This is a question that is asked often, and the answer fully depends on the preference of the individual. An investment in real estate is a commitment to purchasing a physical piece of property where the net profits are controlled by the investor. When you invest in stocks, you are buying a share of a corporation. The corporation has a Board of Directors, who decide how much profits are paid out as cash dividends and how much are reinvested for growth. Whether it may be an investment in real estate or the stock market, it is incredibly important to have the financial knowledge and understanding how to use each investment tool to your advantage.
Benefits of investing in Real estate:
- Tangible Asset – Real estate is most often categorized as an asset which offers a degree of tangibility. For some individuals, this is important, as they can physically inspect and visit their investment.
- Leverage –The investor puts a small portion of their own equity on the line when they are mortgaging a property. As the property value rises over time, the small gains in the value of the building provide a large return on the investor’s equity.
- Predictable Returns – It is easier to quantify the return in real estate as you can calculate expenses and rental income to identify net profits. This is done through the comparison of historical and market benchmarking.
- Capital Appreciation – This occurs when there is a rise in the value of an asset based on a rise in market price. Essentially, the capital that was invested in the real estate asset has increased in value, and the capital appreciation portion of the investment includes all of the market value exceeding the original investment or cost basis.
- Local Market – Real estate is a local market, and if you decide to invest in a strong region, there will be more insulation from the national or global economy.
Benefits of Investing in the Stock Market:
- Diversification – Buying stocks allows you to allocate capital to different industries in a way that reduces the exposure to any one particular risk or volatility in the market
- Liquidity – It is easier to buy, and sell shares, than to list and sell property
- Increase in Cash Dividends – Profits of high quality stocks will increase each year, but they will also increase their cash dividends, so you will earn a large pay out as the company expands and grows
In the end, a decision to invest in any product, whether it is the market, or real estate, should be a well-researched, educational decision based on long-term financial strategy, rather than an impulse decision based on assumption and speculation.