There’s a better way to build wealth than property investing

Already a subscriber?The cost of buying, holding and selling residential real estate makes property investment a wealth trap, and many Australians could be better off in US shares, which are positioned to keep outperforming.

“The truth is you can leverage the crap out of residential real estate and that’s a massive advantage,” Ferrando says.“If you take the costs out of real estate transactions, the returns are sub 4 per cent a year as costs like maintenance, agent fees, rates, insurance, repairs, stamp duty, and strata are hidden, high, and constant.”

The basic investment thesis is that buy-to-let investors can profit from leverage as they can make returns in the form of rent and capital growth on a $1 million asset after spending $350,000.But Ferrando says anyone with savings beyond those needed to own a primary place of residence could also obtain leverage – known as a margin facility – on a share portfolio with a broker.

To compare the return on investment on a $1 million investment property leveraged to 65 per cent, Ferrando deducts $47,000 per year in estimated costs to own the property from rental income and assumed capital growth of 5 per cent each year , to equal a net return on investment of $58,000 per year or 5.08 per cent.

“If you add the November 2023 and December 2023 monthly deficits $US317 billion and $US128 billion respectively, and annualise those two combined months, you end up with a deficit of $US2.67 trillion. Assuming US GDP is $US23.5 trillion, the current-run-rate deficit is 11.4 per cent,” he says. “The studies I’ve seen over 37 years show residential property earns at a similar rate to Australian shares,” O’Hara says.

Source: Real Estate Daily Report (realestatedailyreport.net)

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