Investing is a big decision! Traditionally when people hear the word investing, they think of the stock market. However, in recent years all the rage is now becoming real estate investing! You may be wondering, is this a better option? So here are the pros and cons to real estate investments and investing in stock.
Pros of real estate investing:
1.Straight forward process: although real estate investing requires more time and learning the process is easily understood. Typically, investors find undervalued properties, make repairs and rent them at a profit.
2. Tax advantages: owning a rental property means the owners are able to write off things like interest, depreciation, travel expenses and insurance.
3. Unlike the stock market you can more often than not rely on return on your investment monthly.
4. Protection from inflation: generally, rent goes up as inflation increases so investing in real estate is viewed as a hedge against inflation
Cons of real estate investing:
1.Hard to diversify: Unlike the stock market where you can choose multiple investment, the only way to do that in real estate is buying different properties types in different areas.
2. Cost of liquidity: After the initial investment required to buy real estate, it is also an illiquid venture. Therefore, if the neighborhood goes downhill, interest rates skyrocket, getting rid of the property could become difficult.
3. Unless you choose to hire a property management company you would be looking at a lot of time spent managing you property. You know have responsibilities such as application screening and approval, rent collection, maintenance issues and so on. Or you can hire an amazing property management company to do the work for you!
Pros of investing in stock:
1. Easily Diversified: Using stocks, investors can quickly assemble a diverse portfolio across many industries on any budget.
2. Liquidity: Investors enjoy that with stocks; they can see the true value of their investment at any given time. Also, if they wish to change aspects of their investment, it is easily done through trades or selling.
3. Low fees: The benefit of stock investments is there is little to no fees for simple trades.
4. Tax advantages: Many employers now sponsor retirement accounts like a 401k where people can grow their contributions.
Cons of investing in stock:
1. Unstable: If you are at all familiar with the stock market you know that prices can change rapidly. Therefore, navigating without a professional can be a challenge. Which can also be hard if you don’t intend on participating long term.
2. Emotional charge: You have to have a cool head and can’t be emotionally driven in your decisions. for example, if an investment starts to take a turn many investors will run the other way, however this is part of the process and you need to be able to see the bigger picture.
3. Capital Gains: In some instances, selling stocks could cause the investor to pay capital gains tax. Furthermore, investors must pay tax on the dividends they earn throughout the year.
As you can see there are a lot of factors when determining which rout is the best one for your investment goals. If earning a passive income through rental properties sounds like the best choice for you, please call our team of experts so we can help you with the process!