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“As a general rule in Australia, houses don’t get half their value wiped out overnight”.

However, everything must be done in moderation. Shares can be an excellent income supplement to help you service your loans if managed correctly. The trick is to diversify your investment portfolio and not put all your eggs in the one basket.  At the end of the day however, my opinion is that houses win hands down. Let explain why.

Lets say that I go out and buy a property and my mate Roy buys shares. Now lets asume that at the time we both have $40,000 cash (as a deposit) to invest..er I wish :) For a property, banks will loan up to 90% (sometimes 100%) and for shares they will generally loan up to 60%. With my deposit of 40k I can borrow 360 k (90%) therefore 400k in total to invest in property. Roy with his 40k can borrow 60k (60%) therefore 100k to invest in shares. 

Now here is the big difference. Over the last 100 years in Australia, residential house prices on average, every year, have gone up by 10%. Some times they will go up much more than that (Perth in 2007/2008 rose 36% in some places) and sometimes less but on average 10%. Now if at the end of my first year I get 10% growth on my 400k investment that will be 40k ROI. My mate Roy on the other hand …er well lets be generous and say he gets a return of 12.6% growth on his shares, that will mean he has made $12,600 ROI. 

Now lets think back to how much of my money I actually invested in the first place. It was 40k and I made 40k in equity growth therefore in reality thats a 100% ROI. Now of course thats not going to be clear profit as you are going to have costs involved with managing and maintaining your property but there are many ways to reduce costs and minimise tax (but more on this later). Imagine if you had 10 propertys working for you like this. 

Some people use many different strategies from renovating to adding value or developing properties etc. If you can afford to hold your property it is going to benefit you in the long term because this is how to get compond growth (growth on growth).  

Most people will never invest and will always procrastinate or ridicule those who do however it doesnt matter what you do with your life but do something. In future blogs, we will talk about ways minimise the costs of holding an investment property.

Todays words of wisdom -   “DO IT NOW – JUST DO IT. Make a start, just a small start…anything but if you “do what you’ve always done you’ll get what you’ve always got”.