We have all heard stories about people who became millionaires through buying shares. Property investment is another common avenue for generating wealth. You might be wondering which option is best for you. Here are a few things you might want to consider before diving in.
How do you get into property and shares?
To buy shares on the JSE you will need to approach a registered stockbroker to buy them on your behalf. It is not possible to do so independently. To buy property, you can go through an estate agent. Alternatively, although more risky, you can buy directly from the owner.
How is money generated?
You make money from shares by either selling them at a profit or through the receipt of dividends. With property, you can either buy and refurbish it then sell it at a higher price, or receive rent from tenants.
What are the costs?
Shares cost as little as R10 each. However, considering the associated costs, investing at least R5 000 is advised to make a profit. You will need to pay a monthly administration fee to your broker. There are also brokerage fees, Strate fees and investor protection levies. These are charged per trade and are calculated as a percentage of the value of each trade. Have look at The cost of buying shares for more information about these costs.
Buying property is much more expensive. Costs vary according to many factors, such as location and type of property. You could spend anywhere upwards of R400 000. You may also have to pay transfer costs, transfer duty, and deeds office costs. These are once off payments calculated based on the value of the property. You will likely also have monthly costs such as municipality rates, taxes and levies. If you took out a bond, there will also be bond repayments. Money will also be required for maintenance and repairs. See also First time property buyer – things to consider.
What are the risks?
In general, you will lose money in the stock market if the price of your shares fall below the amount you paid for them. This can happen if a company you invested in performs poorly or goes bankrupt. It can also happen if investor confidence decreases or if the stock market crashes. You can manage this risk by having a diversified portfolio or by insuring your shares. Property investment also comes with risks. These include damage by natural disasters, fire or tenants amongst other things. You can also have periods where you do not have tenants and hence do not receive rental income. If you have taken out a bond, there is also the risk of becoming unable to make the repayments and hence lose the property. Property can also depreciate and this can happen if it is not well-maintained or if crime rates rise in the area. Thus, it is important to do thorough research before buying any property. It must also be well-maintained and relevant insurance cover must be taken out. Unlike share prices which fluctuate a lot, the value of property is more stable. Property investment is generally less risky. However, there is potential to reap greater returns from shares.
Investing is not a one-size-fits-all and there are many options. Have a look at What can I invest in – the ultimate investment map for other great ideas!
This article does not constitute financial advice and is intended for information purposes. Please contact a registered financial advisor before making any financial decisions.