Bonds Vs. Real Estate Investments In India

Bonds Vs. Real Estate

Prudhvi Reddy, 02-Feb-2020

If you’re looking to expand your investment portfolio, there is a range of options that you can choose from. Some of them require more effort and monetary value, while others come in handy at a lesser investment capital. Two such things that are widely favored as investment options are real estate and stock bonds.

Real estate investment can range from private to commercial properties. You invest your money either by leasing or buying your preferred property. The investment amount, however, depends on an array of factors like the size of the property, location of the establishment and the age of your chosen project. Once you invest in one, you have the option to lease or rent it out and further your monetary gains.

Bonds, on the other hand, involve less capital investment. Bonds are usually issued by corporations or government organizations. You put your money in buying them and enjoy your return on investment through the rate of interest that is paid. Once the bond has matured, you get your principal back along with the interest for the entire tenure which is decided as per the interest rate. Depending on the type of bond, the risk, interest rate, and tenure is decided. They are a type of fixed-income investment that can be a part of your retirement planning portfolio.

If you’re wondering which one to leverage, here’s a detailed comparison on both to help you choose.

Benefits of each investment option

When you’re investing in real estate, you’re not just investing in your today but also securing your tomorrow. It is an asset that will be passed down to your future generations. Even if you do not wish to occupy the property, you can rent it out and keep earning from it month after month. The best part about a real estate investment is that with time, the value of the property will increase, and should you decide to sell it off, it will be of a huge profit to you. In fact, if you rent out your property, the per month income will be able to help you pay off your property loan, if any, and leave you with a margin of profit, thus making it a lucrative asset.

Bonds give you a higher return on investment however, that is only in the short run. You can choose to resell your bonds before maturity and make a profit out of it and there are bond traders who will help you bid up the price of the bond to take it way above the face value. However, there are certain terms and conditions associated with it like for example, that will be applicable only if the net current value of the interest and principal together were higher than the alternative bond investments.

Risks involved in each investment

Every investment comes with certain risks and real estate and bonds are no exception. While the risk involved is much lower in the case of real estate, here’s a detailed look at the probable perils of each.

Companies offering the bonds can default and this will lead to loss of money for the investor. To avoid this, if you’re investing in bonds, you should always keep track of the bondholder’s S&P ratings.

On the other hand, real investment involves a lesser risk. It is your property and unless there is some natural calamity or accident, there is almost no risk involved in the property. In case you’re taking it on a lease, it is always advisable to read the terms and conditions carefully so as to avoid any unnecessary risk. Thus, real estate investments give you the power to be in control of your money.

Liquidity of the asset and exit options

Bonds are especially useful when you need some immediate cash. They can be sold off easily through bond traders and you can also get more than the face value if you meet certain criteria. Real estate, on the other hand, is a more tangible investment. Selling a property takes time, and sometimes can take months to get the right value for the property.

For bonds, the debtor needs to pay back the principal when the bond matures. This entire amount is termed as face value. Most of the time, bondholders resell them in a secondary market before the bond matures, either privately through a broker or publicly on exchanges. Because of this reason, the value of the bonds can fluctuate until it matures.

Resale value

For both real estate and bonds, the resale value is of utmost importance. The value of real estate properties goes up with time. Thus, if at any point in time you want to sell it off, you will always be at a profit. Whatever the market scenario may be, the prices of properties will never go down. Be it a recession or just a low phase, it may affect other investment options like bonds but not real estate. It is for this reason most investors choose real estate as a lucrative option.

While selling off bonds, a lot of factors come into play while reselling. While they can easily be sold off or traded in the secondary market, it is not always guaranteed that it will generate a higher profit.

To sum it up, real estate may call for a higher investment but in the long run, it is a more stable, risk-free and profitable one. Even in volatile market scenarios, it will not involve any risk of monetary loss and will be an asset for you and your future generations in years to come. Bonds will surely give you a lot more money in a shorter span of time but if you’re looking to expand your investment portfolio to sustain your lifestyle and financial gains, real estate is the way to go.

The 21st century has made it even easier for you to invest in real estate. You can do your research online on both commercial and residential properties. In fact, there are dedicated websites like Assetmonk that will help you in browsing and closing down on a property of your choice.