Have First Property, What next?

[elguapo]

Can you be sure you can still keep making that profit in the sharemarket when the market turns??
Leverage is a double edge sword.
If you make profit the gains will be good, but if you lose, leverage will hit you extra hard!

Who are you, and what have you done with Gary?

[House Hunter]

If you have a reasonable idea of what you are doing in the sharemarket ( you seem to), and you can borrow cheaply (you can) and you only want AKL central property(you do) then I think shares are a reasonable option currently.

I added to a current holding today.

So you have rental properties with mortgages/revolving credit facilities and use the money to invest in shares at the same time?

Have you used this strategy to build up money for deposits on subsequent rental properties like I'm intending to do?

[PTILoveYou]

So you have rental properties with mortgages/revolving credit facilities and use the money to invest in shares at the same time?

Interest on revolving credit facility is NOT cheap! (compared to fixed rates)

[PTILoveYou]

Who are you, and what have you done with Gary?

I have always been a sensible investor =)

[House Hunter]

Interest on revolving credit facility is NOT cheap! (compared to fixed rates)

You can't take out a new fixed loan for $10-20k every time you want to buy a few shares though.

[PTILoveYou]

You can't take out a new fixed loan for $10-20k every time you want to buy a few shares though.

No of course not, you can only borrow the loan against the residential property if you have enough equity.

Banks aren't stupid, they know which investments are risky, and which are safe.

Houses over people's heads are safe.

[speights boy]

House Hunter.
I use my own money to invest in shares.
If I had to borrow I would use property equity to do so.
But I don't need to, so I don't.
The slight extra interest on a RC loan over a fixed loan wouldn't bother me too much.

[Anthonyacat]

No of course not, you can only borrow the loan against the residential property if you have enough equity.

Banks aren't stupid, they know which investments are risky, and which are safe.

Houses over people's heads are safe.

Tell that to Ireland, or large parts of the USA.

Shares are no riskier than property, if well diversified I'd argue it is significantly less risky than owning a small number of houses. Companies fail here and there, but the entire sharemarket is not going to fail. If it did, your leverage would likely be the least of your worries.

You're likely confusing 'risk' with 'volatility'. Read more here: http://www.reuters.com/article/2014/...0H52AL20140910

I particularly like: “In fact, I've never heard anyone say, ‘The prospective return isn't high enough to warrant bearing all that volatility.’ What they fear is the possibility of permanent loss.”

and: It strikes me that one of the reasons we’ve been so long without a stock market correction is that 'everyone knows' that corrections don’t last and the secret is not to sell. That’s been an excellent rule of thumb since 1998 or so, but it rather ignores fundamentals as a source of permanent loss of capital.

[PTILoveYou]

Tell that to Ireland, or large parts of the USA.

Shares are no riskier than property, if well diversified I'd argue it is significantly less risky than owning a small number of houses. Companies fail here and there, but the entire sharemarket is not going to fail. If it did, your leverage would likely be the least of your worries.

You're likely confusing 'risk' with 'volatility'. Read more here: http://www.reuters.com/article/2014/...0H52AL20140910

I particularly like: “In fact, I've never heard anyone say, ‘The prospective return isn't high enough to warrant bearing all that volatility.’ What they fear is the possibility of permanent loss.”

and: It strikes me that one of the reasons we’ve been so long without a stock market correction is that 'everyone knows' that corrections don’t last and the secret is not to sell. That’s been an excellent rule of thumb since 1998 or so, but it rather ignores fundamentals as a source of permanent loss of capital.

Well im referring to HH's auckland property.

I used to trade land in florida so i know whats like at the bottom of the cliff. that place was worse than ireland.

[Damap]

Wouldn't it make more sense to keep the mortgages quite high and use the money instead to invest into the share market? Borrow at 4.9% and earn the 15-20% I was earning annually.

If you are confident of achieving that return then in theory yes.
However you can and likely will get caught with shares at some point. Real Estate in Auckland has a zero chance of significant rent reduction and a very tiny chance of any significant value drop.
So reducing your debt covers the latter and the former is security that you are investing rather than speculating.
If you are confident on the share side of thing then margin trade those but if you want an investment plan that is reasonably bullet proof you can't beat Auckland property and reduce your debt. As soon as you have enough equity then go again using equity. NOTE: I am not saying the debt reduction will create the equity, the current market will do that but why not help it along.
Shares are hugely speculative compared with RE in NZ.

[PTILoveYou]

Agree with Damap

[speights boy]

If you are confident on the share side of thing then margin trade........

House Hunter isn't talking about margin trading the way I read his post.
He is talking about keeping his rental mortgage high and using that money and his own saving for shares. (I think)

[Damap]

YEs I think you are right SB, I am recommending he doesn't do that is all.

[House Hunter]

House Hunter isn't talking about margin trading the way I read his post.
He is talking about keeping his rental mortgage high and using that money and his own saving for shares. (I think)

The way I would do it would be with my revolving credit account.

It has a 50k limit, I'm currently using around 40k of it (so I've got 10k that I could withdraw if I wanted to). If I keep paying this back, so it gets to the position that I now have 20k available, I could use 10k of that and then still have 10k sitting in it.

I'm not saying set up a margin lending account with a broker.

[xsfat]

I share some similarities with House Hunter, except I'm in early 30s and have a higher salary.I like shares for passive investment, and there's no need to manage people / tenant. For now I am focusing on paying down debt. At some point I will re-enter the share market.I think share prices are relatively high/risky now. So I will look for the next major shock.Like property - if you find a winner, then go get it. The difference between 40k and 50k of RC is not going to make much difference when it comes to financial risk.