Should I buy an investment property or shares?
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- Опубликовано: 16 мар 2024
- While investors don’t have to pick one or the other (they can exist in an investors portfolio together), I regularly get asked ’should I buy an investment property or shares?’
In this video I explore my thoughts on the pros and cons of property investing vs shares.
Cost of servicing, returns, gearing and exit strategy are just some of the elements you should consider before committing to one strategy over the other.
If you want to learn more about what we do at Stockspot, you can read more about the benefits of investing in shares here: www.stockspot.com.au/how-it-w...
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Read more:
The most important consideration before buying an investment property / blog.stockspot.com.au/conside...
What are the best ASX property and real estate ETFs / blog.stockspot.com.au/best-pr...
Should I buy property or share / blog.stockspot.com.au/propert...
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Disclaimer: Stockspot Pty Ltd ABN 87 163 214 319 is a licensed Australian Financial Services provider (AFSL 536082) regulated by ASIC. Any advice contained in this video is general advice only and has been prepared without considering your objectives, financial situation or needs. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate taxation and legal advice. Investing into financial products involves risk. Past performance of financial products are no assurance of future performance. Please read our Financial Services Guide on stockspot.com.au before deciding whether to obtain financial services from us.
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Absolutely spot on. Taken me a few years to realise everything you have mentioned in this short video.
Thanks for the feedback, took me many years to learn as well.
Thanks, Chris for summarising the two options. On top of what you mentioned
Pros for Investing in Property Vs Share
• It allows manufacturing capital growth and rental income growth.
• Security leverage of borrowing more from lenders with lower interest rate through the equity to build up a portfolio.
• Asset depreciation & tax deductions for high incomers
Cons are
• Long-Term Commitment -Stress of holding the asset over long time
• Surprised costs for emergency repairs or bad tenants etc that can end up to 10k p/y
• Interest rate fluctuation that impact cashflow over time
• Higher initial funds required to get started.
• It is harder to invest in the right property.
• Risk of total loss in case of any health issues or lifestyle changes.
Here is a UK perspective.
Bought a House, paid stamp duty on purchase, spent x on modernising it, Grew value by 35%, left with 9% profit after changes (could have done it a bit cheaper but it's my main home) Looking at selling now +9% profit needs to pay for estate agent fees and solicitor fees.
I have an account where I get 25% returns guaranteed on max £4k Per year. Theres other accounts where you get 25% on deposits guaranteed again. Better to max these outs first as your returns are tax free.
It all depends on the start up position you are in, don't have much money? Get a cheap house do it up and sell it / rent it, do that a few times. (plus if first property you can use that 25% return account to use as deposit so basically the government pay 25% of your deposit) It takes a lot of money in stocks inc dividend portfolios (I'd say 500k) to make it worth it. When you build up your wealth through property, then go in to stocks. Someone going in at 4-500k beats 20 years of £100pm dollar averaging.
Depends where you are starting as best strategy.
Thanks for the informative video. I am a staunch believer in investing in shares as well.
One thing in your video is that you refer to negative gearing as not being available for share investing, when in fact there is that opportunity if you are using borrowed money.
Chris, I think you missed a few vital points 1) time/effort costs, I find with investment properties you need to find time and effort in managing them, even if you have a good property manager, they are only the middle person and ultimately it is you making all the decisions which cost a lot of time and effort 2) you cannot average up or down with property, it’s 100% commitment in an instant, which to me seems to be risky …..
Agree. You will always be better off in a diversified portfolio. A200/BGBL or VAS/VGS.I tend to have a 60/40 split as the franking credits are too hard to pass up.
What do you mean 60/40 split?
@@antetony83 60% Australian index, 40% International index
Don't forget gold! ruclips.net/video/FwZlSEvEV-M/видео.html
Yes good point. 90% equities, 5% gold and 5% cash. I don't invest in bonds and happy to inherit higher volatility for better long term returns.
We are weighing up investment property vs continuing to invest into ETFs. The big plus with property is ease of leverage and lack of risk in doing so.
That's too, property does come with the advantage or relatively cheap leverage. However it works both ways! See this article I wrote on the topic blog.stockspot.com.au/property-investing-returns/
Salary sacrificing into super gives you an instant return in the form of tax 'discounts', and low tax within super also. This somewhat offsets the benefit of a negatively geared property in regards to tax concessions. There is also margin lending, which can also be negatively geared, and works pretty well when interest rates are low.
All good points, I did this video on margin lending (borrowing to invest in shares) a while ago ruclips.net/video/kW0LpjrCkTA/видео.html
Hi Chris, could you please share your thoughts about comparison between investing in property (buy, renovate, hold and sell) and business (buy, build and sell/exit)?
Hi, businesses are all very unique so it would be hard to generalise and compare to investing in property. Both property and businesses require more active involvement whereas shares can be more of a passive / hands-off investment. When you're buying a business there's a lot more opportunity for improvement compared to property or shares but this needs to be balanced with the additional risk.
