Stocks and real estate.
Of the different ways a person can invest their money today, these two have been around the longest. Though land is the older of the two investment types, people are more comfortable buying stocks than investing in land.
This is partly due to the fact that information about company stocks is always in the news, so people are generally more familiar with this type of investment. It could also be because of the relative ease of buying shares versus real estate.
But as an investor, your decision to invest in stock or real estate should not be informed by these. Instead, you should consider the risks versus benefits of each investment and think of how its pros and cons align with your circumstances and overall investment goals.
What are the advantages and disadvantages of investing in either stocks or real estate? Why should you prefer one type of investment over the other? Finding the correct answers to these questions can help you create a rock-solid investment strategy. Let’s start.
When you invest in stocks you buy a piece of a company with the hope that the company will make profits and its shares will increase in value. There are two ways to make money from shares: the dividends the company pays out and from appreciation in the value of the company’s stocks.
The pros of investing in stocks
- Lower upfront costs: To invest in stocks you don’t need a lot of money. With as little as $25 you can start buying stocks and gradually increase your investment over time.
- Requires little effort: Apart from researching the companies whose shares you want to buy, investing in stocks takes very little effort. It is passive in the real sense of the word.
- Perfect for long-term investing: One of the proven ways to build wealth, based on actual results, is to buy stocks, reinvest the dividends, and hold it for a very long period of time.
- Income from dividends: As long as a company makes profits, investors may be sure of earning dividends yearly. These dividends can increase yearly along with the value of the company’s stocks.
- Liquidity: Stocks are easily converted into cash. Company shares are traded every day on the stock exchange. Investors who want to liquidate their stocks investment can do it easily.
The cons of investing in stocks
- Demands insight and discipline: To make investing in stocks successful, investors must be up-to-date with developments in the stock market. And they must keep from making emotionally charged selling or buying decisions.
- Subject to volatility: The prices of stocks experience extreme fluctuation in response to events in the political and economic space. Stock prices are highly vulnerable to news events. This makes it hard to make short-term profits from trading stocks.
- Possibility of price-stagnation: There is no guarantee that the stocks of a company will increase in value. A lot depends on how well-managed the business is.
When you invest in real estate, you are buying a piece of bare land or built-up land (land with a structure erected on it). When you do this, there are two ways you can make money from your investment: you can earn rent from the investment or the asset can appreciate in value.
The pros of investing in real estate
- Leverage: The biggest advantage of real estate investing is that you can use debt to acquire properties. Real estate investing has upfront costs, but the amount of money needed can be reduced with a bank loan.
- It is a tangible asset: Real estate is tangible. It will not suddenly evaporate due to developments in the economy. Its tangibility also makes it harder to be defrauded.
- Cash flow: One of the best things about real estate investing is the potential for monthly cash flow. That is if you invest in a rental property that attracts tenants on a regular basis.
- Tax benefits: Many costs involved in managing real estate are tax-deductible. Real estate investors can use these deductions to make their properties more profitable.
- Direct involvement: With real estate, the investor has greater control; they have a say in how it is managed and can influence how much money they make on the asset.
- Forced appreciation: In addition to market-based appreciation in the value of their investment, owners of real estate can force the value of an asset to increase by doing renovations on the property.
The cons of investing in real estate
- Time demanding: Owning and managing real estate requires a lot of an investor’s time. Real estate is not a truly passive investment because the asset has to be maintained.
- Continued costs: If the investment is a vacant land, the investor will incur costs on the asset even when they are not earning any income from it.
- Higher upfront cost: Even with a loan, buying real estate still requires an investor to have substantial capital.
There you have it. Some tips on how to help you decide on where to invest your hard-earned money in.
Article written and provided by www.hassproperties.com