Should You Invest In Property Or Shares?

Both Australian property and shares deliver similar long-term gross returns.

However, because property allows for higher leverage (borrowing up to 90%), the actual cash return on your initial deposit is often much higher with real estate. In contrast, shares offer better liquidity and lower entry costs.

In this article, we are going to cover some of the major factors you need to consider before you invest your hard-earned money in either property or shares.

Quick Comparison – Property vs. Shares Scorecard

The Case for Investing in Shares

Investing in the stock market offers distinct advantages, particularly for those looking for a hands-off approach to wealth creation. However, the lack of safe leverage options can limit overall growth.

The Pros of Investing in Shares

High Liquidity: You can buy or sell shares in seconds, giving you immediate access to your money.

Low Barrier to Entry: Micro-investing platforms allow you to invest in ETFs and the ASX 200 with very small amounts of capital.

Passive Income: Strong dividend yields provide regular, completely passive income without the need to manage tenants or repairs.

Instant Diversification: Buying an index fund instantly spreads your risk across hundreds of top-performing companies.

The Cons of Investing in Shares

High Volatility: Share markets fluctuate daily based on global economic news, testing an investor’s emotional discipline.

Margin Call Risks: Borrowing to invest in shares (margin lending) is highly risky. If the market drops, brokers can issue a margin call, forcing you to sell at a loss.

Lower Safe Leverage: Unlike property, you cannot safely borrow 80% to 90% of a stock portfolio’s value.

The Case for Investing in Property

As a mortgage brokerage, we consistently see the undeniable benefits of using your loan-to-value ratio (LVR) to accelerate wealth. Property Investment is a proven vehicle for long-term financial stability.

The Pros of Investing in Property

The Power of Leverage: You can safely borrow up to 90% of the asset’s value. You earn capital growth on the bank’s money, not just your own.

Tangible Asset: Real estate is a physical asset that provides stable, long-term security with less day-to-day volatility than the stock market.

Predictable Returns: A steady rental yield provides reliable cash flow to help cover your mortgage repayments.

Tax Efficiency: Property investors can heavily reduce their taxable income through negative gearing and depreciation schedules.

The Cons of Investing in Property

High Entry Costs: Saving for a deposit, stamp duty, and legal fees requires significant upfront capital.

Illiquidity: Real estate is a highly illiquid asset. Selling a house to access cash takes months and involves expensive agent fees.

Ongoing Costs: You carry the burden of maintenance, council rates, property management fees, and interest rate fluctuations.

Why Property Often Wins the Math Test?

Why does property often outpace shares in raw wealth creation? Leverage is a property’s distinct mathematical advantage. By using the bank’s money to control a larger asset, your return on equity (ROE) is significantly magnified.

To illustrate this, let’s look at a hypothetical 10-year scenario comparing a $100,000 cash investment in shares versus a $100,000 deposit on a property.

Scenario Modelling: $100k Shares vs. $100k Property Deposit

Note: This is a simplified projection assuming consistent growth and does not account for inflation, taxes, holding costs, or dividend reinvestment.

In this scenario, even though the shares grew at a faster percentage rate (8% vs. 6%), the property investor generated more than double the total wealth. According to the math, leveraging a larger tangible asset yields substantially more raw equity over a long-term horizon.

Tax Implications: Negative Gearing vs. Franking Credits

High-income earners benefit heavily from property tax deductions like negative gearing to reduce their taxable income. In contrast, share investors benefit from franking credits, which represent corporate tax already paid on their dividends.

When you invest in property, the expenses incurred (interest rates, repairs, management fees) can often exceed the rental income. This creates a “loss” that can be offset against your personal income tax.

Furthermore, holding a property for more than 12 months makes you eligible for a 50% Capital Gains Tax (CGT) discount when you eventually sell.

For share investors, Australian companies pay taxes on their profits before distributing dividends. Franking credits pass this tax benefit on to you, preventing double taxation and heavily boosting your after-tax return.

Can I Use My Property Equity to Buy Shares?

Yes, you can use your property equity to buy shares. This strategy is known as debt recycling. You can refinance your home loan to access usable equity, which is then invested into the stock market to build a diversified portfolio.

This allows investors to blend the benefits of both asset classes. You maintain the stable capital growth of your property while gaining the liquidity and dividend income of shares. However, borrowing to invest always increases risk, and you must ensure your cash flow can handle potential interest rate hikes.

Speak to an Expert Today

Ready to leverage your borrowing capacity? Speak with our mortgage brokers to find out your true borrowing power.

At Home Loan Experts, we can help you structure your home loan for maximum tax efficiency, unlocking the capital you need for long-term wealth creation.

Call us on 1300 889 743 or fill out our free online assessment form if you are looking to invest in property.