Property ownership has long been the great Australian dream and the sector has experienced unrivalled growth in some cities. This growth has led many to believe that real estate is a safe investment and relatively low risk.
However, is this really the case? Let’s compare some of the risks of investing in residential property compared to blue chip listed shares.
When prices decrease, your equity value does as well. Many banks will lean up to 90% of the property value compared to 70% for blue chip shares.
So when prices are on the way down, if you have a high debt to loan ratio (say 90%) you will experience a higher percentage decline in equity. As little as 5% drop in value can result in equity reductions of 50% at a 90% debt to loan ratio.
The average residential property is on the market for up to 50 days, and up to 70 days in a declining market. So when you are looking for fast cash, property is not the winner
Compared to blue chip shares which can have the money in your bank within 3 days.
Spreading the risk
As many who invest in residential property have a small portfolio of one or two properties, the risks aren’t spread very far.
If you have your own home, an investment property and work all in one area, you are at the mercy of that particular economy for all your investments.
Investing in blue chip shares spreads the risk as many of the companies have multiple office locations (both domestically and international) and various income streams. Hence they aren’t as reliant on one particular economy or location.
Therefore, investing in blue chip shares can be less risky than residential property.
Remember, what is right for you, isn’t right for someone else. Get the best advice for your individual situation from The Farm Protectors.