Property Vs Property

 
Every week we receive calls from people looking to invest in residential property, most have spoken to a friend or family member who have told them it is a good idea. But very few understand how it will work, or what the benefits are of this type of investment. When asked why they want to invest in property they will 99% of the time answer because I need to save tax.

Today I want to take a closer look at investing in property, and compare it to investing in property well, but through different vehicles.

Let’s take a look at a listed property trust. This is merely a very big rental property, but instead of owning a house and renting it to a family they own in the case of ALE Property hotels on long term leases to Woolworths.

The ALE Property Group was floated on the 12th of November 2003 at $1.00 per unit.

Since then the fund has made the following distributions:

August       2004    7.50 cents
February    2005    6.25 cents
August       2005    6.60 cents
February    2006    6.80 cents
August       2006    9.20 cents
February    2007    15.7 cents
August       2007    16.8 cents
Total                        68.85 cents

All of the above returns have been tax deferred. Which means that you do not pay tax on this income.

The units are currently trading at around $4.15.

In summary:
- In under 4 years investors have had 68% of their investment returned to them in cash, without having to pay any tax on the cash received.
- They are expected to have all their original investment back within the next year.
- They retain an asset that has a market value of over 4 times their original investment.
- They will continue to receive growing distribution of around 33.5% pa on their original investment.
-  Further capital growth is likely in the future, as income distributions increase.

Now that is my kind of property investment!!!

If you compare this to the average rental property worth $400,000 you would need to have received rent of $68,000 per annum and after four years the property would have to be worth above $1,200,000.

Even in the last four years which has seen the best growth in the Australia property market I would be surprised to see a property which has performed this well.

Let’s flip it around, if you borrowed $400,000 and invested it in ALE back in the float instead of residential property it would be worth $1,660,000 and you would have received $275,400 in dividends being a total return of $1,535,400 or 383%.

Once you look at the facts the answer will come to you.

If this type of investment interests you, give us a call on 07 4771 4577 and we'll save you money from the start.