Using home equity to top up share portfolio vs investing another rental property?

Deciding whether to use home equity to top up your share portfolio or invest in a rental property depends on several factors, including your financial goals, risk tolerance, and the current economic environment.

1. Investing in Shares:

   • Pros: Historically, the stock market has offered substantial returns over the long term. Shares are also more liquid than real estate, meaning you can sell them more quickly if you need access to cash.
     
   • Cons: Shares can be volatile, and there’s a risk of losing capital, especially in the short term. As noted, in a high-risk scenario, historical figures suggest you could lose a significant portion of your capital if the market declines.
     

2. Investing in Rental Property:

   • Pros: Real estate can provide steady income through rent and potential tax advantages. Property values can also appreciate over time, offering a good return on investment.
     
   • Cons: Real estate requires more management and maintenance. It’s also less liquid than shares, and the initial costs can be high. In a high-interest environment, the cost of borrowing increases, which could eat into your profits.
     

Current High-Interest Environment:
– In today’s high-interest environment, borrowing costs are higher, which could affect the profitability of both investing in shares and purchasing rental property. Higher interest rates can lead to lower net returns because of increased borrowing costs.

Risk and Time Horizon:
– If you have a shorter investment horizon or need to ensure capital preservation, the volatility of the stock market might pose a higher risk compared to the more stable, albeit slower, return of rental property. However, if you are comfortable with potential short-term losses and have a longer time horizon, investing in shares might

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Hi Anthony.

There are really two questions here.

The first question is about whether it makes sense to use debt to invest at current interest rates. I personally think that property and shares will both provide higher returns than 6% so I do think it’s still worth using debt to invest.

The other options are paying down debt and debt recycling – I wrote about all three in the current environment here: https://strongmoneyaustralia.com/mortgage-vs-...

The second question is basically property vs shares. That’s going to be a personal choice based on which asset you’re more attracted to, what returns you expect from each, your specific goals and timeframe are, and then also your risk appetite, which nobody can know but you.

Both are appealing. Shares are typically better if someone is trying to create passive income in the next 10 years, whereas property can be better if the goal is simply long term net worth growth and one is happy to keep funding the properties.

All the best.
Dave