Timely reminder why investors choose property over shares

The recent share market declines around the world is just a timely reminder that no investment is safe. There’s always a tradeoff between risk and return. It also reminds us that investing in shares is more volatile than property investments.

Here’s 5 reasons investors choose property over shares

  1. While it’s really hard to outperform the long term averages in the share market (that’s why few people have consistently outperformed the share market over a long period of time), it’s much easier to outperform the averages when investing in property. This is achievable through a combination of leverage, and buying properties in locations that will experience both population and economic growth.
  2. Banks prefer to lend you money to buy property but are less willing to lend you money to buy shares. Property leverage don’t face the likelihood of a margin call. As long as you pay the mortgage on time, you can control when you want to sell. Not so with shares. If you are leveraged, a drop in share prices can lead to a margin call. If you don’t pay up, the broker can sell your shares to cover the margin call.
  3. You can increase the value of your property through renovations. But with shares, generally, the share price depends on how well the company’s directors and officers run the company. Also, the share price is impacted by how much other investors value the company. This is largely outside your control.
  4. As a basic necessity, housing will always be in demand – it will always have value. Even if a disastrous earthquake destroyed the houses, people still need a place to live and the houses will still need to be rebuilt and usually if you are insured, the insurance company will cover a portion of the rebuild costs. Plus you can buy insurance to protect your property investment. Some insurance policies even pay you for loss of rents. Few insurers will be willing to insure you in case your shares drop in value. Of course you can buy put options that give you some protection if the share price drops but you can’t buy income protection to cover a situation where your stocks stops paying you dividends. You can do something similar for property insurance to cover loss of rents.
  5. Lastly, property is far less volatile than shares. As long as the tenants are paying the rents and the house is kept in a good condition, You can go a few years without checking the value of the property and be just fine. However with shares, you have to watch CNBC regularly to find out what’s happening and you can lose 20% in a few days if you are not careful.

The availability of leverage, the ability to control your property investment, and the lower volatility is why people choose property over shares.

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