Investment Report: Shares vs Rental Properties Strategies Analysis

This report provides a comparative analysis of share and rental property investments. It begins by defining shares and the process of buying and selling them, including the role of the Australian Securities Exchange (ASX). The report then explores rental properties, explaining their value accrual over time. A key aspect is the comparison of these two investment strategies, detailing the advantages and disadvantages of each. Share investments are shown to offer potential for high returns and liquidity, but also carry market risks and brokerage fees. Rental properties provide a steady income stream and can benefit from property value appreciation, but involve higher initial investment, maintenance costs, and interest rate fluctuations. The report concludes that both investment types have merits, with the best choice depending on an investor's financial goals, risk tolerance, and knowledge of the market. The report highlights the importance of understanding the market before investing.

Investigation and Report

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Shares, its purpose, with process of purchasing and selling...................................................1
Rental properties investment strategy with process of how its value accrues to the investment
with time.................................................................................................................................2
Comparison of share investment strategy and rental properties investment strategy, with
advantages and disadvantages................................................................................................3
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Rental property can be referred to as the property whereby the owner acquires a fixed
sum of money from occupants (more commonly known as tenants), in exchange for utilization
of the property (Paccoud, 2019). Rental properties can either be commercial or residential. It is
seen that the owner of any rental property have the right to leverage some tax deductions like
depreciation, mortgage interest and so on (Gerard, 2019). The present project explores the
concept of shares, their purpose and the procedure of its purchase as well as sale. Further, the
project illustrates discussion over rental properties and its working in Australian market. Besides
this, comparative analysis is presented of shares and rental properties as investment strategy on
the basis of their advantage and disadvantage for the investors.
MAIN BODY
Shares, its purpose, with process of purchasing and selling
Shares can be defined as unit of ownership in a corporation or financial asset, which
provides an equal distribution of profits to shareholders (Coleman, 2019). For raising capital in
business, employers provide a small wedge of ownership to potential investors. Generally, shares
are found in two types as Common shares and Preference shares. Shareholders who purchase
common shares have voting rights in the firm and they receive dividends over the period as per
level of profitability (Hulse, Morris and Pawson, 2019). While, preferred shareholders gain
priority in dividends payment but don’t possess right of voting. Therefore, making an investment
in shares by selling or purchasing means to make more money on invested amount of capital
(Rossi, Vismara and Meoli, 2019). When an investor purchases shares of a company then money
can be gained in two ways. First one, with growth of company, invested amount also worth more
and valuable (Sharam, 2019). Second one is getting in the form of dividends, i.e. get a part of
company’s profit each year. ASX i.e. Australian Securities Exchange is one of the largest stock
market of Australia, where more than 2,000 companies are associated with buying or selling
activities of shares, whose market capitalisation is more than $2 trillion AUD (How to buy shares
in Australia?, 2019).
Ways to buy shares in Australian market: The most common procedure to buy shares in
Australia is “On Market” that is – buying shares in exchange from ASX or Chi-X. Here, when
investors place a trade with brokers then they automatically buy shares at the best premium rates
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(Paccoud, 2019). Some other ways include IPO (Initial Public Offering) where a private firm
lists on a stock exchange for raising capitals; Off Market Transfer is dealing with deceased
shares which is normally done within family members; Exchange Trade Fund, where shares can
be bought by purchasing units indirectly, etc.
Ways to sell shares in Australian market: It includes a reverse process of purchasing
shares, where after the trade, shareholders get contract note by email and holding statement
through post, that entails complete procedure to sell the shares (Rossi, Vismara and Meoli,
2019). In Australia, investors can use ‘find a stockbroker tool’ of ASX that helps in finding the
brokers who assure them to get maximum benefits on invested amount (Rumer, 2019). Other
ways include Online broking service and Full Service brokers, that helps in selling shares on best
exchange rates.
Apart from the above discussion over shares and its purchase and sale procedure, it has
been determined that investment in shares increases the risk of loss in an instance whereby the
stock market crashes. Further, it is acknowledged that the brokerage commission is high which
decreases the margin for profits.
Rental properties investment strategy with process of how its value accrues to the investment
with time
Investment in real estate business, with a purpose to earn a high return on same, through
rental income, concluded as rental property investment (Gerard, 2019). This type of investment
can be done either for a short-term or long endeavour. Rental homes like town-homes,
apartment, single-furnished and more, are considered as a popular way to supplement income for
investors, where they can purchase a residential property then rents it out to tenants. So, through
monthly rent they can receive profit from invested amount (Coleman, 2019). Therefore, making
