Property vs Shares: Which Offers You a Better Yield?

 

I used to make the mistake of checking emails at night. It was the preferred way for my tenants to get in touch. I should have known. Studies show over 90% of people experience elevated blood pressure while checking emails.

That night, it was lucky I wasn’t thrown into cardiac arrest. I could feel the blood pressure rising as the tenant’s emails rolled in.

I’ll spare you the details. They wanted to get out of their lease. It was the neighbours. Apparently, the police wouldn’t attend unless they were armed.

Now, that was the problem with one rental on Auckland’s North Shore. I wonder how the management goes — when as some property seminars suggest — you run a portfolio of housing rentals.

‘Get a property manager,’ people will tell you.

Well, we had one of those, too, on the next property. By this time, the government was introducing a raft of measures. From smoke detectors. To heat pumps. To asbestos. The tax crunch. Then there was the P epidemic.

So, not a month seemed to go by when the property manager wasn’t asking for approval on some expense or compliance check or another…

Of course, tenants should have a healthy home. I have no quibble with that. But, as an investment, the expenses squeezed the rent. And my blood pressure. To the point where the yield was pathetic.

 

What we’re seeing out there

 

So, it comes as no surprise that we’re seeing more and more people tell us this:

‘I’ve had a gutsful of managing my rental property for little to no return. You have to keep getting decent capital gains or it’s not worth it. Not sure on those either…’

And…

‘You get nothing in the bank. You don’t want money there either. Where else can I put my funds?’

From my tiler, to relatives, to friends of friends, to the many homes on Trade Me without furniture — landlords are quitting rentals and looking for someplace else.

 

 

The New Zealand property mafia

 

Not so fast. Property values have now reached record levels around the world. For the first time, the US median home price jumped over $300,000. UK homes prices are about at their highest ever.

That’s what happens when governments turn on the money taps. It has to flow somewhere.

But, in the US, that record-high home price is only a multiple of around 4x income. Here in New Zealand, you can reach 9x.

Then there’s the debt supporting that, often beyond mandated maximums overseas.

So the New Zealand situation is even more heated. And there’s many vested interests in keeping that going. A mafia of Aussie bankers, advisers, accountants, coaches, mortgage brokers — you name it. Determined to protect the wealth machine.

You know how it goes. You do the wise thing and seek some ‘independent’ advice. But all too often, the adviser depends on you actually sinking some money into residential property.

Because then they have a flow on income. You’ll need a mortgage. Tax accounting. A trust. And often, they clip the ticket in the form of a commission on the rental home they jack up for you.

Perhaps things are not so bad when you have a system holding up values. But as the mafia knows well, things can happen. Protection money virtually ended when Italy went into lockdown — though they may seek it retrospectively.

The threats to the property market would be an inflation and interest-rate shock.

That seems moons away. But not for those who grew up in the 1970s and ‘80s. A sudden change in a country’s risk premium can tip the cart. Just ask South Africa. And New Zealand is now carrying a lot more debt both at the household and government level.

 

What is the canny investor to do?

 

It comes down to your situation. I like property but I also see endless, bleeding hard work. There’s more servicing needed on the average Kiwi house than on an ageing European car.

Analysis and my own experience tend to suggest the share market has performed at a similar or even better level to Auckland housing for capital gain over the past two decades. And dividend stocks have likely provided much better net yields. All this from a series of well-placed trades on the broker terminal as you build out a robust portfolio.

Yet, shares are not for everyone. They’re a financial asset. You can’t go live under a share certificate. Many people are not able to psychologically cope with the volatility. Their blood pressure cranks up when their portfolio drops 25%. Which it likely did do through the Covid pandemic.

Hardcore property investors will say you miss all the benefits of massive leverage.

This is true, but only to an extent. Sophisticated investors have the option of broker margin. At the wholesale level, this can be as low as 1% above the OCR. But it does take a knowledgeable person to take advantage of that. Especially during volatility.

And when it comes to investing — that is the single best investment you can make. Building your own knowledge and expertise.

 

Some options

 

Wealth Morning is this country’s leading specialist investment news source. We look for opportunities beyond the radar. And tend to take a contrarian view.

One current opportunity we’re seeing is property. But property owned by listed companies on the share market. We entered one Australian-based business in March, when property in Sydney and Auckland was sitting in the share price at a 30-40% discount. By October, the share price was up over 80%. With steady dividends of around 5% p.a. continuing to flow.

If you’d like to learn more about those sort of opportunities, I encourage you to check out our Lifetime Wealth Investor Premium Research.

And if you’re a more experience investor and qualify as Wholesale or Eligible, we have a more hands-on service to help you build a portfolio. It’s called Vistafolio — and you can learn more about that here.

What I will tell you is now that I’m more focused on investing in the financial markets — and less on residential property — my blood pressure is good. Hefty stress is a bad memory, not an email reality.

Take a closer look at what we’re doing and see what you think.

 

Regards,

Simon Angelo

Editor, Wealth Morning

Daily Wealth

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Simon is the Chief Executive Officer and Publisher at Wealth Morning. He has been investing in the markets since he was 17. He recently spent a couple of years working in the hedge-fund industry in Europe. Before this, he owned an award-winning professional-services business and online-learning company in Auckland for 20 years. He has completed the Certificate in Discretionary Investment Management from the Personal Finance Society (UK), has written a bestselling book, and manages global share portfolios. Simon is a shareholder of Wealth Morning.


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