The power of leverage: why property can do what shares can’t

Let’s be real. Most of us know that investing is one of the smartest ways to build long-term wealth. In fact – in 2023, 38% of Australian adults held on-exchange investments, such as shares listed on the ASX and about 20% of tax paying Australians own an investment property, a percentage considered high when compared with other countries.

And whether you’re investing in property, shares or something else entirely – it really is a no-brainer. You’re making your money work FOR you, rather than just sitting there idly waiting.

But when it comes to actually STARTING your investment journey, it can be easy to feel a little confused.

Should you invest in shares? Buy a property? Is now even a good time to invest? Are there too many risks?

At Propell we work with people with these exact questions EVERY day, so we’re well equipped to help you decide the smartest path towards your future.

Our advice when it comes to investing?

If you’re looking to build long-term sustainable wealth, then investing in property is a definite stand-out option, and one of the biggest reasons why we recommend investing in real estate over shares is a little thing called leverage.

So what is leverage, why does it matter and how does it position real estate as the smart option when it comes to choosing your investments? Let’s break it down:

What is leverage?

Leverage simply means using (or leveraging) the money you’ve borrowed to increase the size of your investment.

Think about when you invest in something like stocks. Generally, you’re having to pull 100% of that investment up-front, straight from your pocket right? Which means that the amount you can invest is directly linked to the amount that you actually HAVE to invest.

When it comes to property, things look a little different. They look different because you can use LEVERAGE to increase the value of your investment. For example, you may put down a deposit of 10-20% and then borrow the remaining 80-90% from a lender. With just $80K you could potentially secure a $600K property. Pretty cool right?

Why is leverage so powerful?

Aside from the obvious, using leverage has some huge benefits if your goal is to build long-term wealth.

Why? Because you’re going to reap the full benefits of capital growth on your property overtime based on the value of the ENTIRE property – not just that 10 or 20% deposit you put in at the start.

For example: say you buy a $600,000 property and it grows 7% in value over a year. That’s $42,000 in capital growth. But you only put in an $80,000 deposit, so that $42K is a 52.5% return on your initial investment – in just a year!

That’s what makes leverage so good. You’re essentially making money on the bank’s money too – not just the money that you started with.

But what about shares?

Don’t get us wrong, we’re not telling you NOT to invest in shares – that’s a decision based on your personal situation. All we’re saying is this:

Investing in the share market means using your own liquid cash – the cash you’ve got on you at the time. The returns from a shares investment are only made based on YOUR initial investment, meaning essentially you get less bang for your buck.

Plus, I don’t think you’ll find a bank anywhere that’s willing to lend you $500K to chuck on the stock market. You’ll have to find that $500K yourself – sorry.

So how can using leverage and investing in property set you up for long-term wealth building?

Investing in property not only gives you a clear path (and potentially a very long and exciting journey) to set yourself up for financial freedom, but allows you to start investing with WAY less upfront $$$ than a solid investment in the stock market would.

In simple terms, using leverage to invest in real estate means this:

• You don’t need hundreds of thousands of dollars to get started.
• You’re benefiting from capital growth on a MUCH larger foundation that you’d otherwise be able to afford.
• You’re able to scale over time and build out your portfolio far easier.

But of course – there’s always a degree of risk involved, which is why it’s so important to have a strategyin place that factors in your individual situation, goals and timeline.

Our team is here to help – whether you’re looking to set yourself up with an investment strategy, or you simply want to chat more about how you can leverage leverage (see what we did there) to work for you, then give us a call on 1300 776 735 or contact us HERE.

The earlier you get started, the more time your money has to work FOR you. So if you’re ready to make your move – reach out and let’s get started!