There’s a timeless battle that will continue to cause controversy between avid investors for years to come. What should I invest in – property or shares? Below is a detailed comparison of the two options for you to make up your own mind.
Property vs Shares – The Ultimate Battle
Start-Up Costs of Investment
Buying an investment property is, for many people, one of the largest financial decisions they will make. The initial start-up cost is significant, and may take years to save up to, unless there is collateral to be used in the current family home. However, your bank may allow a loan of up to 95% of the property value, meaning you are able to invest significantly more than the actual cash deposit.
Shares, meanwhile, provide a more achievable market to invest in as there is no specific amount needed to begin investing, and continued investments can be made periodically as desired. Thus, shares are easier to invest in early on, especially if you don’t have the deposit or ability to receive finance for a home loan. Be that as it may, the smaller the investment, the smaller the returns.
Let’s assume, however, that you do have an initial investment amount of $100,000. In this instance, you could either get a loan for a property worth 5 times the amount, or simply invest the money in shares, which would you choose? What’s going to have more earning potential – a $500,000 house or $100,000 of shares?
Maintenance of Investment
Owing property is a big undertaking. Not only is there a large amount to do to buy the property in the first place, the physical aspects, finding tenants, as well as the constant repayments and understanding your financing all take time, effort and money. While you can hire people to take on the roles of property management, maintenance and more, there is still hassle and money involved.
Property as an investment has a number of associated on-going costs that must be considered before investment. These can include insurance, repairs and maintenance, council and water rates, body corporate fees, land tax, and property management fees. There is, however, some return for these costs through rent yield and tax breaks.
Shares can take a significantly smaller amount of set-up and maintenance – if you are so inclined, you can buy, and not have to do much else until you decide to sell. However, more active investors may find themselves buying and selling more often to make the most of the market cycle.
Cost wise, investing in shares involves a brokerage fee worth a small percentage of the investment, which can decrease the overall return on the original investment. In addition, should you decide to invest through an investment fund, there is an annual management charge to be aware of. Shares can also receive some income through dividends, which is a distribution of profits by a company to its shareholders as a reward for investing.
Stability of Investment
Once held, a well-chosen property is almost guaranteed to increase in value over the long term. Shelter is a human need, and thus, property will always be in demand. This makes for what is usually considered to be a stable investment.
Shares on the other hand, are notoriously extremely volatile. This means that it is possible that, even with a diverse portfolio, an investor could lose their entire investment within a matter of minutes. However, it is possible to exit the stock market much more quickly than sell a house, should funds be needed urgently.
Growth of Investment
Over the long term, both a well-diversified property or shares portfolio will ultimately provide a positive return, barring any natural disasters or global crises. Historically, over the long term (10+ years), property has provided larger and more consistent returns. Property isn’t a “get rich quick scheme” – your gain will come from time in the market.
In the short term, investing in stocks allows the opportunity to enter and exit the market to gain the most profit – though this takes research and knowledge of the market to do well, and even the most knowledgeable tycoons still lose out.
Control Over Investment
Depending on your preferred level of involvement in your investment, property can allow for a level of customisation and the ability to control the amount of return you can receive. Through processes such as painting, renovating, upgrading, extending, subdividing, or even rebuilding a property, the rent yield potential and capital growth are likely to improve.
It is up to the investor to choose how to invest their money in shares – in individual companies, an index fund or otherwise. There is also flexibility to adjust the investment strategy as seems fit. However, this is where the choice ends. The return on investment in shares is dependent on the decisions made by the company and its profit, and if these decisions are counter-productive, there may be no return.
Societal Benefits of Investment
Property investment is not only an investment for the individual but is also an investment for the community surrounding the property. There is an overall shortage in most of Australia’s capital cities for quality rental properties, and the construction or refurbishment of properties by investors increases supply and provides housing for more Australian families.
Buying and selling shares can also help to feed the economy, and investing in newer or less-known businesses can harbour creativity and innovation.
So, Should I Invest in Property or Shares?
Ultimately, the decision will be based on the individual, their personal circumstances, financial capabilities and appetite for risk.
The ideal investment portfolio will include a mix of both types of investment, as one of the most important themes in investment is diversification, or not putting all your “eggs in one basket”.
Shares are a great place to start if you don’t yet have the money for a deposit and want to begin your investment portfolio, or if you are looking for a more short-term investment strategy.
Property may be the right choice for you if you are looking for a relatively safe investment and are willing to be involved for the long term. Call Prospa Property Advisory on 1300660335 or email firstname.lastname@example.org to discuss your investment goals today!