

[Hamster]

In my eyes property investing is way better than shares. Lets take 2015 as an example, the JSE was on 55000 points in april this year. It is now struggling to get above 50 000 points only. Overall the JSE is -5% in the red year to year

If this is how people think about share investing they should most definitely not be doing it.

EDIT: here you go, according to a document released by old mutual (between 1925 and 2013):

76.1% of rolling 1 YEAR periods had positive returns.
86.2% of rolling 3 YEAR periods had positive returns.
95.2% of rolling 5 YEAR periods had positive returns.

 

[Hamster]

So using these as sources:
http://housepricesouthafrica.com/
http://www.omwealth.co.za/pdfs/default/Articles/Chart-LongTerm-investors-love.pdf

So if I do my sums right (and I might be wrong):

If you invested R1 into property in 1966, that R1 would be worth about R134 in 2014 (R1,275,530/R9,516) according to the table
If you invested R1 into the JSE in 1960, that R1 would be worth R6566 in 2013

So what am I missing from the property guys (except that buying a house in Sandton beats the growth of an average house....similarly, buying specific indices beats the ALSI) ?