What is the best investment move for you and your lifestyle?
As a young investor or someone who might be investing for the first time, making big financial decisions can be difficult. There are so many options out there and naturally you want to spend your money to make more money! A typical decision you have to make is weighing up the benefits of investing in shares or property.
Shares and property are both equities: property equity and corporate equity. The one fundamental difference from the start or the one thing that’s similar is that in the long term they tend to show the same yields. Growth and income wise, research shows they tend to leapfrog each other- meaning sometimes one can look more desirable than the other.
“There are fundamental differences”
“Shares are much more volatile than property.”
Shares tend to go up on a slow rise and then fall. The movement is beyond your control and often created so bigger players can gain an advantage over the average investor. That’s the element of surprise with shares and it’s the falls that is the big issue.
If you compare the total value of shares in Australia with the total value of property, it becomes apparent that the value of property is considerably larger and consequently, much harder to manipulate.
You’ll see that property goes on a plateau and then goes up. So out of a 10 to 14 year cycle, property will plateau for about 2/3rds of the cycle and rises at the end of the cycle.
It’s one of the reasons why banks love property. Banks will lend you around 80{830d1043633127e1fb46cc80e8e725429e813d4a1f208e7acb534f94035a1f28} to 90{830d1043633127e1fb46cc80e8e725429e813d4a1f208e7acb534f94035a1f28} of the value of property whilst only being prepared to advance around 30{830d1043633127e1fb46cc80e8e725429e813d4a1f208e7acb534f94035a1f28} to 50{830d1043633127e1fb46cc80e8e725429e813d4a1f208e7acb534f94035a1f28} using shares as security. In fact, they’ll lend more on a property than they will against the same value of shares in their own bank!
An error a lot of investors make is comparing yields on different investments. While yields are about the same over the long term, ROI (return on your investment) is substantially higher for property as a result of the leverage effect the banks higher lending ratios create.
The other factor to consider is the lenders attitude to declines in value. When shares drop in value, if the investor has leveraged into them (borrowed against their value to purchase them) the lenders will most certainly want to reduce their amount of exposure, This is called a margin call.
With a decline in property value, the lenders understand that it is mostly temporary and are not in such a hurry to reduce their exposure. Also, even though the value may decrease, the rent will mostly stay the same, providing constant cash flow which allows the investor to sit it out and wait for the market to recover.
Over time property has shown that it’s consistent and in any investment, consistency is key! If you have a property that has fallen in value because of a lull in the market, the rent you collect will generally stay the same. So, in this last global financial crisis, the values of residential properties in some areas fell only a little bit but the rent did not!
Whereas, with shares they can disappear totally or at best your dividends decrease when your shares decrease in value.
It turns out the real risk lies in share investment, not in property!
. We are not Project Marketers, we are a research company that researches unique opportunities from developers and builders, confers with our clients and then sources the optimum investment for our clients situation.
If you would like to find out about property investment,. don’t hesitate to contact our team and we’ll match you with the best property for your situation.
