Defining investment outcomes is fun. Retiring early or without debt, having an investment portfolio that is self-sustaining, or simply being able to do the things you want – outcomes are exciting. More importantly, you can’t get them wrong, because they are deeply personal and relevant to your wants and needs.
Inputs, or methodology, on the other hand, is much more complicated. With your investment goals clear, you must now come up with a strategy to reach those goals.
You do all the right things, researching the pros and cons of investing in companies versus residential real estate, and discover that there are opinions and evidence to support both strategies.
So where should you invest?
The entry point for stock market investment is significantly lower. In fact, you can forego a broker and purchase shares on the ASX using a phone app. But it’s unlikely that the returns on a $3000 investment are going to put you on the pathway to achieving your goals. Even if you manage to achieve a 10% return annually, you have managed to make $300 for the year.
But that’s not a fair comparison, so let’s compare apples with apples.
Let’s say you invest $35,000 in the stock market and manage to make a 10% return on your investment. You have made $3500 for the year, minus any brokerage fees and applicable taxes.
Now, take that $35,000 and invest it in a property worth approximately $250,000. This entry-level property is rented out on a cash flow positive basis, but this is not the only profit you achieve. The property also goes up in value in the form of equity, and you can leverage this equity to purchase another property. Even conservative estimates would put the real estate investment at a significantly higher level than the investment in shares.
But that’s not the best part.
If you invest in shares, and the value of the company decreases then you are left with an intangible investment that is worth less than it was when you purchased it. Financial markets are less predictable than they used to be, and fortunes have been made and lost on stock-market speculation. Political upheaval, economic uncertainty and white-collar crime have all contributed to market slumps that have removed billions of dollars from the value of companies. Recently, Facebook experienced the most significant loss of value in a single day that any company has ever experienced, costing shareholders billions of dollars.
If the value of the property decreases, the property remains. Looking at a graph of the value of Australian property, despite ebbs and flows, prices have consistently increased. This is because the real estate market isn’t intrinsically linked to economic factors and so is more consistent than the stock market. Or to put that another way, companies come and go based on their product, the needs of the population and perceived value by analysts. However, there has never been a time in modern human history when people decided they didn’t need houses to live in.
Bricks and mortar will always be a basic human requirement, and as a result, real estate will always be a safer, wiser and generally more profitable option than any speculative investment.
Dream Design Property (DDP) is a unique wealth creation mentoring program that is designed to help Australians gain financial freedom, offering each client an ongoing personalised service catering to their changing circumstances and needs. DDP has helped purchase over 1,000 properties for its clients.
For more information please visit //www.ddpproperty.com.au/contact.html
Zaki Ameer | Founder | DDP Property