The overlooked hassles of owning a property

When building wealth for retirement, we often focus solely on the price tag of investments. However, many overlook a crucial insight that the true cost of owning assets extends far beyond the initial purchase price.

Sound financial planning involves accumulating assets that provide sustainable, growing retirement income. While the monetary cost is obvious, it's just the tip of the iceberg. Hidden costs can significantly impact our well-being and financial success, yet they're frequently overlooked in investment decisions.

In this article, we'll explore these often neglected aspects of asset ownership. Our goal is to provide a comprehensive understanding of what it truly means to own different assets, equipping you to make informed decisions about investing your money, time, energy, and attention.

Many investors forget to consider ongoing financial costs like storage, maintenance, and insurance. They also overlook the time required to maintain assets, the attention diverted from other pursuits, and the emotional resilience some assets demand.

To illustrate, let's compare two asset classes that have long been popular with long-term investors: equities (ownership in great global companies) and residential property.

By examining the full spectrum of ownership costs for each, we can better guide our investment choices to secure a comfortable retirement.

The cost of equity ownership

Owning a diversified equity portfolio demands an informed upfront decision. However, in terms of ongoing costs, it demands very little. Counterintuitively, the less you do, the more likely your chances of long-term success are.

At most, we’d recommend an annual valuation review and confirmation that the portfolio still suits your needs. Day-to-day, the global companies you own a share of are managed by professional management and boards, and the fund you are invested in is reviewed by an experienced team of advisers, managers, and custodians. There is a monetary cost for this advice and management, but the right team can help you to minimise these and provide tremendous value on your road to financial independence.

The one intangible cost of this asset class is the emotional fortitude required to endure the frequent but temporary declines in the value of your portfolio. However, the pain of these declines is likely to be forgotten in time while your long-term gains remain permanent.

The cost of property ownership

The allure of tangible assets like residential properties often captures investors' imaginations. The ability to see and touch an asset, coupled with the promise of ownership, leads many to equate tangibility with value. However, the picture looks very different when we analyse the true cost of owning physical property.

In this case, we’ve seen the extensive upfront monetary costs and a seemingly never-ending list of ongoing financial costs associated with ownership. These ongoing costs are often forgotten in the initial analysis of a property’s attractiveness and are frequently left out when calculating the return on the investment.

The ongoing costs include annual maintenance, finance costs, insurance, various taxes, vacancy periods, tenant damage, outsourced management, and many others.

More worrying, especially for retired investors, is the ongoing “hassle factor” that can take many, often unexpected, forms. Property ownership is a high-hassle game. These intangible costs frequently surpass monetary considerations, impacting investors’ well-being and decision-making processes.

If it ever becomes time to sell, another round of valuation and selling costs await you.

All these factors add layers of complexity that affect not only your financial standing but also your personal stress levels.

Another aspect to consider is that selling property is a one-and-done deal. You can’t sell half a property, so the sale tax cannot be strategically planned.

Moving forward

While property may be a suitable investment for some investors, understanding the full spectrum of costs associated with different asset types empowers investors to make decisions beyond surface-level attraction.

Financial planning involves allocating financial resources and optimising time, attention, and energy. By considering all aspects of asset ownership, investors can make informed choices that enhance their overall quality of life while securing long-term financial stability.

As you review your investment strategy, consider your financial goals and the time, energy, and attention each asset demands.