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Real Estate vs Stocks Which is Better?

by Olufisayo
Real Estate vs Stocks Which is Better

Over the past few years, we’ve seen people undemented about picking up the right option to invest in: Either stocks or real estate. It’s still unclear which one is more profitable, but it all depends upon your personality and your approach toward investment.

There are several aspects that makes real estate and stocks different investments, each among them are advantageous and risky at the same time.

To invest in any of the niche you should be familiar with pros & cons of investing in that niche. Investments with tangible benefits looks more appealing in comparison with intangible one’s. We will for sure clarify you the Nitty-gritty of each of the two investment options in detail.

Real Estate vs Stocks Which is Better

Real Estate Investment

People now believe real estate investment as a tangible good, that one can feel more realistic. Real estate investment has made long term appreciation for thousands of people around the Globe.  Investors enjoyed sizable benefits after analyzing the local market and replicating their market strategy holistically.

The 3 principles that are very crucial in Real Estate Investments are:

  • Budget
  • Location
  • Members

You can play with these variables and try to find business opportunity that best interest you. E.g. if you are into premium, luxurious stuff and want to target audience that has the same interest. As Dubai being the world’s capital, there has been huge spike in almost every other industry. Given the same case you can offer villas to rent in Dubai to your elite audience.

They could be anywhere as you are not selling the property just renting it out to families, businessmen, couples that are in the city. Or they could be residents of those states too, trying to get for the weekend or whatever other reason there might be. But you have the opportunity and an audience to make it work.

Real estate investment categorizes into two streams

  1. Commercial
  2. Residential

Commercial real estate is totally a business focused concept. It includes predetermined business strategies to generate the desired outcomes. It might involve leased or sold property.

Whereas Residential real estate depends on the homeowner needs and wants along with his family. It involves purchasing the property for individuals. We can call residential real estate as more of emotional purchase option.

Now, earning money through real estate is not just cut and dry. In depth market analysis is required along with generating the window of opportunity to earn break evens. Usually, a down payment of 20 percent or above of purchase price are made and the rest are financed through mortgage.

Advantages of Investing in Real Estate

There are several benefits you can gain out of real estate investment that include:

  • Tax deductions
  • Depreciation & other procedures (i.e. 1031 Exchange rule)
  • No need to worry about capital gain taxes

But there are some benefits that people who want to invest in property are looking for:

  1. You do not have to be a Specialist
  2. It’s better than saving
  3. More stable than Stock market & Commodities
  4. Generate extra income
  5. You have an Inheritable Property

You do not have to be a specialist

This is undoubtedly an important advantage, because even if you are not familiar with the terminology, you should only use basic concepts to understand how it works. As you become interested in the various aspects related to real estate, the implementation of these notions will be much simpler.

You will come into contact with notions such as goodwill, amortization, appraisal, mortgage, rent and more, whose lack of knowledge will not prevent you from recognizing a good business opportunity. Of course, you have to be clear about the reasons for making a substantial investment and what you intend to achieve with it.

Real Estate Investment is better than saving

We say this because we understand how banks work and their various savings instruments usually have low interest rates of 2 or 3% per month or less than 0.6% in the case of time deposits. Although constant, this passive generation of capital is subject to maintenance fees, inflation and other variables.

When you buy real estate, you are acquiring a tangible asset that, besides guaranteeing your retirement, will not be affected by too many economic variables. A house, apartment or land can generate a lot of value depending on its location and the possible development projects destined for that area.

Results more stable than the Stock Market

If the fluctuation of the national currency, metals and stocks seem like a roller coaster of emotions too volatile, choose something more stable. The appraisal within the real estate market protects you against macroeconomic variables because the prices are set in dollars or euros based on regional and international standards.

The stock market and raw materials can be profitable investments if they are managed well, but they require time and a greater degree of “expertise” to know how they work. This also joins unpredictable factors that can drastically alter their performance. The more properties you have, the more stability you get and the better opportunities for profitability.

Possibility of obtaining Extra Income

In addition to favoring you when you declare your taxes, a property generates long-term value and allows you to accumulate profits in various ways. Although the rental culture is less rooted (17%) in Chile than in other countries, leasing continues to rise due to housing prices and the difficulty of accessing mortgage credit.

There is a wide variety of offers to explore, including initiatives such as cohousing, AirBnB, among others, which represent simple ways to monetize your investment without too many complications or risks.

You have an Inheritable Property

In principle, any real estate investment contributes to the growth of your assets, which supports the different types of financing you may need at any given time. In the same way, in this way you can benefit your family group, giving them a very important starting point for the construction of their future.

Disadvantages of Real Estate Investment

Each business has their own positives and negatives, same is the case in Real estate. In real estate your money is illiquid, property cannot be sold right away. In many cases you must hold that property for years to gain real profit earnings, it’s totally on your property profit potential. Most of the times closing cost are sum up to hundreds and thousands of dollars that includes withholding taxes.  Real estate prices fluctuate very often, prices usually go down and stay flat for longer durations. Investing in such business is quite crucial, lost trust can never be regained.

Stocks Market Investment

Using S&P 500 as the benchmark for illustrating the staging of stocks. The average return rate from 1970 till 2016 is 10.31%. If you are jumping in to the same niche, then use this benchmarking figure for analyzing your performance.

Investing in stock means you are receiving an ownership in company. Then you must continuously track the stock market for the shares to increase at some rate. The downside of it is in-case the stock falls then you have to use margin-call.

Margin-call is the situation when the amount borrowed have fallen at lower rates. In order to bring it up you have to add more money to your account. Otherwise the brokerage will sell the stock first hand to gain back the amount.

Advantages of Investing in Stocks

The advantages one can get out of stocks market investment are:

  1. Liquid Assets
  2. More flexible
  3. It’s Tax free.
  4. 20% – 50% growth of company’s shares isn’t unusual

In comparison with real estate, stocks investments provide relatively better opportunity. Stocks allows investors to earn more in 1 year of tenure than in real estate.

Disadvantages of Stocks Market Investment

Stocks are totally company dependent if company’s economy is facing some challenges. Then stocks can be unpredictable. Stocks can also be called as an emotional investment. Your investment can be dissolved if the company can’t stand out in the market. There are more chances of risk if you haven’t analyzed the company’s position before investment.

The bottom line is it all depends upon your location, market space and personality. If you are good at building up strategies and market stats, then you should invest it on first hand.

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