Stocks Vs. Real EstateBy
Prudhvi Reddy, 23-Jan-2020
Expanding your investment portfolio involves a lot of financial planning and different investment options. Two of the most lucrative options are real estate and stocks. Let’s delve a little deeper and see which one is a more favorable source of investment to add on to your investment profile.
Let’s begin by looking at what stocks are. Stocks and shares are two inter-related terms. Even though they go hand-in-hand, there are some basic differences between the two. A stock is a general term used for ownership certificates of any corporation or company while a share is used to describe the stock certificate of that particular corporation or company. If you have shares of a company, you become a shareholder of that company.
Broadly, there are two categories of stocks – common and preferred. Common stocks allow the shareholder to have voting rights which he or she can exercise in corporate decisions but preferred stocks do not allow that. However, shareholders with preferred stocks are entitled legally to get some predefined dividend payments before they are issued to other shareholders of the company.
Real estate refers to any property that you own, be it personal or commercial. You can either rent out your property to make monetary gains or lease it out for other commercial purposes. Real estate prices depend on the area and locality of the property, the age of the project, the size and interiors of the project. Real estate can further be divided into a budget and luxury properties, depending on all of the above factors stated above.
However, the question now arises on which is a better option to invest in? Here is a comparison to help you choose better.
Benefits of each investment option
Real estate is a tangible asset. It can be controlled by the owner of the property. It is something concrete that you own which can be passed on to your future generations. Real estate comes with a significant appreciation rate which can even grow at an exponential curve over the years. It also comes with an added rental value. If you are asking a bank loan to buy your real estate property, you are also eligible for income tax deductions under section 80C of the Income Tax Act.
Stocks require a lot less monetary investment than real estate. With stocks, you essentially receive ownership of a part of the company and in times of good economic market scenario or profits of the company, your stock values will increase steeply.
Risks involved in each investment
Stocks are a lucrative option for investment because of the high return on investment. However, it comes with a high-risk factor. They can be quite volatile, especially when there is a crunch period going on in the economy. If the markets crash or go down a significant amount, there is a chance that the value of your stocks goes down to almost nil. Dealing with stocks and the share market is often an emotional choice and to pull out or go further depends on a quick assessment of the market scenario and consequential choices. In case the company goes bankrupt, the shareholders lose all the money so that is a risk involved in dealing with stocks all the time.
Real estate, on the other hand, involves much less risk and volatility. Market prices of real estate hardly fall and in 90% of the scenario, it is an upward hill movement. In the rare case of a natural calamity or the likes, your property might get affected but otherwise, it is one of the safest assets to invest in.
Liquidity of the asset and exit options
One of the biggest disadvantages of investing in real estate is the fact that it can be quite illiquid. Selling off a property that you have bought can give you a huge profit margin however, it involves a lot of time. From the time you put it in the market to the time you get your money is a long drawn process so if you are in need of quick money from your investments, this is not a very catchy option.
Stocks are extremely liquid in nature. In fact, while dealing in the share market, stock owners are advised to go for quick turnarounds, selling off their shares depending on rising market trends by many financial advisors. Since you are able to get a bigger return in a shorter period of time, people sometimes do not risk a fall in the market and sell their shares when they get a hunch of the markets being in a profitable situation.
Real estate is always an appreciating asset. On average, the value of your property can go up by a minimum of 10-12% in a year. This stands true even when you are renting out your property. Thus, the resale value of any property – be it personal or commercial, comes with a huge profit margin, making real estate one of the choicest investment options. Another thing that makes it so attractive is that even though you put in a lot of money while buying a property, what you get back on the resale is a huge lump sum amount that benefits you in the long run.
Stocks do not have any resale value as such. You buy and sell them as per your instincts and market trends.
To conclude, stocks are good for a short term investment option. They offer you a high return on investment although it is not guaranteed. They are more liquid and better for you if you are looking for quick turnaround time on your investment.
Real estate is a more stable option which is not only for your today but for your future generations as well. This makes it a very lucrative asset for anyone, especially for modern-day investors. Also, with online channels like Assetmonk on the market, it is easier than ever to look for and finalize on both personal and commercial properties, thus making your investment portfolio forward.