investment on rental property, provides a secure and safe source of income, with less time and
efforts. It directs the cash flow of investors towards a retirement, including pay off loans via
rental income. When investors apply loan for a rental property, then it maximises the leverage
which is comparatively safe then other real estate investment and increases the potential return
also (Rumer, 2019). Along with this, such investment also known as good source of generating
income, that holds the property of rental owner for longer. However, value may fluctuate but in
long terms, it keeps invested amount with less risk. Furthermore, tax rate is also comparatively
lower than salary income, that allows attractive and effective reduction within property income.
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With increase in value of property, more benefits can be gained by owners if they sell the rental
property in that duration (Hulse, Morris and Pawson, 2019).
Apart from the above discussion, it can be analysed that investors have to do more
repayment as a result of increase in the interest rates. Further, it is determined that investors are
even required to incur extra expenditure for upkeep of rental property. This results in decline in
profitability.
Comparison of share investment strategy and rental properties investment strategy, with
advantages and disadvantages
Making investment either in shares or in rental property, ensures a person to get high
financial security for their future. Both types of investment, includes a set of benefits and
drawbacks, but helps in increasing the return on investment. Generally, investment in stock
market pay less dividends as compare to rental property, but also generate majority of ROI from
capital appreciation. On the other hand, in contest with rental investment, it generates relatively a
larger chunk of investor’s total return from dividends (cash flow). Here, rents paid by tenants on
a monthly basis, may account mostly for an unleveraged return of near about 5 to 10 percent, as
per depend on acquisition price of rental property. Along with this, cash flow yields also varied
as per location and quality of property. But targeting the rentals over average yields or cap rates
provide an ample of liquidity for covering mortgage and maintenance as well as building cash
reserves for vacancies, all of which provides an adequate return on investment.
(Source: Buying A Rental Property Vs. Stocks: Which Is A Better Investment?, 2019)
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To understand which is more better strategy for investment, from rental property and share
market, a comparison on the basis of advantages and disadvantages is explained as below –
Investment
strategy
Advantages Disadvantages
Share investment  With increase in growth of
business, chances of getting
higher return on investment as
compared to rental investment is
much high
 Investors as comparison can
easily access the money from
stock market, with easy enter and
exit policy
 It bolsters the overall financial
portfolio of investors and remain
provide tax free income until they
use them.
 There is a high risk
of loss with crashes
of stock market
 Investors have to be
enough financially
strong with
withstanding swings
due to volatile nature
of stocks
 Brokerage
commission as
compared with rental
property investment,
may diminishes the
profitability margin.
Rental property
investment
 Investment in rental property is
less volatile than shares.
 Income can be earned by tenanted
the property.
 With increase in growth value of
property, chance of higher return
on investment also increases.
 Rental income as
comparison to shares,
do not cover entire
mortgages.
 With rise in interest
rates, investors have
to pay higher
repayments with
lower disposable
income
 For maintenance of
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rental property,
investors have to pay
extra expenses that
may decreases the
profit ratio.
Thus, from all over the discussion, it has been evaluated that investment in rental property is
less risky and provides better source of income, as compared to stock market. For investment in
stock market, people are needed to be business minded and must possess appropriate knowledge
to aware where to invest money. While in rental property investment, there is less requirement of
high knowledge due to easy process of investment.
CONCLUSION
It has been summarised from entire report that there are number of options available in
today’s market, where making investment allows a person to maximise their benefits. Investment
in shares, debentures, property or in other, aid people to get high return of investment and ensure
to get a good source of income, with present and future financial security.
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REFERENCES
Books and Journals
Gerard, M. M., 2019. Reform Options for Mature Defined Benefit Pension Plans: The Case of
the Netherlands. International Monetary Fund.
Coleman, L., 2019. New Principles of Equity Investment. Emerald Publishing Limited.
Hulse, K., Morris, A. and Pawson, H., 2019. Private Renting in a Home-owning Society:
Disaster, Diversity or Deviance?. Housing, Theory and Society. 36(2). pp.167-188.
Sharam, A. G., 2019. Disruption and the matching market for new multifamily housing in
Melbourne, Australia. Journal of General Management. 44(3). pp.160-169.
Paccoud, A., 2019. The top tail of the property wealth distribution and the production of the
residential environment. International Journal of Housing Policy, pp.1-20.
Rossi, A., Vismara, S. and Meoli, M., 2019. Voting rights delivery in investment-based
crowdfunding: a cross-platform analysis. Journal of Industrial and Business
Economics. 46(2). pp.251-281.
Rumer, B., 2019. Investment and Reindustrialization in the Soviet Economy. Routledge.
Online
How to buy shares in Australia?. 2019. [Online] Available Through:
<https://www.marketindex.com.au/how-to-buy-shares>.
Buying A Rental Property Vs. Stocks: Which Is A Better Investment?. 2019. [Online] Available
Through: <https://seekingalpha.com/article/4234001-buying-rental-property-vs-stocks-
better-investment >.
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