Every few weeks I get an email from somebody who’s been approached by a property promoter offering to “build them wealth” through an investment home. These people — often called property spruikers — make their money not from investment success but from the generous commissions they load into the deal.
They tell the potential victim that the guaranteed secret of wealth is negative gearing into residential property. Next come baffling charts showing how rental income will supposedly pay off your home faster. The clincher? A massive tax refund at the end. Given today’s property prices, most people can’t imagine buying an investment property. But the spruikers have the solution: start a self-managed super fund, roll in your existing super, and you’re off. But picking your own property is hard, and they tell you that older properties lack the tax benefits of new ones. The fix? The spruiker finds a block of land and builds a property for you. What they don’t tell you about is their hefty commissions hidden in the price. It's a recipe for disaster.
That said, the topic always sparks debate. It’s the old question: Which is better — property or shares? I’ve been comparing the two for decades, and while both have their place, the differences are stark.
The first major distinction is entry and exit costs. With shares, there are almost none. You can buy or sell thousands of dollars’ worth of investments with the click of a mouse, paying only a small brokerage fee. Property, on the other hand, is loaded with costs from the start — stamp duty, legal fees, building inspections, and mortgage costs. Then, when you sell, you’ll pay agents’ commissions and advertising expenses. These add up to tens of thousands of dollars and can wipe out years of growth.
Next comes the ability to add value. In theory, you can improve a property by renovating, extending, or landscaping, but that’s only possible if you own a standalone house. Apartments can’t be improved beyond a lick of paint or new carpet — and they still get older and more tired-looking every year. The key to property success has always been to buy a home with potential to improve, but those sorts of properties are now prohibitively expensive in most major cities.
Another important factor is liquidity. If I have a million dollars in shares and you have a million in property, and we both need $100,000, I can sell part of my portfolio and have the money in the bank within 24 hours. You can’t sell the back bedroom. To release cash, you either have to borrow against your property or sell the entire thing — triggering capital gains tax and transaction costs in the process.
Then we have tax-advantaged income. Dividends from Australian companies often come with franking credits, which means the tax has already been paid at the company level. For many retirees, that makes dividends virtually tax-free. With property, by contrast, every dollar of rent is taxed at your full marginal rate, and the net yield after costs is often poor. Negative gearing helps offset this while you’re working, but it’s of little use in retirement when you no longer have salary income to offset.
Ongoing costs are another big difference. Shares don’t require maintenance, insurance, or repairs. You can hold them for decades at negligible cost. Property ownership is a never-ending list of bills — land tax, council rates, insurance, maintenance, repairs, and the occasional vacancy when you receive no income at all. Over time, these expenses erode returns far more than most investors realise.
The regulatory climate is also shifting against landlords. In many states, politicians have discovered that bashing landlords wins votes. We now have rent freezes, limits on rent increases, and rules that prevent owners from refusing ‘reasonable requests’ from tenants. Those requests might include pets, extra occupants, or even air conditioners. All these changes reduce flexibility and increase costs for landlords.
Finally, consider diversification and simplicity. With property, success depends on picking the right location, builder, and tenant — and then hoping for the best. With shares, you can simply buy an index fund like the SPDR S&P/ASX 200 (ASX: STW) ETF that invests across the top 200 companies in Australia. There’s no need to make further decisions, and history shows the Australian share market has averaged about 9% a year over more than a century.
Of course, property and shares each have their advantages. Property offers the comfort of something tangible, and leverage through borrowing can magnify returns — or losses. Shares offer liquidity, diversification, and ease of management. The ideal portfolio often includes both, but in my view, the argument that property is ‘safer’ simply doesn’t hold water.
The bottom line is that every investment involves risk, but the greatest risk of all is misunderstanding what you’re getting into. Property promoters will always tell you what you want to hear. The smart investor looks beyond the sales pitch, crunches the numbers, and asks one simple question:
If this is such a great deal, why are they selling it to me?
Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: [email protected].