Forum Archive Index - July 2003

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi Macdunk,
 
>
>The average property Investor regardless of there financial
>circumstance borrows to Invest, where as the average share market
>Investor would never dare.    I sold a house to my daughter to prove a
>point.   I told her It would cost her absolutely nothing.    I rented
>It to the housing corp  organized finance for her, the rent pays the
>lot.   She Is sitting on a capital gain, and all It cost her was
>lawyer fees.  The share market Is a bit more fun requiring one to keep
>close watch on events.  
>

You can do the same with shares you know.    Borrow money at 6.75%.  
Buy WRI shares yielding 9.25% after tax.   Use the dividend to pay off 
the loan and pocket the difference.  Or perhaps put the difference into 
a cash fund should the banks require you to pay a margin call at some 
stage in the future.

No need to follow the market very closely if you structure things that 
way, because movements in the WRI shareprice are largely irrelevant.

>
>With a very small deposit and low risk a person can make a
>lot of money on the property market, but with the same small deposit
>they could never borrow enough to make It big on the stock market. 
>

I agree that bank managers would favour funding a house purchase 
over funding a share purchase.     But generally they want to see that 
you can cover the interest payments on any debt.   Can you get a 
$10,000 increase on your mortgage to enable you to upgrade your 
car?   If so,  then you can drive around in your old dunger for a few 
years longer and put that $10,000 you just borrowed at 'house 
mortgage rates' towards buying WRI shares instead.

Of course a share trader could never operate on borrowed funds along 
the lines I am describing because there would be no way they could 
guarantee a return.   Perhaps that's what you were getting at when you 
said that share 'investors' (sic) don't borrow.

SNOOPY


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