3 reasons why you should invest in property and not shares
After what seems like decades accumulating savings, are you finally ready to make an investment? As the saying goes, you've got to spend money if you want to make money.
So, now that you've made the decision to invest, you need to make another – invest in property or shares? Both ventures have their benefits, but for a number of reasons, property investment might just be the better choice for you.
Here is a rundown of both investment strategies, and why you should be looking at property (with the help of a buyers' agent) and not the stock market.
What approach works better?
At the end of the day, the main goal of any living, breathing investor is to make a good return.
The Russell Investments/ASX 2015 Long-term Investing Report found that in recent times, the returns on shares and property have been relatively similar. However, the figures reveal that the Australian stock market has been gradually declining, especially with the fall of the Aussie dollar in relation to international currencies, while the historically low interest rates have fuelled the gains received from property.
"Residential property has surged ahead"
In 2014, the 10-year before-tax return on equities in Australia was 7.1 per cent, virtually identical to residential investment property at 7 per cent. The results were similar when extending the range to 20 years, with shares being overtaken by property, with 9.5 per cent and 9.8 per cent gross returns before tax respectively.
In the last few years, however, residential property has surged ahead. The Pain and Gain report from CoreLogic RP Data found that over the June quarter for 2015, more than 90 per cent of homes were resold at a profit (amounting to $16.1 billion) with 30.8 per cent doubling their previous purchase price.
"We've seen the proportion of loss-making resales continue to trend lower over recent months, which are mirroring broader housing market conditions where values generally continue to rise," said CoreLogic RP Data Senior Research Analyst Cameron Kusher.
What are the added benefits of property investment?
It's clear that the returns from both financial endeavours are similar, provided you make informed decisions, like using advice from a property agent or stockbroker, for example. However, there are additional factors to property investment, which can make it the more appealing option, including:
1. You can increase your capital base with a home loan
According to the Australian Securities and Investments Commission (ASIC), obtaining a home loan is much easier than convincing a bank to lend you money for investing in shares.
For example, you've managed to save $100,000 that you would like to invest. With finance, you could potentially purchase a $500,000 property. This means your 7 per cent returns will be $35,000, as opposed to $7,000 from your original amount.
Granted, you will have to juggle mortgage repayments and rates, but this will be offset from the significant growth of your equity each year.
2. Renting it out generates cash flow
By renting your property out, you can generate a cash flow that will help to cover your home loan payments. In some cases, the rent you receive can exceed your expenses, which means you can benefit from the continual growth of your investment with no extra money coming from your pocket.
Research from CoreLogic RP Data found that rental yields are in fact dropping across our capital cities, which highlights the importance of using a buyers' agent to help you find the right property.
3. Often there is less risk
One of the largest appeals of property investment is that it is far less volatile than other enterprises, like shares. This means investors and their buyers' agents can act with more confidence, provided they make informed decisions, of course.
There are ups and downs, but often they come with plenty of warning, unlike the stock market where companies are revalued daily
4. You're at the helm
When it comes to shares, you're placing your money in the hands of someone else to make the decisions about selling equity and setting business strategies, before sitting back with your fingers, toes and any other limbs crossed, hoping for the best.
Investing in bricks and mortar, on the other hand, gives you something you can actually see and touch, allowing you to:
- Use a buyers' agent to purchase in an area with good returns
- Choose a financial package to suit your needs
- Renovate to add value to your assets
- Sell your property if it's not performing
"The value of monthly lending to property investors is about $13.7 billion"
Even better, once your home loan has been paid off, the property belongs to you, which means when you sell it, the entire purchase price (after expenses) will go to your bank account.
There's certainly no shortage of involvement, as the Australian Bureau of Statistics affirms that the value of monthly lending to property investors is about $13.7 billion.
Despite this, it's important that you choose the investment strategy that best fits your financial situation and future goals. A property buyers' agent can discuss your ambitions and advise you on the most productive steps moving forward.