REAL ESTATE vs STOCKS?
Most investors like the real estate market and the stock market as a place to put their of investing money. It is a personal choice to invest either in real estate or stocks which depend on your risk tolerance, goals, and investment style.
Here are some differences that will help you to choose where to spend your investment money:
1. Basic Differences
Investing in both stream depends on the personal choice and investment styles. It's safe to assume that more people invest in the stock market as it doesn't take as much time or money to buy stocks but if you are buying real estate you have to save and put down a substantial amount of money.
When you buy stocks, you buy a small share of that company. You make money two ways; (1) When the value of the company's stock increases, the value that you invested also increases. (2) Regular dividends, which you can reinvest, depending on the company.
When you buy real estate, you get physical property (Land or Building). As real estate can be leveraged (use borrowed capital for investment), it is possible to buy properties even when you can't pay total cash outright. Many real estate investors make money by collecting rents and through appreciation, as the property's value goes up.
2. Return for Stocks vs Real Estate
Investing in the stock market makes more sense when combined with the benefits that increase your returns but those perks are not always available and there is a limit to how much you can benefit from them. The market is unpredictable and returns on investment are lower than what you expect.
The factors that affect prices, values, and returns of real estate are very different than that of the stock market. Real estate has more ROI, there is almost no limit to how much you can benefit from it in a country like Nepal.
But things may go wrong during economic recessions like the 2015 earthquake and 2020 COVID crisis, both of the investments tend to fall during such recessions.
The most important risk is that real estate requires lots and lots of research for the location, predictability, and price which you want to pay to safeguard your investment. It is not something where you get into the market and start getting immediate returns and results. It is not an asset that can be easily liquidated and it cannot be cashed quickly. It can be affected by an economic crisis such as earthquake 2015 or the COVID crisis of 2020.
Whereas the stock market has other risks including economic crises such as political troubles and when the country's economy has problems. Other risks may arise from the investor itself who depend on the specific type of stocks and not expand their investment on other companies.
4. Advantages of Investing
- Passive income.
- Tax advantages.
- Ability to leverage.
- Covering against inflation.
- Highly liquid.
- Easy to diversify.
- Low transaction fees.
- Tax advantages.
5. Disadvantages of Investing
- More work than buying stocks.
- Expensive and illiquid.
- High transaction fees.
- Appreciation is not guaranteed in some criteria.
- Market changes rapidly making it more unpredictable than real estate.
- Some stocks don't generate income for years.
- Emotional investing.
- Losing when you are losing.
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Published on 07, July 2020 by Sandip Adhikari