Managed fund vs Investment Property

1.       Liquidity – Managed funds have low transaction costs and can quickly convert to cash. Transaction costs are high when buying or selling a property. Selling property takes time.

2.       Diversification – Investment risk can be diversified better with managed funds. Property is a lumpy investment.

3.       Volatility – Managed funds can be more volatile than property, thus creating more opportunities to buy and sell or readjust the portfolio.

4.       Tangibility – Property is tangible, and renovations can improve value.  Managed funds are not tangible.  

5.       Tax treatment – Both managed funds and investment properties are subject to income and capital gains tax.

6.       Leverage – can be used for both investment property (Negative gearing) and managed funds (Margin Loan – could be subject to margin call).

7.       Franking credit and depreciation - With managed funds, the tax advantage is franking credits on dividend income. For property, the tax advantage is depreciation, which can be claimed against taxable income.

8.       Maintenance time & cost – The management cost of an investment property is much higher and more time-consuming compared with managed funds.

If you value tangible assets, can dedicate time to actively managing your investments, and don't mind a lack of liquidity, then a property investment could work for you.

If you value flexibility with your investments and want to diversify your assets, and prefer the market’s ups and downs to dealing with fussy tenants, then managed funds could be the winner for you.

General Advice Warning - Any advice included in this article has been prepared without taking into account your objectives, financial situation or needs.  Before acting on the advice, you should consider whether it’s appropriate to you, in light of your objectives, financial situation or needs.