Investment Property Vs Diversified Portfolio- case study.

The world has experienced a bullish environment with asset prices soaring in value over the past 11 years to date. Australians who are looking to invest always face the dilemma of choosing to invest in property or a diversified portfolio.

John is a 35-year-old professional who has surplus income and an investment time horizon of 10 years.  Below is a comparison of the two options he has investigated.

Capital:    $90,000

Surplus: $1,200 a month

Current Investment Property Comparison rate:   3.69%*

Growth Rates property Melbourne: 2.69%**

Gross annual rent estimate : $23,000

Rate of Return as @ November 2019 growth portfolio: 9%***

Source: https://www.stateplus.com.au/learn/calculators/investment-property-purchase-calculator

The Property grows at the median Melbourne growth rate of 2.69%, thus in 10 years time the property is now worth $586,805

The surplus cash-flow from property is 2,948 pa for the next 10 years in cash returns the below:

The proceeds from the sale of the property in year 10 is ($586,805 + 35,419) – $360,000 = $262,224

John has $224K when he sells his property.

Diversified Portfolio.

Using the same surplus cash-flow with all other thing equal, the value of the diversified portfolio is $452,839.

Physical Property:          $262,224

Diversified Portfolio:     $452,839

By Investing in a well-constructed diversified growth portfolio, John would have been better off by $190,615.

Please note past performance is not an indication of future performance.

* https://www.canstar.com.au/home-loans/top-5-investment-home-loan-rates/#5yearfixed/

**https://www.yourinvestmentpropertymag.com.au/top-suburbs/vic

***https://www.mlc.com.au