Property investment vs shares

Comparing shares and property is an age old argument – and there is actually no right or wrong answer – it comes down to your preferences and approach to risk.

Growth investments

Both asset classes – shares and property – are considered to be growth investments. In other words, over time, a quality investment in shares or a property could generate capital growth, with some income from rent (property) and dividends (shares) thrown in for good measure.

The case for shares

Ease of entry into the share market is a big plus for equity investors. You can buy into the share market with as little as a few hundred dollars. In comparison, home and apartment prices in our capital cities could easily cost you upwards of $1 million.

The transaction costs of investing in shares such as brokerage and transaction fees are significantly lower than the stamp duty and legal fees that you’ll pay as a property investor.

Finally, with a share market investment, you could get almost instant access to your money when you decide to sell. Equally, you don’t have to sell the entire investment to get access to some cash. With an investment property, you can’t sell a bedroom to free up some cash – it’s the entire property that goes to market or nothing.

The case of property

A major appeal of owning a property is its perceived stability relative to the share market, where values can vary wildly from day-to-day as a consequence of how easy it is to buy and sell shares. If you’re approaching retirement, this level of volatility may not be for you.

A property investment, on the other hand, gives you a tangible asset that can deliver a sense of investment security as well as some capital growth and income.

Property buyers have the ability to fix the interest rate of a loan, which is another valuable security measure. This means that your mortgage repayments will be set for an amount of time, which could be a good option for someone who prefers stability.

Holding an investment property in a self managed super fund (SMSF)

It is possible to set up an SMSF primarily to invest in residential property, but be aware, some rules apply to ensure your fund remains compliant. ASIC’s Money Smart website lists the following rules:

  • The property must meet the 'sole purpose test' of solely providing retirement benefits to fund members

  • The investment property can’t be acquired from a member or related party of a member of the SMSF

  • The property can’t be occupied by a fund member or any fund members' related parties

  • The property must not be rented by a fund member or any of the fund members' related parties.

Next: Investing for property profit

The key to a ‘renovate and flip’ strategy for investment properties is knowing what improvements to make, to generate a return.

Need help understanding the pros and cons of property and shares? Contact us or speak to your adviser

What makes most financial sense? A new build, a renovation or a well-established home in good condition? We explain the pros and cons of each.
Buying property calls for more than just a down payment. We explain the transaction costs you need to budget for.
When it comes to investing, a lot of focus is placed on how much money a company makes. It can be just as valuable to know how a company makes its money.

This information is current as at 15/08/2016.

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