When faced with the decision of where to invest your hard-earned money, a myriad of investment options are available, the two most mainstream assets classes being property and equities (shares). All else equal, the most important difference between these to assets is the fact that investing in property allows one to take advantage of leverage, a mechanism that greatly boosts potential return. By way of an example:

Assume you have R1m cash to invest, your options are as follows:

• Put down a R1m deposit on a property, borrow R9m from the bank and acquire a property for R10m (Banks will generally require a 10% deposit on residential property and 30% on commercial property)

Or

• Acquire R1m worth of shares

Assume that both the property in question and the shares increase in value by 10%. The property will be worth R11m and the shares will be worth R1.1m.  The profit achieved on the property after repaying the R9m to the bank will be R1m (not accounting for interest) and R100k for the shares. As can be seen by this simple example, property offers investors substantially higher returns than equities when taking advantage of the power of leverage.

Another major benefit of investing in property over equities is the fact that there is not much one can do affect the value of ones shares however owning property allows one countless of ways to enhance value such as improving tenancies, upgrading the building, introducing operating efficiencies and so on.

The next time you are faced with the important decision of where to invest your money, take a closer look at investing in property, you may be pleasantly surprised at what kind of returns can be achieved.

Source: Ari Ben