There are a myriad of reasons as to why I have been drawn to property
Below are the six main reasons:
Reason # 1 – You can add value
One of the principal advantages of investing in property is that you can buy a rundown old property and increase the value of your investment by getting your hands dirty, or paying someone to get theirs dirty instead!
In comparison, it would be hard to add value to the Commonwealth Bank shares I own. Sure, I bank with the Commonwealth, but I don’t think my day-to-day savings account is going to add much value to the bank’s profits and in turn increase the value of my stock portfolio.
Admittedly, I can vote when it comes to the company’s annual general meeting, but are the voting rights attached to my 1,000 shares really going to make a difference?
For example, installing new carpet, painting and adding new blinds to an investment property will make an immediate difference to the tax returns available to an investor.
Reason # 2 – There is limited supply
A builder once said to me, “You can’t make property from a plastic mould”. I like the fact that property takes a while to plan and build because, in my opinion, the demand and supply equation has a lot to do with the price of property.
A development across the road from where I live in Bondi has been ‘in council’ for three years now. This means, it has taken three years for all the planning approvals to be passed – before construction has even started. And it will probably take two more years to build.
That’s five long years for the developer.
With shares, however, the company can make a capital raising at any time or issue options to directors or employees. This type of activity can dilute your shareholding making your piece of the pie smaller.
In contrast, you or the government can’t just issue another house and lot or land package in Bondi or any suburb you happen to like.
Reason # 3 – There are some capital gains tax exemptions
Unlike any shares I currently own, the home I live in does not attract capital gains tax (CGT) when I decide to sell it. The sale of your principal place of residence is one of the only assets that you won’t pay capital gains tax on. This has proved lucrative for many Australians, and I can’t see the law changing in this regard for a long time.
Reason # 4 – It’s easy to KISS (Keep it Simple, Stupid)
I like property because it’s easier for me to understand compared to shares or other types of investment. Granted I work in the property industry, but I know if I buy a property for $500,000, I can get $600 a week rent. There will be expenses that I can work out and I can use the Washington Brown depreciation calculator to work out my depreciation claim. It’s simple, really! Have you ever read a share prospectus or company annual report and completely understood it?
Reason # 5 – I am the master of my own domain
I like property because I can be the master of my own domain. I can be the CEO of my property portfolio, the CFO of my investment and answerable to the board directors that I care about – my wife.
I don’t know about you, but I’m pretty sick and tired of golden handshakes to CEOs who have done the wrong thing to their staff or shareholders. I’m over self-interested company directors who pretend they have shareholder company value at heart. Do they really? As the CEO of my property portfolio I can guarantee I’m looking out for number one- myself!
Reason # 6 – It’s not a constant reminder
I like property because I’m not reminded of how much I have lost or made every day. Regular share market updates in the media mean you are constantly aware of the gyrations of the market and the value of your shares. And it’s really not necessary. I personally don’t wake up and wonder what the Nasdaq did overnight and I don’t want to worry about how that’s going to affect my share portfolio – if at all. If I need to have my property valued for any particular reason, for example if I plan to sell it or borrow against it, I will employ the services of a valuer. At all other times, as long as it’s not causing me any problems and the tenants are paying their rent, then I’d prefer to let it appreciate in value in the background without being a constant reminder.
This blog is an extract from CLAIM IT! – grab your copy now!