Whether looking for a short, medium, or long term investment, one thing we all agree is getting one that matches your needs and budget. For most people, the mention of investment will automatically translate to the stock market. However, even with the market maintaining huge popularity, there are other effective investments such as real estate. Real estate is one of the perfect alternatives to stock market investment. When undertaken right, an investment in real estate can be low risk, high yields, and perfect for diversification.
Looking at the years back, the great recession opened people’s eyes on where to put their investments. During that time, a whopping two-thirds of Americans had invested their money in the stock market. The occurrence of the great recession threatened the people’s means of investment, financial confidence, and job security. This, therefore, posed a significant change in the American’s investment sentiments.
Real Estate vs. Stocks
Investment in real estate refers to the purchasing of property or physical land. The aim of such an investment might be for personal use, commercial, or holding purposes. Holding involves acquisition in expectation of selling at a profit. However, some real estate might cost money for upkeep as one holds on to it in anticipation to sell at a profit. Such upkeep costs include maintenance and taxes. Some real estate investments generate cash such as rental houses. Such cash can then be translated into profits after deducting any expenses involved with this form of investment.
Stocks refer to a unit of ownership in a company. So when one is investing in a company’s stock, he or she is acquiring a piece of that company. Regardless of the industry that the company is, investing in their stock entitles one to get a share of the organization’s profit for every stock that you acquired. The percentage of stock ownership is calculated as a percentage of the shares acquired versus the total shares listed by the company. For example, if company A has 10,000 shares, buying 100 shares will mean that you own 1% of the company. The profit (dividend), is calculated by the company’s Board of Directors who decide what is to be paid out to stakeholders and what is to be reinvested into expanding the company.
What makes an investment in real estate better than that of stocks?
The following are reasons why real estate investment is much better than putting all your money in stocks;
- The structuring of debt in real estate is easier and safe than in stock market investment. In the stock market, the structuring of leverage is much complicated, thereby making the acquisition of stocks using debt margin very advantageous and risky.
- Investment into real estate is a more comfortable investment for most people since their growth encompassed the exposure of real estate as a type of investment. An investment that is comfortable will mean less risk, thereby increasing the willingness of people to acquire land, property, etc. compared to other forms of investment, such as the stock market.
- Real estate investment brings in the tangibility of investment, thereby making it a much secure investment compared to the stock market. Tangibility makes it hard for one to be defrauded. One can physically show up to make sure that the house is there before acquiring it.
However, investing in real estate can have the following cons
- An investment in real estate comes with a lot of hands-on work attached to it. Tasks such as oversight, maintenance among others make a real estate investment undesirable compared to the stock market investment, which comes with much less attached to it.