Equities or property?

[#1]

Need some advise... I'm 21, busy studying acc's and doing my articles and have the opportunity to get into property. Should I take this opportunity and get into property while the market is down and try pay it off asap then obtaining an assets that will hopefully appreciate and earn me rental income or should I stick with equities? Been reading and one book like Rich Dad Poor Dad advises on accumulating property etc as soon as possible and other trading books say you should stick to equities and look at property later in your life as ROI are higger, but riskier. Any advise is welcome?

[richardw]

I think if you spend the next few years adding equities, you'll benefit far more than if you put the money into property. The latter is still dropping [1], you can buy once and then hope for the best. Make a mistake, and that's it for a few years unless you take a huge hit. Equities allow you to add on any given day to the best option you see in the market, without going into debt. If you decide today that it's all up from here, you can buy today. You don't have to wait for a bunch of stuff to align, like the right house at the right price, etc etc.

Rich Dad Poor Dad talks about an asset vs a liability. Houses are often a liability, because they don't put money in your pocket, in his language.

Finally, when the all sorts itself out, I believe equity prices will rise before house prices.

[1] Equities will likely as well IMHO, but you can keep half your money. Houses, hard to do.

[DEP]

I like the property route. I have made most of my capital through property. Its medium to long term though! My first major asset was property!

[#4]

I think one need to be a bit practical here as well. Do you currently own the property that you live in? Equities are good, but no sense in buying equities but paying rent all the time. Personally i would at least buy a property to live in and then start with the equities route...

[DEP]

I disagree with "rich dad poor dad" statement that a house is a liability. Over a period of 14 years I have had 1 commercial property; 4 investment houses and 5 houses I live in, and I made capital gain on all of these (ranging from 15% to 350%). So your own house is a good investment! I don't believe in paying rent for long period (more than a year), rather own the property!

[#6]

Thanks for the responses. My idea was buying a house with a garden flat, where I would stay and rent out the main house, hence my 'rent' and the tenants rent would pay the property off hopefully sooner. As I don't need a huge house at the moment, just what to acquire assets for the future...

[richardw]

The same 14 years since the end of apartheid? I think this has been a special situation, considering the economic mess we were in and the rising tide we've had since. I've also benefited from it, and continue to hold unbonded property, but I don't think it's a guarantee of future prospects.

[#8]

i would personally wait for a couple of months. i think there is still some risks in the property market at the moment. this financial crisis still has some legs if you ask me.

[Shaun_Siddall]

Are you a CA or CTA in articles - you bank with a private bank yet?

[#10]

CA, nope, still with STD bank

[richardw]

This is an interesting one. We did a DCF calculation on our specific situation and figured that renting and investing would actually do better! Even given conservative equity appreciation and fairly high house price appreciation.

[ms]

you got to have both i believe.Its very hard to get an asset that a bank will finance 70% of,so property gives you the ability to get into an asset class using somebody elses money. Equities you should use some of your excess cash and build an equity portfolio. But i know how those damn articles salaries are and there aint much left after all ther bills. good luck!! the worlds a much better place after articles.

[DEP]

Voila: "you are purchasing an asset with someone else money"! That the secret!

[richardw]

Sometimes :) See this:
http://capetownbubble.blogspot.com/2009/03/mouille-point-how-you-know-seller-has.html

Obviously an extreme case, but that blog does a lot of comparisons like that.

[DEP]

The sectet is gearing (+/-70%). You are purchasing an asset with the bank money. Example: purchase house R800k, own money R160k. Resell for R960k, you return is R160k on R160k invested, that 100% return. You need time and patience though!

[louisg]

Equities "should" outperform property in the long term. However, if investing in shares is NOT within your circle of competence (at present), then you are probably better off investing in property. OMO

[#17]

Rich dad only said that that *the house you live in* is a liability. Not the investment rental property you buy. A view I personally agree with, seeing that I'm forking out thousands at the moment to add a room onto - for which I'll probably never see the return on.

[richardw]

I counter your imaginary numbers with my own: buy SSF for 100, sell for 350. Hey! Big profit, using leverage. :)

Except. Except sometimes the price doesn't go up, or sometimes it stays the same for ages. We had the #1 growing property market in the world in 2007. That isn't sustainable. In the U.S. the average is a percent or two per year, not the stuff we've seen lately. I guess I'd ask "where is the growth going to come from?" and it could be that the growing black middle class really ramps it up. Maybe. But often a bubble of an asset class usually means that asset is pretty subdued for a while, and I've read that property slowdowns on average take 6 years. So all I'm saying is that there is no obvious rule-of-thumb that we can use.

[richardw]

If one is to go into property, this is one model I like. As long as you're not living in the expensive resource, paying an implicit 20k a month. Here's your spending small amount, getting someone else to spend big amount. Just check you can get a good rental, though - which should be improving.

[Mr_S]

My main concern is that if you manage to get a rental property, you run the very high risk of tennants not paying rent on time etc! and if you are currently cash strapped, using your money from your normal job for other expenses, you will be in the ...t!. i would love to get into rental property, but the diffrence there is that you need a relatively large amount of your own capital to put down, which takes considerable time for some of us who didnt have a daddy who can give us a couple of thousands! OMO