Why investment property is a waste of money

The Aussie property market comes with an expensive price tag – instead of wasting money on an investment property, here are three things you could buy instead.

On average, investing in residential property in Australia will now result in a very low, or even negative, return over the next 3-5 years, according to AtlasTrend.

The latest CoreLogic RP Data statistics show that the average gross rental yield across Sydney, Melbourne, Brisbane, Adelaide and Perth is 3.5% – the lower the yield, the more expensive property prices are because yield represents the annual income return from investing in property.

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Potential changes in negative gearing is another factor which should be pushing investors away from the property market.

Since negative gearing means the costs of producing an income are generally deductible against the taxpayer’s other income, property investors can effectively offset some of the interest expense against their wages.

But investors should be aware that negative gearing means you’re actually making a loss.

It could be a reasonable strategy if you can guarantee that you’ll make a profit from capital growth when you sell – in today’s current property market, investors should think twice about betting on capital growth alone.

What to invest in if you’re not investing in property.

Investors looking for smarter investments should start considering buying more listed shares instead, such as these three examples, according to AtlasTrend.

Also read: The outlook for Australia’s property market

1. International blue chip listed companies

For investors who buy property because they feel it is a safe, tangible asset, international blue chip listed companies with strong balance sheets will give a similar level of tangible comfort since they produce a lot of goods and services that people use on an everyday basis.

Companies such as Google, Facebook, Amazon and Daimler are a good example.

2. Industries with strong financial tailwinds

Investors which picked Australian property as a good investment in the past 10 years would likely have enough knowledge to pick other industries enjoying a tailwind.

Investment in listed shares, internationally and in Australia, which are in a trending industry is a good bet to get some gains.

For example, investors which jumped on the smartphone investment bandwagon five years ago would have doubled their money on Apple and tripled it on Google.

Also read: What $1 million buys you in Australia's cities

3. Investment with passive income

Investors which prefer a higher passive income can look to a number of Australian listed companies in various industries that provide a dividend yield greater than 3.5% - the lower the yield, the more expensive property prices are because yield represents the annual income return from investing in property