Is This the Best Investment in 30 years?

Imagine this for a moment.

You’re standing in front of a Sydney residential investment property (can be any suburb) and immediately next door is a CBA bank branch.

Which one is the better investment?

Well, according to the Nine News on Thursday evening (March 25), the residential investment property is,

“…the best investment you could have made in 30 years…with price growth of 400%”.

You see, the median dwelling price in Sydney in 1990 was $180,000 and by 2020, it was more than $870,000.

Not bad, eh!

But what about the CBA bank branch? How did it stack?

Pretty good actually.

In 1996 the CBA listed on the stock market for $6 per share and is now trading at circa, $86…an increase of 1,430% in only 24 years!

And that’s after it got smashed during COVID last year.

So what’s the big deal about property?

It’s really simple.

When people speak about property, the discussion usually goes like this…

“We paid $50,000 for our house about forty years ago and today it’s worth nearly $2m!”

Conclusion? They think property is the reason they made a stack of money. It’s not. The reason they made a pile of cash is because they held it for a long period of time.

In other words, it’s NOT about the asset, it’s about the length of time held. Every asset is the same.

Now if you’re a property hugger, you’re probably not going to like this but…in my opinion… residential property is over-rated as an investment. Ouch!

And before you bristle up, just hear me out.

1. If you negatively gear a property, you usually need to hold it for at least two property cycles (15-20 years) to do well. The first cycle is to recover costs and the second cycle is for profits.

2. Negative gearing trains investors to think that buying low and selling high is the best way to build wealth. The problem is it relies on getting too many things right and the after-tax returns are usually proof positive. Same applies to shares.

3. Residential property doesn’t double in value every 7-10 years the way the text books say. If it did, the Sydney median house price would be $1,440,000 after 30 years, not $870,000.

4. As clients get older, I see a lot of them sell their investment properties because the maintenance becomes too much. It’s like a second job. Speaking of which…

5. I think paying property managers a percentage-based fee is a dead-set rort. Why not offer a flat fee based on the number of bedrooms or the age of the property or the actual work done?

6. I think there are better options available to investors if ‘property’ is your thing.

My preferences are storage spaces and car spaces. Neither of them have plumbing and electricals to worry about or walls that can be kicked in.

Have you ever seen a tenant trash a car space?

Best of all, ‘space’ investments usually have lower price points and much better rental yields.

Personally, I think a better strategy is to buy two or three ‘space’ investments instead of one residential property.

They have better yields (7-9%), almost zero maintenance costs (therefore more margin) and much less risk for approximately the same outlay.

So by now you’re probably thinking I’m not in favour of residential property investing, it’s not true. I’ve seen a lot of people do well out of it.

I just don’t buy into this dogma that anything with a roof on it is a great investment.

However, every great investment is usually a function of time.

Have a great weekend!

Adam

Back paddock – a mate of mine sent me a message during the week. He said, “alarm clocks should sound like a dog vomiting, nothing gets you out of bed faster!”