People often ask us whether investing in property is a better way to build wealth than investing in shares.

Regardless of where people look to build wealth, what investors really need to think about is the risk associated with each investment avenue.

We are property specialists, not financial or investment advisors, but we believe in sharing information to help people make informed decisions, or to look into something further.

Read on to find out how investing in property and buying/selling shares work, and some of the points to consider:

Investing in property

Property generally requires reasonable-sized capital in the form of a deposit.

This type of investment offers two ways to increase wealth in the form of a constant income from rent, and, generally after a period of time, and the mortgage is being paid down, equity in the property.

This equity can be used to purchase additional property’s and expand an investment portfolio.

Any rental income will need to be declared on your tax return and if you sell the property, you may have to pay capital gains tax.

• Some pros of investing in property

1. It is a tangible asset and this form of investment is relatively easy to understand.
2. Unlike other forms of investment, property investors can add value to their property through renovations; however, this requires an initial outlay from the investor.
3. There are considerable tax benefits to property investors.
4. A property can be used to borrow more money and leverage returns.
5. There is the potential for negative gearing benefits.

• Some cons of property investment

1. If you choose to self-manage your property, it can be time consuming with finding tenants, understanding the legislation and ensuring the building is properly maintained.
2. There are also additional costs to consider such as mortgage repayments, maintenance, strata fees, and management agency fees, but many of these are tax deductible.
3. It takes time to sell a property, so there is no quick access to cash.
4. If the property has been financed, interest rates will affect your budget.

• Other points to consider

The ideal budget is the rental income covering all of the costs, and there is a bit of extra for unforeseen circumstances, such as the property being vacant or a rise in the interest rates.

Consider using a property manager to free your time, and give you peace of mind your asset is being rented out to good tenants and is properly maintained. Property management fees are tax deductible.

Buying and selling shares, bonds and exchange-traded funds (ETFs)

This is usually done via a broker or online broking service that’s done through the Australian Securities Exchange (ASX; in a nutshell, you advise your broker or the service what to buy or sell, and they do the trading for you. They can also make recommendations, provided they disclose any interest they have in it.

The minimum amount for any ASX trade is usually $500, but there are some investing apps that allow you to invest with as little as $5.

There is cost in the form of a ‘brokerage’ fee; this is either a set amount or a percentage of the trade value.

As you are a shareholder in a company, you may get dividends and other benefits. You will have to pay tax on dividends and on any capital gains made when selling shares.

• Some pros of investing in shares

1. You don’t need much capital to invest.
2. It’s relatively easy to buy and sell shares.
3. Shares can quickly be sold if you need quick access to cash.
4. Generally interest rates do not affect the market.

• Some cons of investing in shares

1. They aren’t a physical asset.
2. You need to really understand the market, and know the different sectors.
3. The market can be volatile, particularly in times of economic depression.
4. There isn’t really any way in which you personally can increase the value of the shares.

• Other points to consider

Many experts say you shouldn’t invest more than what you are prepared to lose.

Another tip is to look at diversifying your investments across a number of sectors.

When it comes to buying shares, experts say it’s about timing the market to buy when the shares are low, and sell them at a high point.

This is also true for property investors too! Ideally you should buy when the market is depressed, and sell when it is on a high.

We don’t believe there are any genuine ‘get rich quick’ ways of investing; yes, some people do get lucky, but in our experience, wherever you chose to invest your money, generally creating wealth takes time. When reviewing your wealth creation strategy, we always encourage speaking to a specialist who can advise on all types of investments and associated risks and can tell you what to consider for your personal financial circumstances.

If you decide investing in property is for you, get in touch with us to see how our property management services can make your life easier and free you up to do more of the things you want to do.

We’ve helped thousands of people realise their financial dreams through property, and we’re always looking at ways for you to get the best from your investment.

Simply give us a ring on 02 4956 9777, send us an email to mail@newcastlepropertymanagement.com.au or drop into our Cardiff office for a chat.

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