All my friends are buying investment properties. Should I buy one too?

I’m single, 44, and finally at a point where I have a little extra money to invest. My friends are turning to investment properties, but I am hesitant; My home costs seem high and property is a constant hassle.

I have been steadily building an investment portfolio through several ETFs and it has served me well for the last 6 years. But this requires me to have extra money ready to invest. Property allows you to take advantage, but is it really worth it outside of my primary residence? What realistic alternatives should I consider if I want to create wealth without going down the path of property?

Thanks for your question. It sounds like what you’re after is a way to be more aggressive with your investments. However, your current plan of regularly adding to an investment portfolio is a completely reasonable and effective way to build wealth.

In fact, this is what happens in retirement. So as a starting point, I would like to emphasize that one of the paths open to you is to keep doing what you are doing.

Risk and reward are opposite sides of the same coin. If your goal is to achieve higher returns, you need to take more risks. One way to increase risk is to borrow money to invest; lever. Borrowing allows you to increase your investment risk.

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You are quite correct in determining that the main benefit of real estate investing is the ease of leverage. However, as you have observed, the downside to this is the high level of costs (at least for residential investment) such as maintenance, rates, insurance and land tax, plus the transaction costs of buying and selling; The most important among these is the state government stamp duty.

I would also like to add that there is also the issue of concentration risk. You are dependent on a single tenant and a single asset. On a spectrum from low risk to high risk, a leveraged investment property will be on the high risk side. As a result, if things go well, the rewards can be excellent. However, you need to be alert to the risk taken. Despite marketing efforts, properties do not always increase in value.

In terms of middle ground risk, it would be wise to go into an investment portfolio where you hold a mix of Australian and international shares, and perhaps listed property and infrastructure. You can use your existing investment portfolio as collateral or alternatively withdraw some of the equity into your home.