Property As Safe As Houses... Or Is It?

When we speak about property investments most people think of residential property being a house or unit. When in fact, property investments can be much more. Have you ever though of owning a pub, shopping centre, high raise office building, aged care facility or industrial warehouse?  Did you ever think you could have a national tenant such as Woolworths, BHP or National Australia Bank?

Most people think they have to have a lot of money to invest in these types of property assets. In fact you can do so with as little as $500 and will receive better returns then residential property. Let's take a closer look at how residential property compares to listed property trusts.

Residential Property

According to the Australian Bureau of Statistics the average property grew by 8.6% over the past 12 months. In regards to income from your investment you would expect to have a net return of 3%, this does not take into account any expense for interest. If you did borrow for the property the income would be negative. Overall you could have expected a return of around 11.6%.

Most residential property investments are tax driven, people are looking for the loss to offset other income in a bid to obtain a larger tax return. The benefits of negative gearing have been greatly reduced since the government lowered the tax rates. In the 2008 year you will need to earn over $150,000 pa to take full advantage of the negative gearing.

Property Trusts

Property trusts have averaged a return of 24% over the past 12 months with most of these paying a nice 6-8% tax deferred income during this period. This is over double the return of residential property.  Below is a chart of the growth in the property trust index.
 
Property%20trusts.gifSo why is it that most people when they invest in property invest in residential property as opposed to property trusts? The most common answer is that people like to be able to see and touch their investment. In fact I doubt that this is true, if you are honest with yourself I think you will find it is because you understand this investment.

Residential Property is very straight forward, you buy the house someone pays you rent, you pay the bills and keep the difference, eventually you sell the house and pocket the profit. Whereas listed property trust seems to be a lot more complicated, in fact there isn't much difference between the two. Listed property trusts are merely on a larger scale and because of this larger scale they provide better returns.

Yes, there are companies like Westpoint, Fincorp and Australian capital reserve and those of you who don't like listed property trusts would grab hold of these failures and use them to fuel your fear and limit your returns. Indeed there are bad property trusts as indeed there are bad tenants in residential property. The trick is to have a good adviser who can assist you when choosing a listed property trust. Never be afraid to pay for good advice, not only will it save you money it can make you money along the way.

If you were to invest $50,000 in residential property on the above return you would expect to have around $148,000 in 10 years. If you invested the $50,000 in listed property trusts even after fees you would expect to have around $365,000 after 10 years.

So next time you think you would like to have some exposure to property, give us a call and we can discuss your options and double your return.  
 
Please contact AAM Townsville on 07  4771 4577 for all your investing needs.