There’s always been an ongoing debate in Australia about where people should be investing
their money.
Most people will have a pretty large holding of shares through their superannuation funds,
but are they getting the most out of it that they can?
When we look at the numbers, shares actually outperform property. Since 1900, the
Australian share market has returned an average of 13.2% per annum according to Market
Index. That’s a pretty healthy return by anyone’s standards.
Shares also have a lot going for them because they are much simpler to deal with. There’s
no need for a property manager, no tenants asking to fix a toilet, or worrying about the
property being damaged, vacant, or rising insurance costs.
But with all that said, I would still choose property every day of the week.
That’s because there’s one big thing that sets it apart – leverage.
With shares, it’s a lot harder to borrow to invest. While it is possible, typically interest rates
are going to be higher and the amount of leverage on offer will be a lot less. You are also
subject to margin calls if the value of your portfolio gets too low compared to how much you
have borrowed.
With property, leverage works incredibly well to boost your overall returns. In Australia, you
can theoretically borrow 95% of the value of the property and even more in some instances
with the help of government-backed schemes or Lenders Mortgage Insurance (LMI).
If property prices increase by 7% per year, your return on investment is just so much greater
if you only need to put down 10%.
For example, if you put down $100,000 to buy a $1 million home, and it increases by 7% in
the first year, your ROI is actually 70%.
If you used your $100,000 to buy shares and made 13%, your ROI is just 13%. Even with
50% leverage for shares, the returns are not even close.
Property also has a lot of other advantages as well. It has the ability to add value through
things like renovations and developments.
If you own shares, you have virtually no say over how that company is operated and you’re
forced to accept whatever the market is offering you.
The government also likes to prop up the property market and help homebuyers wherever
they can. We see this a lot for first home buyers in particular, who can buy a property without
having to pay stamp duty.
The great thing with property is that you can also borrow against the equity gains very easily.
Many people can come up with the deposit for their first property and then never contribute
another cent while building their portfolio. That’s because banks allow them to tap into their
equity and use it as a deposit.
Owning property does take work and you do need to have the knowledge to buy well in the
first place. But if you can get that right and you know how the finance side works, then you
can generally outperform someone who just owns shares. Alternatively, contacting a professional buyers agent can give you a property advantage with access to real-time market updates, long-term investment knowledge and the convenience of taking care of the entire property search and purchase process.
If you can also start to introduce other strategies like renovations or developments as well as
buying well in high-quality locations, then you’re very likely to build significant wealth over
time.
For more investment secrets contact a reputable buyer agency like Henderson Buyers Advocacy. Our buyers agents can keep you informed every step of the way in your property journey.
