Investments vs investment properties – which makes the most dollars and sense?

Jun 23, 2021

You are about to encounter a whole flock of chicken analogies, for the sake of your nest-egg.  

When it comes to investments, it can be tricky to figure out which strategy offers the best incubator for your assets.

Investment properties have long since been a popular option for that “next stage” of investing in New Zealand.  They’re a tangible, bricks-and-mortar investment, seen by many Kiwis as a logical stepping-stone after they’ve made inroads into their mortgage.

Plenty of “Mum and Dad” investors have made healthy profits over the past decades by buying real estate.  

However, with the government’s tightening laws, and the hen’s-tooth-likelihood of finding a cashflow-positive property in New Zealand, is real estate really the best place to invest?

Or would stocks and shares offer a better opportunity to feather your nest?

There are certainly great investments to be made within real estate, says Stuart Pope, mortgage broker at Castle Trust Financial Planning.

“It’s still a very user-friendly option – very tangible, and it does gain in value over time,” he explains.

Now, more than ever before, an investment property should be managed like a small business.  The adjustments to the tax situation could erode your capital gains if you sell too early, but the staggered changes in interest deductibility could also have greater implications if you wait.

“To know that it’s the best fit for you, your individual circumstances need to be carefully considered. You’ve got to have good advice, and you need to quantify it right down to the dollars and cents at the end of the tax year.” 

According to Castle Trust’s investment advisor, Anna-May Martin, you should be wary of putting all your eggs in one basket.  She reminds customers that if they own their own home – with or without a mortgage – they need to consider that they’re already investing in real estate.

It’s worth remembering that shares are liquid, which means that, unlike the renovated bathroom of your investment property, you can sell a portion of them, should you need money.  Shares are also easy to diversify, so that rather than putting your money into one house in one town in one country, you can have investments – and risk – spread across the world.

“When it comes to investment properties and shares, the question shouldn’t necessarily be one versus the other.  It’s all about complementary asset classes.”

In slightly plainer English, this means diversifying your assets, so that when the chickens come home to roost, your financial position is protected.

To discuss both sides of the real estate vs stocks and shares discussion, call in and see the team at Castle Trust Financial Planning.

Leveraging

To see what this means for you, book a free 15 minute phone call now