Real estate has often been considered by investors to be a worthy investment. In fact, financially-savvy people consider real estate investment to be a great alternative to stocks because of the lower risks, diversification, and the rate of better returns.
Investopedia stresses the need for an investment plan, regardless of the life stage you are in, or what goals you have in life. An investment plan is essential whether you are building up funds for your dream home or your retirement fund. With that being said, is it still worth it to bank on real estate? While that “land for sale” sign may sound tempting, it’s always wise to be aware what you are getting yourself into.
The History of Real Estate
Gone are the days when our ancestors would wander about aimlessly in search of land to conquer. It has always been an intrinsic desire for man to have a place to call their own. We have come a long way since the Stone Age. In order to make home ownership more accessible to civilians, mortgages were born.
While Investopedia says that there is no exact history as to when mortgages started. Once only made exclusive to the elite, more “higher-risk” mortgages became accessible to common people. This allowed them to eventually become landlords themselves.
The Pros and Cons of Real Estate
Substantial tax benefits are at the core of gaining leverage on the capital of real estate investors. There is a definite cash flow in the long run and consequently provides a venue for passive income generation with the promise of appreciation.
There should also be a need to account for the credit that is being driven into real estate investments. It is important that the investor provides down payment and financing if they’re able to fully deal with cash.
With its pragmatic avenues, this investment dealing becomes entirely less liquid compared to the stock market. It is needless to say that selling the property when the need arises would always be the right way to go.
The cost of maintaining real estate should also be considered. Cost associated with property management over time can be credited with repairs and taxes.
Should you invest in stocks or real estate?
So the question still remains, should you invest your hard-earned money in stocks or real estate. It is more of a personal choice. The choice of investment would ultimately depend on your risk appetite, your financial situation, long term goals and investment style.
Buying stocks is akin to buying a tiny piece of the company. Thus, you become part of the company as a shareholder with your own piece of the pie. You can earn money either by value appreciation or dividends.
On the other hand, a real estate investment is made by purchasing real property, such as a piece of land. Most real estate owners make a return on their investment by becoming landlords and collect rent, which makes for a steady income stream. Also, real estate investors can sell their property once the property value goes up.
The game of real estate investing is not just for those in the niche. Captain Comeback, Roger Staubach or better known as the second-highest rated NFL passer of all time has had his own success story. His firm the Stauback Company grew to 50 offices around North America before it was eventually sold to Lang LaSalle for a decent $640 million. Power couple Ellen DeGeneres and Portia De Rossi sped off with an easy $15 million from buying and selling a $40 million Brody House. This, and several other properties throughout Southern California, has been credited to their names. The ever McDreamy Patrick Dempsey of Grey’s Anatomy got a handful of McFortune via selling his own Malibu home for a large profit. Also famous actors and actresses among the list are Jennifer Aniston, Brad Pitt, and Angelina Jolie (well, maybe in the better years together).
Perhaps you would say that their success was inevitable. Perhaps that is true. Likewise, not everyone in their field has shown the promise that they did. Some went and crash then burned. It is with how they handled their success and how they turned what they have into so much more that made it worth emulating.
Is real estate investment worth your money? It is a tangible asset that you can control. As a smart investor, you can always count on its benefit of diversification. A great rule of thumb, however, is to never put all your eggs in one basket. A smart investor knows that it is wise to keep a good nest egg in each basket to ensure many happy and healthy returns.