True Estate Versus Stock Investment – Which Way to Go?

Article by Lawrence Bonas

When the stock market crisis began in 2008, one of the reasons operators sited then was investors shift of focus to the real estate sector. The explanation then was that many investors who made money during the stock market boom divested from the stock market and were investing in real estate.

Apart from individuals, most corporate organizations joined the race to invest in properties and sell later. However, the property sector suffered weak demands too as the global economic crises worsened.

Like the stock market, many investors both corporate and individuals had their fingers burnt and suffered huge losses. But the negative experiences in both markets – stock and real estate- will not stop people from investing. Already the stock market is showing signs of recovery due to increased investor confidence. Despite this, many investors who are liquid are still contemplating on where to invest – stock or properties.

In the opinion of leading investment experts, both markets are good but the investment objectives and ones sources of income will determine ones choice. Another investment consultant concurred, saying that the choice of any form of investment will depend on many factors.

Real Estate Versus Investment, Which Way To Go? has been a raging question for long. First will be the motive or intention of the investor. Is it for a short term or long term> Is the investor interested in capital returns or in streaks of returns in form of regular income? Is it an investment to be left for ones children in death? The answers to these questions among many others will set the tone for the rest of the investment decisions that will follow.

If one is only interested in short term investment of funds that are not needed immediately but may be required in a short while – say in two to five years, buying stock may be more preferable than real estate. This is because it is easier to convert stocks to cash than buildings. However, beyond this simple reason, is necessary to examine the principles of investment and apply the different tests to both stocks and land properties before concluding on which one is more suitable in any particular case.

SECURITY OF CAPITAL

Whatever your intention, the first thing to consider is the safety of the capital to be invested. Any investment that does not guarantee the recovery of the capital invested is not worth considering at all. When you relate this to stocks and investing in buying buildings, to a large extent capital investment in land and buildings are more secured than stocks. Except in the case of war or natural disasters, an investor can guarantee the safety of his or her investment in properties by taking out an insurance policy. Hence in the invent of fire or other agents of destruction, you can always recoup your loses from the insurer. But investments in stocks can vanish in one day if for instance the stock market crashes or the company fails.

CAPITAL APPRECIATION

The second point to consider is the issue of capital appreciation. It is known that except in rare cases of war or natural disasters, land and building values are always on the increase, even if marginal.

SECURITY AND REGULARITY OF INCOME

In most cases, the major reason for investment is the expectation of income from the investment. In this regard, dividends are expected from investments in stocks and rents from investments in land and buildings. However, while it is certain that rent will be paid on your property [barring a bad defaulting tenant] you can never be sure that dividends will be paid on your stocks. Many companies has not paid dividends to their share holders for many years. More over, you can never know how much that can acrue to you as dividends from stock investment until they are paid. One year it may be .20, the next it may .10. It is difficult to plan on such irregular source of income. Regarding income from real estate, except the unusual happens, you will know your rent at the beginning of the year or term of the lease. In some cases, the rent is even paid in advance.

We have made a fair attempt at answering the question, Real Estate versus Stock Investment Investment, Which Way To Go? I hope you found it useful enough as a guide to profitable investment decisions.

Tags: , , , ,