In this post I will be be covering my learning of why I decided to dip my toes in the property market despite having a great run with the stock market so far.
Passive investing through index funds/ETFs
There are many reasons I really like passive investing through index funds/ETFs, the main being:
- Much lower barrier to entry than property; i.e. i can invest as little as $5 if i want to.
- Liquidity – much easier to liquidate than property
- Simplicity – no headache with investment property such as dealing with tenants, etc.
- Same-ish returns as the property market – so let’s say ~7%p.a.
Investing in property
The main thing which turned me off from property in the past is the barrier to entry. Typically you’d need a decent amount of savings as a deposit for a property, and since property prices in Australia are extremely expensive, it’d take a year or two of diligent saving just for a downpayment! So with this mindset, I’ve automatically ruled it off. Not to mention all the other reasons listed above which make passive investing with index funds sounds like the better option.
I’m not saying that index funds/ETFs are a bad idea – they’re great and have worked well for me so far. But I do think that with the proper education, I can make a better ROI through active investing over my current plan. Yes, it will be a change from passive investing to active investing meaning that i’ll need to start putting in a lot more work on educating myself and all that, but I think the ROI of continuous learning and self improvement by actually doing something will far surpass me just sitting on the sidelines with passive investing twindling my thumbs.
So, now I’ll outline some reasons why investors choose property over the stockmarket:
- Leverage
- Leverage other people’s money – One of the biggest powers of REI is using other people’s money (OPM). Using OPM, say with a $100k downpayment you control a $1,000,000 asset. Whereas to get $1,000,000 worth of stocks would take you quite a while. Yes, you don’t own the $1M home but say instead you’d invested that 100k in the stock market, and both the housing market and stock market made 7% returns. With stocks, you would’ve made $7,000 and with the house, you would’ve made $70,000. Also, equity can be drawn from the house to help you further build your portfolio, so if you’re smart and are educated, you can really fast track yourself to financial independence through using OPM.
- Leverage other people’s knowledge – when you surround your self and work with mortgage brokers, real estate agents, tax accountants and other successful property investors, you are leveraging other people’s knowledge. Robert Kiyosaki always talked about having a team, and better yet – a team of people who are smarter than you so you can learn and grow from them. I also believe that being surrounded by more successful people will also raise you up.
So right now it does look like I’ll possibly be selling my ETFs to enter the property market. The path will definitely be more difficult as I have to stand up from the sidelines and start my journey of educating myself (for like forever) so that I am always working to improve my chances to get a better ROI than if I just had it in the index funds. Will it be hard? Yep. Will I fail? Probably, most likely inevitable haha. But the ROI of continuous learning and trying to find a way to make things work will ALWAYS beat the ROI of just sitting down doing nothing.
Anyway that concludes my post and thanks for reading. I’ll be continuing these property posts to share my learnings as I go along. I’d like to also note that I am new to this all and may make a lot of mistakes in my explanation/understanding and get things wrong. So I’d like to end with this quote:
“If you are not willing to look stupid, nothing great is ever going to happen to you” – David Shores
Till next time! Peace
