A long debate among many professional investors has been ‘what is better: stocks or real estate?’ Both have an argument on who is better, but personally, I prefer real estate. Real Estate without a doubt a safer investment overall but also has a lower ROR (rate of return). Whereas stocks, on the other hand, present a much higher risk for your investment but can get a return of 10%-20% yearly.
Investment of your money into is one of the most popular forms of investments. The benefits of stocks or shares are that it can be done today – right now, you can go out and buy shares in any major company and your money will become an investment. The downside of stocks is that they are risky. These days, people do say that you can minimise your risk by doing your research, but no one can predict the market, so the risk factor will always be there.
Now stocks prices go up and down, so to say stocks will always make you’re a nice return is a bit naïve. While you might make a return 10% for 10 years (well done you have doubled your money in 10 years) but what if the market crashes and you lose 50%…
Year 1: Invest $10,000
Year 1-10: Rate of return 10% yearly
End of year 10: Value $20,000
Market crashes loss of 50% = Back to $10,000 aka 10 years wasted.
This is where the stock market can get you in trouble as the stock market drops on average every 7 years. The odds of you seeing 10 years in a row of growing as pretty slim.
Real Estate isn’t as easy as stocks to get into as the takes a lot more money to start with, more research and more time. For these reasons many people have looked past a real estate investment as they think it’s too hard. If you do the work you will see the reward.
Real Estate investing can see a lower return and the same amount of risk as the stock market if you play your cards wrong.
But we’re not about that here at Investercon so here is how you make money in real estate.
Say you buy a house for $300,000 you put in your deposit of 10% (or $30,000) congratulations, you own a house! You can rent this house out for $300 a week, but you will have to wait 25 plus years to see any positive cash flow from the house.
Whereas if you buy a house for $260,000 with a value of $300,000 you will have made $40,000 in-house equity in only a day. This equity is classed as a paper asset (because you can touch the money for at least a year).
A year’s passes by and you have paid $15,000 off your house, so you now have $45,000 of equity in it, which you can get off the bank by refinancing your home. With this new-found money, you can invest in another house and repeat the process.
This is where real estate beats the stock market; a house will rarely lose its value, even if the housing market crashes and the value of your property decreases, you will still have the income that the houses provide (rent), leaving you with a passive income which can’t be taken away. The housing market is also much faster at recovering then the stock market, making real estate, hands down, a better investment for your money.