Property investment vs shares
By Robert Wright /February 18,2021/
An age-old question is whether it’s better to invest in property or shares. There is actually no right or wrong answer. It all comes down to your preferences and approach to risk.
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 and also produce income from rent (property) and dividends (shares).
The case for shares
Ease of entry into the share market is a big plus for share or 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 upwards of $1 million. The transaction costs of investing in shares such as brokerage and transaction fees are also significantly lower than the stamp duty and legal fees you 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 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 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 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.
As this shows, there are many reasons to invest in shares and property. For further information about investing in property or shares, or to discuss whether it may be a suitable strategy for you, please get in touch.