It’s important to look at each type of investment, its pros and cons before making a decision.
The Real Estate
Investing in the real estate is basically buying physical property such as house and land packages. Some real estate investments cost you money every single day you hold them – think of an undeveloped parcel of land for which you have to remit land rates and other taxes. Other real estate investments such as apartment buildings and rental houses generate cash for you in the form of rent.
Advantages of investing in the Real Estate
- By investing in the real estate, you invest in something tangible. You can drive by the property, point it out to your friends and say, “That’s mine.” This has psychological significance to some people.
- It is more difficult to be defrauded in a real estate deal compared to the stock market. This is because, in the real estate, you can visit the property you intend to buy and inspect it. With the stock market, you have live by the word of the management and auditors.
- Using leverage (debt) on real estate investments is safer compared to using debt to buy stocks by trading on a margin.
Disadvantages of investing in the Real Estate
- Real estate could cost you more money if the property is not occupied. This is because you have to pay insurance, mortgage, maintenance and utility bills. If you have no tenants paying rent, your expenses will exceed the income.
- Investing in the real estate requires a hands-on approach. This implies that you should be ready for midnight phone-calls about gas leaks, overflowing sewage and a host of other things related to the property. Even if you hire a caretaker, you’ll be required to contravene meetings with him/ her to discuss issues.
- With a few exceptions, the actual value of real estate hardly ever increases in inflation-adjusted terms.
Stocks
If you choose to buy shares of stock, you are simply buying a ‘piece’ of a company. Regardless of the type of product or service the company offers, you are entitled to some percentage of the profit. You and other stakeholders elect a board of directors who watch over the management of the company among other duties.
Advantages of investing in the stock market
- Over time, it has been proven that buying stocks, re-investing dividends while holding them for long periods are the greatest wealth creators.
- Unlike most businesses which call for your time and attention, buying stocks does not require any obligations on your part. Once you have chosen the right company to invest in, your business is done. It’s up to the board of directors to manage the affairs of the company.
- Stocks are more liquid compared to real estate investments. That is why you’ll notice that finding a buyer for a real estate may take weeks, months or even years whereas it takes a matter of minutes to do so in the stock market.
Disadvantages of investing in the stock market
- Prices in the stock market are subject to extreme fluctuations on the short term. Your 30 $ stock may shoot to $90 or go down to 5$.
- It will take you some time and a lot of patience to see the wealth generated by your investment. Most investors are so impatient, fickle and emotional to benefit.
Weigh the pros & cons of each type of investment and if possible consult a financial advisor to help you make a smart decision. Share this invaluable information with friends in your circle so that they too learn to make an informed decision. They’ll thank you for it.
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- Brandon Turner
- Publisher: BiggerPockets
- Edition no. 1 (10/28/2015)
- Brandon Turner, Joshua Dorkin
- Publisher: BiggerPockets
- Paperback: 257 pages
Last update on 2020-03-19 / Affiliate links / Images from Amazon Product Advertising API
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