About - Housing Rental Income Comparison
An investment in property is like most any other kind of investment: putting up a specific sum of money in the hopes that it will produce a fruitful yield. With investments in equities, the investor purchases a security in the hopes that the stock price will rise in value; with property investments, the investor purchases a property in the hopes that he/she will be able to rent out that property at prices that will produce a steady, healthy income stream.
Purchasing property for the purpose of renting it out is a moderately risky endeavour, not as volatile as stock picking. A talented stock investor might be able to earn an average of 15% per year, but with considerate risk. Even some super annuities, which are usually reliable, yield up to 10% in dividends, after tax income returns. Property investment can prove equally rewarding, however.
If a unit is purchased for $300,000 and rented out for $500 a week ($26,000 a year), the property is yielding a healthy return on investment of 8.7%. It is not uncommon for a property to be purchased for $300,000 and rented out at $600 a week, yielding over 10%.
There are other advantages to renting. Tax advantages are very similar with both stocks and rentals, but national banks value property considerably higher. When assessing collateral, the banks are wary of equity investments that are subject to volatility. They prefer property, the value of which tends not to rise and fall dramatically. Taking out a loan, using the unit as collateral, enables a property renter to fund his/her ongoing costs (maintenance and repairs, insurance, agent's fees, etc.) if necessary.
Liquidity is another important factor when deciding on whether to purchase property. Shares and super annuities are preferable to property in this respect. Though shares can be sold off rather easily, property is not a liquid asset and cannot readily be turned to cash. Purchasing property is a complicated process; if a healthy sum of money is needed in short notice, a property unit will be of little value.
There are advantages and disadvantages to any financial endeavour, and it is of the utmost importance to consult with a financial professional before coming to any decision.