LPTs/A-Reits vs. Direct Property

[ripley]

Hi all,

This is just a post re; my current thoughts about property.
So I'm currently thinking about investing in property, given the Rudd stimulus and all. But after thinking it over, I have my concerns. Reasons:

1. The buy vs. rent decision - renting right now is a more affordable and intelligent decision investment-wise. I'm from Sydney so property prices here are very high. I've done the math, and if you're a good investor, it's much more wiser to pay rent and take your deposit and invest it at 10%-20% and earn profits off that, rather than take all of it and invest it in direct property. Sure there's a supply shortage in the property market, but I'm also willing to put a large wager on the prospect that equities and commodities will do very well over the next 3-5 years, at comparable if not better rates of return than property.

and ...

2. After looking at property trusts and A-Reits, the question begs; why would you ever invest in direct property physically? when you could just invest in them through the markets through securities or more liquid investments? Why go through the hassle of wasting time to manage the property and deal with the illiquidity?

Other considerations come to mind: I travel a lot for work, and having mobility and moving around a lot is very important for me, so buying a house and staying tied and wedded to a particular region will do nothing for me long term.

On average, and according to bond traders, the average life of a mortgage is about 10 years ... by which stage the owners have sold the property and moved elsewhere.

Regards.

[mudrunner]

why limit yourself to sydney. there are some real growth areas in qld. have a look at gatton seqld. close by, they are building the biggest jail in the southern hemesphere, with ten years work. also its a vege growing area. lots of back packers looking for accomodation....houses that sell for 200k there, rent for over $250 pw....

try thornberry real estate...http://www.thornberryfn.com.au

noel Thornberry (principal) is also one of australias foremost boxing trainer/promotors. has trained many national champs, and 2 world champs. very interesting bloke. hes also a finance broker, accupuncturist, and really loves gatton and the surrounds..
.

[kincella]

ripley...there are only about 5 LPT's with good management and history records that one could trust to invest your hard earned money in...
the others were all badly managed....they bought good income generating property, then hocked it to the hilt with too much debt
paid themselves some lovely fees and the investors got some of what was left over
the unlisted market is not much better...friend put 60,000 into one lets say 10 years ago...the trust paid out non taxable income on average about 4% pa over the years...after about 7 years, the prop needed refurbishing, renovations and the tenants wanted same before they would renew their leases...the trustee found it hard to borrow the money to do same...since the bankers did not trust the unit manager to negotiate the above....so of course the tenants vacated...and when you lose your anchor tenant its all downhill from there...he was forced to sell the building , in 2003 at a loss...
so that was just bad management...nothing else
friend lost 20,000...over an 8 year period...unbelievable
friend has other resi properties....and all have generated high capital growth over a couple of decades of holding them.....in fact one prop bought nearly 40 years ago for 10,000 is now worth 1 mill just for the land value, other 2 props bought since the 1990 have doubled in value....

I am one of the other type of people that prefer to manage my own property,
plenty like me out there...our props are not hocked to the hilt with debt...no forced sales to contend with...expect and receive massive increases in capital growth...
oh and look how far the prices have fallen on most of the LPT's....but dont expect them to recover soon

[ripley]

yeah you make a good point about poor management.

I'm a global investor, so I've invested in US Reits before. But my experience is less with A-Reits here in Oz.

My experience overseas is that the US markets in particular are a lot more developed and mature, in terms of securitization than here in Oz ...

But anyways ... direct investment in property means you have to borrow money to the hilt ... and expose yourself to "the kindness of strangers" with leverage ... and debt ... I don't like to borrow a lot of money.

When property goes up, borrowing money to buy property is good, but when markets go down you're in real S#*t.

That's why I prefer to just stick to securities and stocks ... with no leverage, and just take the money that I would normally use to put down for a down payment on a mortgage into liquid investments and rent.

The rent vs. buy equation right now still favors renting ... even though rental vacancies are extremely low and rents are quite high for the average person.