Disclaimer: This post is not professional advice. This blog is my thoughts on what constitutes a good investment and compares real estate investment to stocks.
Ok, now that we have the disclaimer out of the way let me begin by saying that most high net worth individuals know investing better than I do. I know people who invest heavily in real estate or other asset classes as a matter of habit.
This blog is not aimed at people who are already big investors but at readers who have money in hand but are not sure of where to invest. These could be first-time investors or traditional businessmen looking to diversify their investments.
I have done my reasearch and present some arguments below.
Real Estate, under right circumstances can be a solid alternative to stocks, mutual funds or gold.
It creates recurring returns at a lower risk and can result in capital appreciation over the long term. Liquidity can be a problem as a real estate product may not sell as easily as a stock or a mutual fund.
Each individual can create a unique investment strategy whether it be stocks or real estate or any other asset class.
Criteria For a Successful Investment
Every individual has different sets of criteria for making an investment. Let me list down a few here:
- Financial Situation– Cash at hand
- Risk Appetite– can one tolerate the highs and lows of a volatile investment?
- Goals– What is your ultimate aim? Do you want to create a monthly passive income?
- Liquidity– In case you require money how fast can your investment be liquidated?
- Time Period– How long do you want to be invested? Is it a short term or a long term investment?
Real Estate Vs Stocks
- Stocks are really popular as an investment class mainly because it does not require huge sums of money to be invested. One can start investing in stocks with a meagre amount. Real estate on the other hand requires a substantial investment upfront even if it is a construction linked plan.
2. If one invests in stocks he or she is buying something that is non-tangible. You cannot touch it, you cannot leverage it and you cannot get monthly returns from it. You can get value appreciation and dividends. When you buy Real estate you buy something physical. You will make money by collecting rent. You can mortgage your property to a bank and get a loan against it for expansion if you cannot pay outright for a new purchase. Obviously, capital appreciation also happens for a good property.
3. Comparing the returns of the stock market to real estates is an apple to oranges comparison. Stock market investment requires active involvement and deep research and even then returns can be unpredictable. Real estate investment does not require a lot of research and involvement. Real estate is more of a passive income game. However, the stock market can give quicker profits in comparison to real estate.
4. Stock market investment is definitely mmore risky than a real estate investment.
Stock market is subject to regulatory, inflationary and economic risks. One should be ready for large and regular price fluctuations in the stock market. Wealth can be created or destroyed in a matter of minutes. Non- diversification of stocks is another risk that most people face.
Real estate market risks are different. Real estate products can’t be easily liquidated. So you can not expect your real estate investments to bail you out if you are in trouble and require immediate cash. Supply and demand problems are another risk that requires analysis.
Pros and cons of a real estate investment
- Generates long term passive income
- Tax advantages
- Emotional and social prestige
- Provides leverage, can be used as bank security
- Expensive and diffigult to liquidate
- High transaction costs
- Requires more time and effort initially
- Appreciation isn’t guaranteed
Pros and cons of investment in stocks
- Can be easily liquidated
- Diversification is easy
- Low transaction fees
- Can be bought through mobile apps and computers with relatively smaller amounts
- More volatile than real estate
- Selling stocks can trigger big taxes
- Some stocks move sideways for years
- Potential for emotion-driven investing
Bigger investors should use a mixture of stocks and real estate to balance their portfolios.
While real estate will not generate wealth as quickly as some others, a good real estate investment is relatively safer and some of my investors swear by it.
I can help provide real estate investment advice in Mohali, Zirakpur and Chandigarh. To get in touch kindly fill-up the form on the page and I will get back to you as soon as I can.
I am a real estate blogger cum service partner for multiple projects in Chandigarh and surrounding areas such as Zirakpur and Mohali. I request you to spend some time browsing through my blog.