There are a lot of investment instruments out there and for those who want to start out in investing we take a look at the two most common ways to invest, real estate and stocks. We will try to find out which is the better investment between the two.
Finance is the way one manages and creates money. The stock market is a place where stocks are traded on a daily basis. Companies list stocks as a way for them to raise capital for funding the business. Common stocks and preferred stocks are offered to potential shareholders. People who buy these stocks become part owners of the company they bought it from. They can start earning from dividends that the company may give if they make a profit from their business operations or hold on to their shares and wait for the value of the stock to rise.
Real estate investing is also one of the investment opportunities that people look into. They feel like it is simpler to go into real estate than the stock market, which is a little complicated for most people who don’t have an idea how things work in stock exchanges.
Disadvantages Of Real Estate Investing Compared To Stocks
Just like with any investment, there is always a risk of failure. It is always best to study first and know more about the investment opportunity that you want to get into. The internet is a valuable resource of free information, whether videos or articles that you can watch and study before you dive in.
Once you buy or invest in real estate, the number one consideration is the liquidity of the investment. If you get into a situation where you would need cash immediately then owning a property may not be able to help you out at once. Selling your property can take a while, and if you want a quick sale, it would have to be at a very low price. You also have to pay an agent or broker fees if you ask them to sell your property. It can take months or even years to sell a property, especially if it is expensive. There are investors who would choose to invest in high end properties thinking that it would give better yield, but this is one of the types that are hard to sell short term. Again, to hasten these types of deals you would have to sell very low, which would mean loss of profit for you as an investor. You can also apply for a loan and use your property as collateral. This may be a faster way to raise the needed cash, but then again, interest payments will also cost you as an investor. You are also at risk of losing your property if you fail to pay your loan.
Stocks are highly liquid investments. If ever you need to sell them right away, you can do it and have your cash in just a few days tops.
Cost Of Maintenance And Taxes
Real estate has a lot of costs involved in maintaining your property. Taxes on real property and rental income plus other fees can also add up
to this. Unforeseen expenses like leaks, fixtures, and roof damage during storms, etc.
Stocks have no such costs involved and are even tax free. You can even earn dividends on a regular basis.
Income Is Fixed For Rental Income
It is good to have passive income from real estate, but the potential for earning more is limited because rent is usually fixed and you can’t increase it at a high rate for a regular period of time. Upside is limited when it comes to real estate investing.
Stocks have the ability to increase in value at an exponential rate. If you choose a stock of a company that is booming then the income earning potential is significantly huge compared to real estate income. Stock prices will keep on increasing as the company grows.
When we compare real estate investing and stock market finance opportunities, stock investing seems to have more advantages. This doesn’t mean that you can’t earn a lot with real estate, a lot of people have made it big with real estate. It’s really up to the investors and what he feels is the best fit for him