Super Vs. Property - Two Wealth Building Strategies Compared 

‍Superannuation hasn't been ‘working hard’ as long as you may think

While the concept of ‘super’ has been around for a long time, it was only a mere three decades ago, in 1992 when the government mandated the superannuation guarantee to enforce a compulsory contribution by employers, boosting the level of super coverage in Australia to approximately 80% of the working population. In aiming to ensure all Aussies have a financially secure existence in their post work life these are some of the pros of having superannuation to lean on.

Pros of superannuation

1. Tax advantages including concessional tax rates on contributions as well as tax-free withdrawals once in retirement. Every bit counts! 
2. Long term growth potential is there. As most people start to contribute earlier in life we can thank compounding returns for helping to grow the value of super over the many years we add to it. 
3. Diversification is a part of super. As most super funds are professionally managed, diversification of investments is typically standard practice as they spread your investments across a wide range of assets. 

However, it should be noted this infrastructure is not always as stable as it is positioned - especially in the mass media which generally only refers to super in a pretty positive manner; and there are cons too. 

Cons of superannuation

1. You can’t get access to your super until you retire. While it may sound odd to include this (after all isn't that the whole point of super!?), this restriction means you not only can't get the cash if you need it, but you can’t do anything to make it work hard for you until it's too late. 
2. Super is underpinned by stock markets which means at all times you're vulnerable to market volatility - including temporary and/or heavy losses. These fluctuations can be very unpredictable and will never come at a good time - no matter your personal situation or timing. 
3. Related to the stock market, big world events like wars, political shifts and even pandemics almost always sees monumental economic shifts and even full global crashes. Completely out of your control these events will negatively impact the amount of superannuation you receive. 
4. As a linchpin to managing retirement for older Australians the government regularly looks to optimise the rules and regulations applied to super. While attempts may be geared to improving the overall infrastructure of super - this leaves you exposed to policy changes including taxation - and there’s nothing you can do about it. 

Separately, all of these factors make superannuation an asset over which you have very little control, but in combination it shows you why super alone is unlikely the answer for a financially comfortable future. 

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Australia’s property obsession has long fuelled the broader economy

While bricks and mortar as an entity for commerce in the country (and across the globe) has seen a significant shift in recent times, the Australian culture has long been obsessed with, and committed to buying property. There are some staggering statistics that talk about the resilience of the Australian markets’ property performance even through major global incidents such as the Global Financial Crisis - where many countries saw the value of property completely bottom out. But, not so much here and according to CoreLogic (Australia’s leading property market research firm), Australian house values actually rose 412% from 1993 to 2018. Of course this was not without fluctuations but to have that kind of robust growth for two and a half decades is an incredible achievement for any investment. 

It is therefore, no wonder that many financially successful Australian families have capitalised on the pros of owning an investment property.

Pros of investing in property 

1. Small to large capital appreciation. Depending on the property, and the amount of time that’s passed the value of the property can increase providing great capital gain. 
2. Steady, reliable income. Renting out your investment property can be a fantastic source of income; especially if structured properly to make it an overall cash flow positive set up.
3. You have total control over the asset. As the owner of the property you are able to make improvements and modifications that can also contribute to a higher amount of income and/or an overall lift in value. 
4. There are certain tax breaks to be leveraged from an investment property. This can help you pay less tax, keeping more of your hard earned money in your pocket. 

However, it should be noted there are some hurdles when it comes to choosing to invest in property - most of which are surmountable, but do exist and should be considered when adding property to your financial strategy. 

Cons of investing in property 

1. You’ll need some kind of deposit or other foundation. Purchasing a property is rightly a highly regulated activity meaning there are a series of upfront costs. These could include your deposit, stamp duty, legal fees and other ongoing expenses like property management fees. 
2. Even though the overall market has shown strong growth for decades it is not immune to market fluctuations. Particular property types, or particular areas can experience volatility like other investments meaning there is of course no guarantee for capital gains depending on the location, age, and type of property - amongst other factors. 
3. Limits to the liquidity of a property if you should need to sell. Holding ‘cash’ in a property means you are limited by the ability to access funds quickly as you’ll need to take it to market, find suitable buyers, and process the sale of the property which is limited in how quickly it can be turned around.
   
   

The key is to not put all your eggs in one ‘unstable’ basket

A well managed superannuation fund is undoubtedly an excellent part of building a financially stress free future. However, it will be a finite amount of money that will not generate cash flow later in life when you’re no longer working. Coupled with all the risks of this amount decreasing and it’s no surprise many older retirees suddenly find themselves ‘sitting ducks’, at risk of running out of money and living a worse lifestyle than when they were still in the workforce. 

However, superannuation paired with an income generating investment property (or two) suddenly becomes a much healthier, multi pronged portfolio that will sustain a financially stress free lifestyle long beyond the days of no more work!

Understanding how to add property to diversify your investments is key to ensuring you get a well rounded approach to building wealth using both property and superannuation. While it is incredibly important to spread your eggs across more than one basket you also need to ensure that you don't accidentally add a lemon to the basket!

Our high quality, completely ‘done for you’ investment service has been successfully building wealth for everyday Aussies for over two decades now. We deeply understand how important property is for you to take control of your financial future which is why we research, source, negotiate and secure the perfect investment property for you - at the right price, in the right place. 

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