# Property Vs Equity



## rainyday (27 May 2002)

See [broken link removed] from the SBP.


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## Brendan Burgess (27 May 2002)

*What about risk?????*

The fatal flaw in this analysis is the huge extra risk in borrowing. By borrowing 90% of the property value, the investor is taking a huge risk of total wipeout of their investment. 

As the person already, has property investments, the risk is magnified. An investment in equities would be a good diversification.

This person should be able to leverage up to invest in equities by increasing the mortgage on their current property. If they do so, the figures would show a big improvement for a direct investment in equities.

The big advantage of property is that the interest paid can be written off against the investment income

Brendan


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## US (27 May 2002)

*What about risk?????*

I agree with Brendan.  I think that taking a single set of assumptions and modelling the result give a misleading picture.  You need to take a range of credible assumptions and model them all.  What if property prices grow more than 5%?  Less?  What if the managed fund grows at more than 9%?  Less?  What if interest rates rise to 8%?  10%?  And so forth.

What this would have shown, I think, is that the outturn for the property investment is much more dependent on the assumptions than the outturn for the equity investment.  The range of reasonably foreseeable outcomes is much greater with property than with the managed fund.  That would be an important factor for some investors, but it's not even mentioned in the article.

And the article specifically says that the writer would not encourage leveraging an equity investment, but evidently there is no similar issue leveraging a property investment.  That position can of course be justified, but I think the investor would want to <!--EZCODE ITALIC START-->_ see_<!--EZCODE ITALIC END--> it justified.


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## Maggie (27 May 2002)

*Re: What about risk?????*

<!--EZCODE QUOTE START--><blockquote>*Quote:*<hr> "This person should be able to leverage up to invest in equities by increasing the mortgage on their current property. "<hr></blockquote><!--EZCODE QUOTE END--> 

Will lenders let you release equity in a family home to invest in equities or is this just available on investment properties?


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## Sarah Wellband (27 May 2002)

*Re: What about risk?????*

Hi Maggie,

Lenders are not happy to lend against the family home for what they term "speculative" purposes - investing in other than property, setting up new businesses (or putting money into an existing business). Having said that some lenders, notably Bank of Scotland, do not look for a reason to borrow for sums of less that €63,500.

Sarah

www.rea.ie


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## tenant (28 May 2002)

*another factor*

One must also consider the implications for your sense of Humanity in becoming a landlord as from much off what I've seen & heard indicates that in becoming a landlord one must sell your soul to the devil.


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## Brendan Burgess (28 May 2002)

*Re: another factor*

Hi tenant

Tice, in the original article does refer to the hassle of being a landlord.

Brendan


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## Peter (28 May 2002)

*On Line*

If this type of thinking backs the 'rules' that on line sellers apply, this company should come with a health warning.


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## Brendan Burgess (29 May 2002)

*Re: On Line*

They do announce quite prominently on their site that they are a RAIPI

Brendan


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## rainyday (24 Jun 2002)

An interesting (though not exactly objective) view from Richard Barratt (co-owner of Treasury Holdings) from yesterday's Indo.


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## Brendan Burgess (27 Jun 2002)

Hi Rainyday

A very entertaining and well written piece.

Brendan


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## tenant (27 Jun 2002)

*PvE*

What are we to think now when 2 out of every 3 houses are being purchased by Investors?

We are either going towards a society where the majority of people are at the mercy of a minority property owning class. This is quite different from Europe where individuals and families can lease quality accomadation long term from proffessional companies and and government institutions.

Or we are seeing the classic ingredients of the Bubble, with the burst pending. The price incresases are no longer being sustained by owner occupiers buying houses.

For my buck, I think the present property buyers bare a remarkable similarilty with the equity buyers at the top of that bubble, "property can only go up etc...". And the evential bursting of the bubble in Ireland will be for similar reasons. ie. realisation of the quality of the stock, poorly built apartments with inefficient heating systems etc., and the presumed growth that people thought ireland was in for.

So my recommendation for "My favourite Stock", sell your property now!!


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## rainyday (29 Jul 2002)

See [broken link removed]


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## N0elC (30 Jul 2002)

Hi rainyday,

Interesting article.

I'm firmly of the belief that property investment is superior to an equity pension, especially for someone with 20 - 25 years to retirement, as property will typically rise over the very long term. In this time frame, tenants will have paid off the mortgage, leaving the landlord with a substantial asset, or an income stream into old age. The article seems to bear this out.

However, the article refers to investing in UK property. I find this intriguing, as the perceived wisdom is that UK property is overvalued. Property has been rising at an annual rate of 20% and above over the past 18 months. There is a real risk of a fall, or, at best, a price stagnation.


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## Condor (30 Jul 2002)

There's an old tale about Joe Kennedy (JFK's Father) and the shoe shiner on Wall Street.  A week before the big stock crash in the 1930's he was disturbed to hear his shoe shiner giving tips on particular company stocks that he should buy into.  Upon reflection, he subsequently sold off a major part of his share portfolio's... and hence lossed very little when the market crashed a week later.

Regardless of the truth of this story, the message to me is that the Dublin market is definately overheating given the euphoric sentiment there is  towards Dublin properties.  I have first hand experience of listening to people echoing the sentiments of the shoeshiner of Wall Street... I know of apprentice trademen (18 - 21 year olds) and many others who have recently become investors in property - but more disturbingly they plan to continu investing in apartments and houses over the next 6 months on the belief that capital values are going to increase substantially (20% plus).  My point is that with every Tom, Dick and Harry bailing into property I believe  that the bubble is going to burst very soon (are these properties commanding the neccessary rent to cover the mortgages on them? I doubt it) Yet if we listen to any estate agents or SOME sectors of the mortgage industry everything is fine!!! Of course it is... they have a vested interest in keeping this bubble going otherwise their commisions go out the window.

Just like Joe Kennedy - I'm cashing in on my portfolio before the crash!


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## N0elC (30 Jul 2002)

Hello Condor,

Your warning is valid, in as much as property shouldn’t be viewed as a way to make a quick buck. Also, young people gambling their life savings on a market they probably have little understanding of, is foolhardiness on their part, alright.

However, I still think that it’s a secure long-term bet. Even someone who bought to let in London in the late eighties, prior to prices falling 40% would still be making money now, and be securing their retirement, as long as they could find tenants for it. Then again, that’s a big if . . . 

I haven’t seen any predictions of a 20% rise in the Dublin market myself, but they may well be out there. You are correct in saying that estate agent’s price predictions should be taken with a pinch of salt, however, even they are saying that prices in Dublin are likely to moderate over the next six months. 

Over the longer term though, I’d still view it as a much safer bet than equities. So there’s probably little need to encourage an exodus from bricks and mortar.

Its interesting to see the shoe shine / bell boy story being raised again. I’ve seen various wealthy men being quoted in that story: last time it was Rockerfeller, and once I even heard Warren Buffet as the sage investor. That's the first time that I've heard Joe Kennedy cited though. Does anyone know the truth behind it ?


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## flash (1 Aug 2002)

*joe kennedy*

it was he


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