When looking at your investment options: Why does property rise to the top?

Posted on 2 September 2024

So many Kiwis are unsure where to invest their time and money. Let us look at a case study using historical data across 4 investment options:

1. Bank Term Deposits: Simple to do, low risk, low return
2. Directly in the Share Market: You need to know what company to invest in, higher risk and more volatility, higher long-term returns that bank term deposits.
3. Managed Funds: Usually do via a fund manager, they invest your funds in various assets depending on your goals or target return; may invest it cash, bonds, listed or unlisted companies. Medium risk, depending on the fund.
4. New build residential property: You can leverage against your home and borrow from the bank to invest in property, this amplifies your returns over time

Now, lets look at the scenario in the image above. Using historical actual data, if you invested $200 per week, every week from mid-2015 until mid-2024 in each of the assets classes the difference in the returns before tax and inflation (excluding the initial investment) are crazy!

The total return in a Term Deposit, after 10 years is just $19,088! And that’s before tax!

We’ve used the NZX50 which is New Zealand’s top 50 companies as proxy for a Managed Fund because it basically is a bunch of the best companies to invest in. Even then, the total return is still only $30,708. Barely worth the worry!

We picked a random well-known company, Meridian Energy and if you invested $200 per week, for 10 years with them, you’d have netted $61,760. No that is a bit more like it!

But, if you purchased a residential property at the median price back in 2015 of $452,000, and paid $200 per week in the form of a Top Up, then your net return would have been a whopping $348,000! And remember there is no tax to pay on this because we don’t have a capital gains tax in New Zealand. And it’s worth remembering that property is not only the best performer over the long term, it’s also a very stable and low risk investment. So good!

Remember the key concept that makes property such a great investment is LEVERAGE! That is where you use 20% of your home as equity, borrow the remaining 80% from the bank yet you keep 100% of the gains! (on the proviso it’s not your only property and you own it for at least 20 years)

For some people, when they first see the power of leverage, they think it’s “to good to be true” or some sort of “Scam” however it is very much true and how most rich people in the word have gotten rich!

If you are an equiti Affiliate Adviser you should share this article with your clients, make sure both you and they understand the life changing concept of leverage! If you are a buyer and, in the market, to purchase yourself, please either reach out to your mortgage adviser and get your lending sorted so you can purchase as soon as you are able or reach out to the team at equiti directly and we can show you some properties that meet your needs.