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Investment property doesn’t always pay for itself.

You can’t just rent out your new purchase, and dust off your hands.

Yes, the rent it earns does go part way to covering the mortgage and operating costs but… it’s likely that amount won’t cover all the costs – at least in the initial years.

This is what’s known as negative-gearing.

It’s very common, especially as interest rates rise. And it means that you as the investor need to make up the shortfall.

This is known as “topping up” or “making a contribution” to your property. This might be, $100 every week depending on the property.

But if you are topping up your investment property’s cashflow, it’s natural to ask: “What else could I do with that money? Is there an alternative that will earn me better returns?”

For instance, could you get a better return from shares, a managed fund or a term deposit?

This is a great question. That’s why in this article, you’ll learn which asset class earns the highest return based on the top-up you would usually put into your investment property.

Just so you’re aware, we here at Opes Partners are a property investment company. So we tend to favour property. But, investment property isn’t always for everyone – as you’ll see. So we are going to stick to the numbers and the facts so you get an unbiased view of shares vs managed funds vs term deposits vs investment property.

And if you have a question, write your questions or thoughts in the comments section below.

What are some other investment options?

For investors considering other investment alternatives to topping up an investment property, here are the most popular options to choose from.


Also known as stocks, or equities. When you buy shares you buy a percentage of ownership in a company or a financial asset.

You make money by collecting dividends, which is a share of the company's profits, which are generally paid every quarter.

You also make money by the shares appreciating in value. For instance, some companies (growth stocks) often don’t pay dividends, but reinvest funds to increase the value of the company and the shares.

In our standard financial modelling, we assume that shares increase at 7.5% per annum.

Shares vs Property vs Term Deposits

Managed fund

A managed fund pools your money with other investors, and spreads that money across a bunch of different types of investments.

These investments are chosen by a fund manager, rather than you trying to make your own decisions and investing directly.

For example, if you invest in KiwiSaver, you’re putting your savings into a type of managed fund. And as you will know from Kiwisaver, there are different types of managed funds (e.g. growth, balanced, conservative).

These give you a different mix of risk and reward. The higher risk the asset has, the higher the reward tends to be.

In our standard financial modelling, we assume that a balanced managed fund increases by 3.9% per annum.

Term deposit

A term deposit locks away a certain amount of money for an agreed upon length of time.

In return, you’ll get a set rate of interest for the term you select, which is great because you’ll know exactly what the return on your money will be…once you can access the term deposit that is.

In our standard financial modelling, we assume that a term deposit generates a return of 2% per annum.

What are the positives and benefits for these investment options?

Property investment – what are the pros and cons?

The thing property has, that other investment strategies don’t, is property can be leveraged asset. Put simply, that means you can borrow money against it.

You can buy a high-priced asset and only front a portion of the money.

This can help generate substantial returns. Since if the property increases in value, you keep the capital gains. You don’t have to share them with the bank. (More on this below).

But, while property can earn high returns, it is illiquid. You can’t access all that money in a hurry.

In fact, it’s going to cost you money (in fees and commissions) to get access to the money within the property. Because you’ll need to use a real estate agent, a lawyer. This can also take time, whereas other asset classes can be sold down and turned into cash quickly.

Another downside to property is diversification. It’s hard to diversify your portfolio compared to other investments.

This is because many investors can’t go out and buy 10 properties in today’s market to build a diversified portfolio.

Instead you might be able to buy 4 over several years. That makes it harder to spread your risk. Whereas, with shares it’s not hard to buy a couple of shares in several different companies.

A lack of diversification risks putting all of your eggs in one basket – or all of your investment money in one or two houses.

Shares – what are the pros and cons?

On the other hand, shares is a liquid asset. You can buy and sell as you please – and easily turn your investment into cash when needed.

Shares are also easily divisible.

Think about it like this, if you had $100,000 to invest in shares – you can sell 5% of that at any time. No trouble.

If you have a property bought a property with $100,000 (as a deposit), you can’t sell 5% of a house (not without getting super complex).

It’s also easier to drip feed small amounts of money into different shares to get the benefits of diversification and dividend returns.

In another example, if you had $100,000 to invest, you can’t drip feed that amount into a whole bunch of properties. You’d barely have enough deposit for one rental property.

But you absolutely could investment in multiple companies through shares.

That doesn’t mean that stocks don’t have drawbacks. Share prices can go up and down quickly, often influenced by companies' policies or external factors, which you as an individual investor have no control over.

So, whilst more liquid, shares are a lot less stable than an investment in property.

Managed funds – what are the pros and cons?

Managed funds enable investors to instantly out their money into a diversified portfolio of assets. This is great news for emerging investors because you can invest in everything all at once: shares, term deposits, and property (though usually commercial property).

When you invest in a managed fund you a buy a unit of the funds (essentially a share in the fund). These unit prices tend to rise in value over time, giving investors a capital gain.

There is the risk that the price of a fund will drop below what was paid for it. That’s true for all investments.

But, in the same breath, the risk of losing all your investment in a managed fund is often smaller than if you invested all your money in one company’s shares.

This is because in a managed fund your money is spread across a lot of different assets and organisations.

Also, the various management and administration fees charged by a fund could reduce the returns on your investment. So, it’s a good idea to know what these are in advance.

Term deposits – what are the pros and cons?

The great thing about term deposits is there is no guessing what your return will be. There is a guaranteed fixed interest rate from the get go, which means you know exactly how much your investment will make.

This could mean you sleep at night knowing this final amount is not beholden to falling interest rates. But equally, should rates take an upwards turn, you won’t be able to take advantage of a better return while your money is locked away.

