Investing in property or the market.
The only 2 times you truly know what something is worth, is when you buy it and when you sell it!
One of the main differences between investing in property or financial markets is the perceived value at any point in time. If you are someone who watches your investments every day which may include your superannuation fund, you will be quite aware of this.
When there is a drop in financial markets, the value of your investments obviously drop and this tends to be in real time. However, when the property market drops, you don’t drive by and notice your garage is missing. Here are some key things to think about.
Considerations for Investing in Property: (Investment Properties - not an exhaustive list)
Initial large outlay of funds/debt.
Land tax.
Income (rent) which may be used to offset loan repayments.
Deductible expenses, eg: insurance etc.
Capital growth potential but not guaranteed.
Rentability.
Ongoing ability to service loans.
Potentially large expenses as property ages.
Liquidity - you can’t usually sell a portion of the property.
Potentially large capital gain that needs to be managed well at time of sale.
Agents fees at time of sale.
Important to note, if you are claiming depreciation, this will reduce your cost base and increase your capital gain.
Property - investing for long term capital growth and you need to be access lump sums of $ for upkeep over time. CGT - key consideration - timing of disposal - you need to get this right!
Considerations for Investing in Financial Markets: (not an exhaustive list)
Income - potentially twice a year or with some investments minimal to none + franking credits.
Capital gains - although they tend to be a lot lower than with property.
Liquidity (you can sell some if you need a lump sum of cash) If you sell investments that are listed on the ASX (Australian Stock Exchange), you receive your money after T+2 (trade day + 2 week days). If you buy shares, you have 2 days from the trade day to pay for them. Some investors like ETF’s (Exchange Traded Funds) as they have the same settlement terms as direct shares on the ASX but are managed funds.
Brokerage fees to buy or sell or buy/sell costs for managed funds.
Ability to purchase more, participate in dividend reinvestment plans.
Financial planning fees may be tax deductible if investments are not held in super.
Volatility and your ability to manage market downfalls.
Knowing what to invest in.
Financial markets - investing for income and capital growth with greater liquidity than property but usually less capital growth. CGT considerations with the advantage of disposal which can staggered over financial years.
Property or financial markets, what’s right for you? With considered planning, initial structuring/ownership of either and a key consideration being the timing of sale, perhaps both? Your goals and objectives will play a large part in what is right for your unique situation now and into the future. Succession planning could be of high importance to you also. Plan ahead now for the long term by speaking with a financial planner today. Don’t weather the storm on your own.
General Advice Warning: The information in this post has been prepared for general information purposes only and does not take into account your personal objectives, financial situation or needs. It is not intended to provide commercial, financial, investment, accounting, tax or legal advice. You should, before you make any decision regarding any information, strategies, or products mentioned on this post, consult a professional financial advisor like myself to consider whether it is suitable and appropriate for you and your personal needs and circumstances