"You get a better return on investment from shares than you do from property"... or is that really the case? What are the real advantages of investing in property?

There's an age-old argument between share investors, and property investors, that you'll never get the return on your investment from property, that you can from shares.

I'd like to disagree with that.

I think the advantages of investing in property are greater.

Yes it's true, that shares are the more liquid asset. You'd have a hard time selling an investment property in three days, but with shares you simply have to make a call to your broker to sell, and you have your money back. This is a useful thing, and the advantages are not to be ignored if you are to have a balanced investment portfolio.

But think about it: Unless you have a margin loan (which can generally only be for the same amount again as you put in of your own money - i.e. you put in $20,000, and the bank puts in the same), or you know some pretty interesting stock market techniques that I won't go into here, you have to put in *all* your own money in order to make anything on the stock market.

Where is the advantage in that?

Speaking in very average investor terms, you can start in shares with a lot less money than you might need to start in property. If you want to know more about the advanced share techniques, you're better off going and doing one of the courses I recommend over at "Getting an Education in Real Estate Investing"!

The trouble is, if you want to leverage that share investment with OPM (remember: Other People's Money), then Macquarie Bank (Australia's investment bank that does the margin lending) won't actually lend you anything unless you are putting $20,000 minimum into the pot yourself. Well, they will... but my broker informed me, when I rocked up with $3,000, that Mac Bank would charge interest on that $3,000 as though I had borrowed $20,000 anyway (so for a margin loan at 6% I'd actually be charged nearer 40% interest because the amount was just over one seventh of $20K), so it wasn't worth it!

It's a different case in property.

One of the great advantages of investing in property is that, depending on the techniques you use, it's possible to make a profit with no money down at all. That's actually infinite ROI (Return on Investment). Breaking it down into the simplest terms, though, if you buy a $100,000 house to rent out and at the end of the exercise when you sell it's worth $120,000, is that a 20% ROI?

No.

Even in these straitened times of the Global Economic Crisis (something I largely ignore for my own peace of mind - and it works...we're actually making more money by the day than we were before the meltdown!), one of the advantages of investing in property is that you can still get a loan at 95% LVR (Loan to Value Ratio - go and see my article on that if you need help).

So, putting complexities like legal fees and stamp duty (if you get that where you live) aside for a moment, you can find $5K, buy a $100K house, increase its value by $20K to $120,000... and what's the ROI?

It's actually a 400% Return On Investment because you put in $5,000, and you got back $20,000.

You may argue that you have to handle other expenses, like mortgage repayments, that would erode that profit over time, but that's only if your property is negatively geared.

I don't like negative gearing, or negativity in general (why do you think I ignore the "Economic Downturn"?).

Let's keep our property investments positive!

If you keep your property investment positively geared, or at least neutrally geared (that is, you're not making extra from the rent, but you're not losing money either), then here's another of the advantages of investing in property: in the simplest terms, that Return on Investment is all yours to keep!

Of course, if your investment is positively geared, and you're getting cashflow back out of your property week-on-week until you sell, that ROI increases almost exponentially, and you can use the equity you build into your first property to go and buy more properties to increase that percentage again!

Now do you see the advantages of investing in property?

Brilliant, or what?

So, which one will *you* pick? (don't forget to read my Don't Sue Me! page before you answer that...)


Return from Advantages of Investing in Property to Investing in Rental Property


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