The trade off of this is that your money is temporarily illiquid – it’s locked away for a time so you can’t access it in a hurry.

If you need access to the money, like if there is an emergency, you’ll have to pay a penalty …. and sometimes have to wait a certain amount of days before its released to you.

Also, most term deposits will have a minimum deposit, which is often between $1,000-$5,000. For starting-out savers, this could be hard to lock away for a certain amount of time.

How do these different investment options compare, financially?

Now, let’s get back to our $100 we are spending to top up our negatively geared property.

Could we find a better alternative investment for that money?

Here is a graph that compares the returns you could expect if you took the same $100 and invested it in each of the investment options.

For this example, we’ve assumed that shares increase by 7.5% per year, property by 5% a year, managed funds by 3.9%, and term deposits at 2%.

We’ve also used a real life investment property – a 2-bedroom townhouse in Addington, Christchurch. This is a property Opes previously recommended to investors. It was purchased for $629,000, and is expected to rent for $500 per week.

What are the returns?

Leading the returns race is property. This graph shows even if you topped up your property by $100 each week, your returns will be about $475,000.

By comparison, if you drip feed that $100 into shares, you’d come out with about $100,000.

A balanced managed fund (growing at 3.9%) would give you $75,000.

Bottom of the list is a term deposit, which would give you $64,000.

In this case, property provided a higher return, even though the property grew was assumed to grow in value by 5% a year, while shares grew at 7.5% per year.

This is because with property, it’s a 5% increase on a $629,000 asset. Whereas with shares it’s a 7.5% return on your $100 a week (which takes time to accumulate).

But let’s run through a few other scenarios to see how these investments compare with the different financial situations.

Scenario #1 – real life top-up scenario

Right, now let’s look at a real life scenario. Over time the top-ups you need to make won’t always be exactly $100 per week. It might be $160 one year and $40 another.

So let’s take the same property as before and compare the projected top-ups against other investment options.

The graph shows your property will be negatively geared for the first 11 years before becoming positively geared. That means in this scenario, we assume that you’ll stop putting money into shares, managed funds and term deposits after year 11.

Let’s also compare what the top-up per week generates, specifically in property and in shares:

In this scenario, the returns from other assets classes fall far short of property since we are assuming a high degree of leverage (debt).

Scenario #2 – buying property with lots of cash

OK, but what happens if you have a lot of money and want to buy a property with 100% cash, i.e. you don’t need to take out a mortgage on the property?

Let’s take the same property as above and assume you have $629,000 in cash to invest.

In this scenario, you don’t need to top-up the property at all. So the returns come solely from your initial cash investment.

Here, the gap between property and shares get closer, and shares beats property.

This is because you’re putting in a significant amount of money to begin with, and aren’t using any leverage (debt).

Scenario #3 – shares achieving double the returns

For this scenario, let’s say the return on shares increased from 7.5% per year (our conservative forecast) to an unrealistic 15% per year.

Everything else the same as scenario #1 – how did they go?

Even with the marked increase in the share value, the $225,000 returns are still lower than the $475,000 value that you’re projected to earn through property.

Why does property keep coming out on top in these scenarios?

The power of property is not the property itself. It’s the fact that you can borrow against it and take the bank’s money to buy a higher-priced property than you could on your own.

This is called leverage and it’s the reason why property can outperform other asset classes – because they don’t tend to have leverage.

Leverage means you can buy a property, put down a 20% deposit (for a new build), and get the growth on the full value of the assets, rather than just the money you fronted.

For instance, you can’t go to your bank and say my KiwiSaver is $50,000, please can I have another $150,000 to go invest in the share market.

But you can do this with property.

So yes, you may need to top-up your investment property with $100 from your own pocket, but you are buying a more valuable asset. That makes any capital growth more meaningful.

So… property will get me the best returns? – should I just go buy property?

Be warned, just because you’re looking at our graphs and can see property can be a great investment, this doesn’t automatically mean that every single property you buy is going to earn stella returns.

Here are just a few reasons a property would not be a good investment:

  • If it’s too expensive compared to the rent the property generates
  • If the property is over-specced for what tenants need
  • If the property is in the wrong location and can’t find a tenant
  • If the property’s operating expenses (e.g. body corp) are too high, harming cashflow

The graphs also don’t automatically mean that leveraged investment property is right for you.

While it is the right decision for some investors – it’s not the right decision for every single investor on the internet who reads this article.

The right investment for you will depend on your risk-appetite, whether you’re able to afford an investment property, your income, your financial goals and your age – just to name a few.

If not all property is a good investment, how do I buy the right property?

Oftentimes, buying the right property comes down to working with experts: financial advisors, property investment experts – to ensure you money is being spent where it is going to get the right return for you.

This is how and why the Return-On-Investment spreadsheet (the spreadsheet we used to get information to make these comparison graphs) works first and foremost.

If you choose to work with a property investment company, like Opes, a property partner will go through all these factors with you and make a wealth plan for your future. They’ll then find you a property to suit that plan.

It’s really easy to invest when property prices are booming, and it seems like every property makes money.

But in the current environment, where the housing market is seeing a dip and inflation is rising, investors need to be more selective.

Opes Partners
Laine 3 001

Laine Moger

Journalist and Property Educator with six years of experience, holds a Bachelor of Communication (Honours) from Massey University.

Laine Moger, a seasoned Journalist and Property Educator with six years of experience, holds a Bachelor of Communications (Honours) from Massey University and a Diploma of Journalism from the London School of Journalism. She has been an integral part of the Opes team for two years, crafting content for our website, newsletter, and external columns, as well as contributing to Informed Investor and NZ Property Investor.

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