Owning property is often considered the 'Great Australian Dream’. As Darryl Kerrigan from The Castle says “It's not a house, it's a home. A man's home is his castle”

‍

‍

But how often have you stopped to evaluate the numbers behind Australia’s obsession with property? In this two part article series we look at the data to answer this question for you!

In part 1, we reviewed the 20 year historical returns of both residential Australian property and investing in the stock market, after adjusting for inflation.

Then we also considered the different tax treatments, and common expenses that come with owning property or holding an investment portfolio that can silently erode growth over time.

Now, let’s get into the nitty gritty and look at an example that takes into account these factors.

Property vs shares in practice

Rewind to 2015. Jess is renting which costs her $1,500 per month and she earns an annual salary of $120,000 plus super. Through disciplined saving she has $160,000 in cash that she can either use to buy a property with or invest into a share portfolio.

Scenario 1: Jess buys property in 2015 & sells after 10 years

Scenario 2: Jess invests in a share portfolio in 2015 & sells after 10 years

What does this mean?

Sooo does this mean Aussies are right to be property obsessed afterall? …Maybe!

With property, you’re often starting off with a much larger initial investment (thanks to leverage!) which means compounding can work its magic at a faster rate.  

But even after taking into account all the different factors that come with home ownership and investing in a share portfolio, this is a simplified version of real events.

In reality, past performance is not always an indication of future performance and the specific numbers for growth and expenses will be different based on the exact property that's purchased or the portfolio that's invested.

That’s why there’s another layer of considerations to think about in the property vs shares debate.

Non-monetary considerations

It’s not always about the money!

Now that we’ve evaluated the data and seen the numbers in action, here are several considerations which might carry a lot of non-monetary value.

Property pros:

1. Stability: Owning property can give you peace of mind and a sense of stability because the place is yours. No more end of lease inspections and scrambling to find a new rental when the landlord bumps the rent up too high! This has become even more valuable in recent years when the cost of living in Australia has skyrocketed.
2. Control over your environment: You can renovate, have pets, and really take full control over how you choose to customise your living space exactly to your preferences.
3. Emotional satisfaction: Lastly, there’s no denying that in a country like Australia, being a home owner can bring a sense of pride and emotional satisfaction. Afterall, it’s no small achievement and you have a tangible asset to show for the wealth you’ve built!

Rent-vesting pros:

1. Flexibility: Meanwhile, rentvestors might argue that the freedom to move to different suburbs (or even different countries) without being tied down by a mortgage is a huge relief and allows you to optimise your lifestyle.
2. Lower responsibility: Also rentvestors are not responsible for repairing any sudden damages to the property (e.g. a leaking roof or broken hot water system) which can cost a lot of time, energy and money to fix!
3. Diversification and liquidity: Instead of investing a large portion of wealth into one industry (real estate), rentvestors have the option to diversify their investments across lots of different industries which protects them in periods of market volatility. Shares tend to be more liquid than property as well, so if cash is needed at short notice, it’s much easier to sell down some shares than sell a property.

Whether you should follow the ‘great Australian dream’ somewhat boils down to your personal preferences, because at the end of the day there is no investment that doesn’t come without its risks!

But we hope these articles have helped shed some light on a worthy alternative to the ‘‘Great Australian Dream’. Even if you can’t (or don’t want to) buy property, there are other ways to grow your wealth over time!

‍

Disclaimer: Flux Technologies Pty Ltd (ABN 86 634 507 172) is an authorised representative (Representative No. 525288) of Mozo Pty Ltd who is the holder of AFSL No. 328141. We also provide general advice on credit products under our own Australian Credit Licence No. 530103. The product information presented does not constitute an offer and we are not recommending or suggesting any particular product. Any product advice presented is of a general nature only, and is not to be taken as any sort of advice as it has not taken into account your personal circumstances, objectives, financial situation or needs. Flux may not cover all products available to you. Check out our Credit Guide and Financial Services Guide for more information.

All information contained in the Flux app, www.flux.finance, www.joinflux.com, app.flux.finance and any podcast of Flux Media Pty Ltd (ABN 27 639 804 345) is for education and entertainment purposes only. It is not intended as a substitute for professional financial, legal or tax advice. Flux Media Pty Ltd is the owner of the registered trade mark, 'What the Flux'. While we do our best to provide accurate information on the podcast, we accept no responsibility for any inaccuracies that may be communicated.