I love to invest in shares AND Sunshine Coast residential property. Unlike the other two major asset classes – cash and bonds – shares and property offer income in the form of dividends from shares, and rent from property. As well as capital growth via share prices and property prices increasing. So, the question is, which one is best?
Depends on what type of investor you are
As your local Sunshine Coast Financial Planner, and a personal residential property investor myself, in my opinion, property is the better investment for if you:
- Have a very long-term horizon (10 years plus)
- Are prepared to use leverage (borrowings), and
- Have a higher capacity for risk.
Let me explain in more detail why I believe the option to invest in Sunshine Coast residential property is best if you meet the above criteria.
Sunshine Coast Property:
Leveraging magnifies returns (and losses)
By purchasing a property for $500,000, if it increases 10% you’re up $50,000, if you were using a small deposit for the property, say $25,000, a $50,000 gain represents a 100% return on the $25k you’ve used as a deposit. The magic of leverage! Of course, by buying the wrong property the opposite can easily occur.
Longer time frames reduce risk
Time invested takes much of the risk away, as property is fairly unlikely to fall in value if you are holding it for 10 years or more.
Retaining a freehold investment property
Often, I have clients who have the dilemma as to whether to retain a freehold investment property when they retire. In my opinion, a freehold property is not a great investment. For example, a $500,000 property, if you are lucky enough to get $500/week rent, means the gross yield is: $500/wk x 52 weeks = $26,000, divided by a value of $500,000 results in a gross yield of 5.2%. Of course, this is before management fees, rates, insurances, repairs and maintenance, accountancy fees, gardening costs and so on. If this comes to say $7k/yr, the yield will reduce down to 3.8% ($19k/$500k = 3.8%), plus any capital growth.
Investing in shares:
A diversified portfolio of shares
This will generally pay a higher income and will also have capital growth. Currently, the Australian share market has a dividend yield of 4.35% p.a. This excludes the benefit of franking credits, whereby many companies have already paid tax on these dividends and therefore you may be entitled to a tax refund, particularly in the low-tax environment of superannuation.
There’s no hassle involved in shares
You’ll get a dividend every six months. You won’t have to deal with problem tenants and other property issues. Hence, for simplicity, liquidity, and the ability to easily diversify, shares are the preferred vehicle.
If you prefer property, have a long-term horizon and a higher appetite for risk, particularly relating to leverage, then I would be more inclined to purchase property.
Why invest in Sunshine Coast Residential Property
As for Sunshine Coast property investment, long-term I am quite positive regarding Sunshine Coast property. The Sunshine Coast is, of course, one of the most beautiful places in the world. Before moving to the Sunshine Coast, I took a year off and went travelling, seeing over two dozen countries. Of all the places I wanted to live, like many other people, I thought the Sunshine Coast was the best place in the world to live.
Add to this the Hospital in Kawana, the Maroochydore and Caloundra area redevelopments, and an upgraded, international airport, Sunshine Coast residential property as an investment is likely to be a good investment decision over the long-term.
If you would like to discuss your investment options please give me a call. Yours truly, Mike Beal, your local Sunshine Coast Financial Planner, 0409 799 279, [email protected].