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To invest in real estate or save?

Understand the major differences between buying an investment property and saving funds within a high interest savings account or term deposit

In this blog post we’re going to share some of the different reasons that you may choose to utilise either of the existing strategies to build wealth. Each wealth accumulation strategy will be assessed in terms of their:

  • Finance risk

  • Long term financial gains

  • Ability to leverage

Buying an investment property

Firstly, buying an investment property is a great for those who’re wanting to invest in their financial future. Here at REIF, we believe that property investment is an essential strategy that everyone should consider when building wealth for the future. While it’s a long-term strategy, it can offer significant rewards for investors.

Finance risks when buying an investment property

There’s no doubt that investing in real estate can be risky. If you don’t know what you’re doing. Thus, it’s imperative to devote time into self-education practices of property investment. It’s also essential to learn from professionals for achieving success as a property investor. As Benjamin Franklin, a leading figure in American political theory, once said: “an investment in knowledge pays the best interest.”

Once you know what you’re doing as a property investor, and surround yourself with the right team of professionals, you can expect to see great investment returns. The initial risks surrounding investing pays off once passive income and/ or capital gains are being produced from your real estate investments.

While investing in real estate can, initially, be risky (if you don’t know what you’re doing), it’s one of the most stable forms of investment. That’s because property generally increases in value, over time. It’s less likely to be disturbed by economic downfalls or fluctuate to the extremes of other investments like stocks and shares.

Buying an investment property has significant long term financial gains
Buying an investment property has significant long term financial gains

Long term financial gains

Succeeding the point above; that real estate tends to appreciate over time, a great benefit of buying an investment property is that you generally experience long term financial gains. Depending on the location that you purchase your investment property, you can often see capital gains.

Additionally, real estate investments are known to be a hedge against inflation. Meaning, that it tends to be less disrupted against market volatility and continue to rise in value.

Depending on how your property investment strategy is structured, you might accumulate passive gains from the rental income you receive. This occurs when your property is positively geared. You can learn more about the differences between a positively and negatively geared investment property, here.

As you continue to pay off your investment property loan and experience capital growth of your property, you can often expect to see equity uplift. Which leads to the next advantage of investing in real estate….

Buying an investment property has leveraging benefits

Do you know what the greatest benefit of equity uplift is?

It’s that it gives you the power to leverage. As we’ve explained in other articles, leveraging is a financial strategy which allows you to borrow money within your existing investments to purchase further investments. Thus, allowing you to continue growing an extensive property portfolio, to build more wealth.

To learn more about how you can build wealth through real estate investments, we recommend downloading our free eBook, Building Wealth Through Property.

Accumulating wealth within a high interest savings account

Saving is a traditional finance strategy used by many. There are a few ways to save funds. They’re in standard savings, offset accounts, high interest savings accounts, and term deposits. For the purpose of this article, we’ll be primarily looking at the latter two.

A high interest savings account is one designed to increase your rate of savings faster. Whereas, a term deposit is an account where an allocation of savings is invested for a set period, at a fixed rate. Therefore, funds in a term deposit cannot be accessed until that period is over.

Finance risks associated with saving

Saving money in a high interest savings account or in term deposits incur the least risk when it comes to building wealth for your financial future. As mentioned, saving is a traditional finance strategy that’s been used by generations for wealth accumulation.

Though, the greatest risk when building long-term sustainable wealth is purely relying on savings to support your financial future. That’s because money in a savings account rarely increases significantly in value. At least to the extent of other investments like property.

The benefits of investing in a high interest savings account
A high interest savings account incurs a higher rate of interest compared to standard savings accounts

Long term financial gains

As explained, when you put your money into a savings account, very rarely will you expect to see significant financial gains. That’s because the interest rate of a standard savings account is between 0.01 and 0.50 per cent.

With a high interest savings account, there are certain conditions that need to be met. There are certain age restriction requirements, dependant on the bank. Some banks also require you to contribute regularly towards it. A high interest savings account, however, can accrue between 1 to 2.8 per cent interest per annum.

With term deposits, there are good financial gains to be had. The interest rate for a term deposit is locked, so you’ll generally have an idea of your rate of return by the time it ends. With term deposits, you can choose to deposit your savings for a short term (less than a year) or long term (more than a year). Depending on how long your agreement is, your interest rate, and how much you choose to invest in one of these accounts, there can be significant gains.

Leveraging benefits

Leveraging is used for property investment. However, when you invest your money into a term deposit, you may choose to reinvest your initial savings plus the income produced from the initial term deposit once it comes to an end.

It’s always recommended that you consult a mortgage broker and financial advisor to determine how term deposits work and whether it’s going to work for you.

For more information

If you’re trying to determine whether it’ll be beneficial for you to invest in real estate or save your funds in either a high interest savings account or term deposit, we recommend consulting our professional team of mortgage brokers. They’ll be able to help you navigate finance offerings and the vast range of lenders on the market.

Our mortgage brokers work with our in-house team of property specialists and have connections with financial advisors who’ll be able to give your suitable advice for your individual financial needs.

Click the button below to book to consult with our finance team.

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