@@ChrisBryckiStockspot thank you for your reply! I will book a call to discuss the product further and see which is more appropriate for my situation.
Money in Offset Account vs Investment Property?
I've stopped investing directly in UK residential property. The government hates landlords.
Hates small landlords. Key difference.
hard to hate themselves, they hate everyone else doing it to protect it for themselves and their friends. @@tomjones8715
Hi Chris, thanks for your insights on this. I too have always believed that investing in stock market beats property market long term with very minimal efforts. I agree with all your points. However, I have some counter points with regards to Sydney property market where I live. I rent as I don't own a property. The property rents have been increasing between 20% to 50% pa since last 2 years. One could argue that this won't be the case every year, but below 3 facts suggests the rent increase could very well maintain this pace for many years.
1) Sydney is still very attractive for immigrants worldwide. So the population inflow to Sydney will always be higher and increasing compared to population outflow.
2) New property constructions in Sydney is way slower to cater for the demands of population inflow.
3) Labor cost and construction costs in general is getting more expensive.
To me, the above 3 points are solid factors which could very well maintain the rental increase of 20% - 30% per year for foreseeable future. There's minimal rental vacancy in almost all suburbs of Sydney. No diversified shares portfolio generates 20% pa long term (10% is probably the best case). This makes me think buying at least one property for living in a city like Sydney is always preferable over investing only in shares portfolio and living in rental property. Can you please share your insights and thoughts?
Great question!
Currently, rental yields for houses in major cities remain below 3%, which is notably lower than both the risk-free rate and yields on other riskier assets such as shares (source: sqmresearch.com.au/property-rental-yield.php?region=nsw-Sydney&type=c&t=1). Consequently, there's a plausible scenario where rents could continue to escalate, albeit potentially at the expense of capital growth.
Over time, if rents become increasingly unaffordable, it may necessitate a correction in property prices for investors to achieve a reasonable rate of return on their investments. In such a scenario, it's conceivable that prices might need to adjust downward to align with the market dynamics and ensure a sustainable balance between rental income and property values.
Your number is a bit confusing - the 20%-30% you referred to, are you talking about the year-on-year 'growth' in rental income or the rental yield? I assume it's the former, but then you compared it to 10% return on shares, which is not an apple-to-apple comparison.
Also, I agree with Chris that once you calculate the 'net rental yield' of residential real estate, it's usually lower than most people expect (the 3% he referred to in his response sounds about right on average).
@@uberboiz I am not even considering investment property here. My debate is whether to have all investments in ETFs while living in a rental property as a "tenant" or buy one property to live while investing the rest in ETFs.
For a tenant living in rental property, the rent they need to pay is increasing by 20-30% year on year in cities like Sydney for the mentioned reasons above. So I feel it's worth buying one property to offset rent increase.
@@deepakn6760 If you have enough for a home deposit in Sydney, and you can service the repayment comfortably, then buying your own PPOR may be a reasonable option (especially if you have kids). Otherwise, you might want to rethink about tying a significant chunk of your money into an illiquid asset that doesn't produce anything, especially if it involves borrowing a heroic amount of debt.
Whether or not owning a property offsets the rent increase is another question - you may not be subject to a rental hike, but there are other costs associated with home ownership that may increase over time (maybe not at the same pace as rental increase, but it does go up still).
If the sharemarket is great why wouldn’t you recommend a margin loan?
I have a 4 investment properties and I have no concern about borrowing more money for more homes.
I would have great concerns borrowing on shares.
Shares have and will again drop by 50%, i have never seen property in major hubs of Australia
Ie - global economic crisis shares dropped 50%, houses your were unlucky to drop 5%
Hahaha sorry here’s a little bias from the other side
Your concerns on borrowing on shares is a reflection of your temperament and/or risk appetite, and not an indication that one asset class is riskier than the other.
Leverage is just a way of financing your purchase of the assets anyway - it's a double edged sword, regardless what assets you buy. The fluctuation in share prices means nothing if you are investing for a long run, you won't lose 50% if you don't crystalize the loss when the market goes down. House prices may not swing as wildly, but there are other risks associated with the borrower's ability to make the repayment etc.
I have not seen multimillionaire who gained it through shares or etf. There are many who achieved it through property within a short period of time.
Warren buffet achieved all his wealth through shares
Etf and stocks have only recently become more mainstream. Outside of Pensions, only 1 in 10 people invest in the UK in a Stocks and share ISA. In 30 years, your statement may be different.
I thought this chart was interesting showing where the ultra rich invest their wealth, around 18% in shares and 32% in property. visualcapitalist.com/visualizing-the-investments-of-the-ultra-wealthy/
You clearly don't know many people....
@@ChrisBryckiStockspotin effect that is 64% in property including money in real estate shares as well. That’s massive