Stocks and Real Estate are two of the most popular ways of investing. With the recent increase in awareness of the stock market, more and more people have started investing in it. You must have come across people who constantly talk about the stock market and the importance of participating in it. On the other hand, real estate has been a trusted investment instrument for a long time. People who have invested in the real estate sector and have managed to get good returns; swear by it. If you are new to the investment world and need a way out of your dilemma of which of the two is a safer and more profitable investment, keep reading.
Understanding The Pros and Cons of Investing in Real Estate:
Following is the list of pros of investing in real estate:
- Returns through rent – You can get decent returns on your real estate investment through rental income. No other sources of investment provide these returns with such low-risk involvement.
- Consistent Appreciation – The best factor about investing in real estate is capital appreciation. You can expect to resale a residential property 6-10 times in value than what you purchased it for after around 20 years. Moreover, there is a 7-10% value appreciation annually in Tier 1 & 2 cities.
- Monthly income – Another great thing about investing in a property is that you get a fixed monthly payment. This can be a game changer. It can change what your monthly inflow of income looks like without putting in much effort. All you have to do is find the right tenants to ensure a long-term monthly income.
- Lower Risk – If you enquire about the real estate that you are investing in beforehand and ensure that all the paperwork submitted by the seller is verified, the risk involved in such an investment becomes significantly low. Once you own the rights over a property that is in the right location, it can ensure you significant financial benefits.
Following is the list of cons of investing in real estate:
- Significant initial investment – Purchasing any kind of real estate takes a lot of money. Contrariwise to stocks, you need to make a dent in your pocket to own a piece of land. Someone who has good savings already or is willing to take up a property loan can invest in real estate. This significant initial investment is what makes people shy away from purchasing a property. However, if we look at the brighter side, it can be considered as a one-time payment which can ensure you guaranteed monthly returns.
- Liquidity levels – When we talk about the liquidity of an investment, it means the time it will take the owner to sell it and convert the amount into cash. Real estate has low liquidity levels as it takes a significant amount for the owner to find the right buyers for their piece of land. It is not something that happens overnight. It takes some time for the owner to put out the advertisement and get done with the formalities of selling a property. Therefore, you cannot expect urgent cash in exchange for a real estate sale.
Understanding The Pros and Cons of Investing in Stocks:
Mentioned below is the list of pros of investing in the stock market:
1) Liquidity – High liquidity is one of the strongest suits of stocks. You can get your money converted into cash within a few clicks on your phone. All you need is the mobile application of your broker or any other management platform that you might be used to manage your stocks. This makes it a great option for when you need some urgent cash, as it does not require a lot of formalities.
2) Decreased chances of fraudulent activities – Since all the transactions and investments in the stock market are monitored by SEBI (Security and Exchange Board of India), the chances of fraudulent activities happening lowers down by a great deal. SEBI protects your investors’ rights and ensures smooth operations of the stock market, which means you can remain stress-free.
3) Flexibility to start small – You do not need to have millions in your bank account to start investing in the stock market. Stocks provide you with the opportunity to invest in as low as a few hundred rupees. If someone wants to start investing but does not have a large sum of money, to begin with, stocks can be a good option for them. This factor makes stocks a suitable investment option for young people who may not have a lot of savings.
4) Long-term investments can be rewarding – The sooner you start investing in stocks, the better it is for you. Long-term investments in the right stocks can offer you exceptional returns.
Mentioned below is the list of cons of investing in the stock market:
1) Higher risk involved – Everyone knows stocks are a high-risk involvement investment. Any changes in the stock market can either increase the amount of your investment by a great deal or lower it down considerably.
2) Fluctuations in the market – Your money depends upon the fluctuations in the market. Any government regulations or economic changes can have a great impact on the stock market. As an owner of stocks, you will have to bear with those fluctuations.
3) Inconsistent Appreciation – While investing in stocks, you need to take into consideration that the appreciation can be inconsistent or stagnant. Unlike the real estate sector, where you get a consistent appreciation of your asset over a period.
The Bottom Line:
Whether you decide to invest in stocks or real estate could depend on a lot of factors. Starting with how much appetite for risk you possess. If you want a low-risk investment are can afford to make a big financial investment, real estate would be the best option. However, if you can afford high risks but want to start investing with a low budget, stocks could be the option for you. If you are a young individual with knowledge of the stock market, you can incline towards stocks. However, if you are looking for guaranteed returns and a fixed monthly payment, there is nothing better than investing in a good property.