Throughout history, gold and real estate have been some of the most trusted investments.
Homeowners have always been the elite of society and owning real estate has been a dream for most people, and even today prices have risen so much that owning a home seems unrealistic. However, in recent centuries, the financial system has evolved to such an extent that it offers an alternative method of developing wealth. Warren Buffett is living proof that with long-term smart investments in the stock market, you can get it right. Here in this video, we will explore what the best investment is. Is real estate still a great investment as it was in the past? Or is the stock market the best alternative in the 21st century?
Real Estate Versus Stock Market There is a lot of controversies around.
Real estate investors claim that real estate is the best investment ever made, but those in the stock market claim otherwise. They are both somewhat right, and the truth is somewhere in between. But to know exactly where it is, we have to take an in-depth look at each of them. Let’s start with the fact that real estate is expensive, no matter where you are. People often work their entire lives just to own property – that was probably the case with their parents. To make a real estate investment, you need a lot of savings. On the other hand, you can start investing in the stock market with as little as $ 5. Of course, it depends on stocks, but most companies, even large ones like apples, trade around $ 300 per share, you can. become an investor in one of the largest companies in the world with only a few hundred dollars.
But the cost doesn’t stop there, it’s not like the old days where you have to pay the broker, with apps like Robinhood you can buy stocks absolutely free. But when it comes to real estate, transaction fees are expensive. This does not necessarily mean that the stock market is better. The risks involved in the stock market are much greater. It is difficult to analyze the market and individual stocks in particular. We may be in the middle of a boom period where the entire market is overvalued and your investment is likely to drop by 20, 30, or 40 percent if you don’t transfer funds just before the market crash. If anything from history teaches us that, nothing is too big to fail. For example, Apple is a big company, just like Nokia was once. In fact, Apple was already on the brink of bankruptcy.
Stock prices change every day for different reasons.
This can trigger an emotional response and cause you to remain in the market at a loss, which is often the case, even with professional investors. But with real estate, this is not the case. As long as she was in the city, the land below her would always be valuable. And even during crises, they often regain their value very quickly, because everyone needs a roof over their heads. Real estate covers one of our most important needs. When you buy a property, you can get a good night’s sleep and be sure that you won’t wake up the next morning to the news that your property has lost half its value.
What also makes real estate attractive is that it provides passive income. With high rental prices, you won’t even need to work – it’s one of the few investments that can give you a solid, stable income with a 7, 8, or even 10 percent dividend yield. It is extremely rare for a company to pay a dividend yield of 5 percent or more. Some companies pay, of course, but it’s a risky move, as you could lose a lot more through falling price than you can earn in dividends.
But it also works in the opposite direction. Real estate is not valued as much as the stock market. In 2019, on average, home prices rose 3.8 percent, while the S&P 500 rose to 28 percent, which is nearly 10 times as much. In the last decade, Amazon has achieved a total rate of return of 1,209 percent, or Netflix has tripled that number to 3,767 percent. You will never find such returns in the real estate world because, in the stock market, companies are constantly innovating to stay ahead of others. In 25 years, Amazon has grown from nothing to a company of more than a trillion dollars.
The corporate world is ruthless
Today you are at the top and tomorrow your competitors will frustrate you. It’s not that real estate is just around the corner and earning your passive monthly income. Taxable on interest payments on your tax returns. You can recover the cost of renting income-generating properties through depreciation. Depreciation expense often results in a net loss in investment properties, even if the property actually produces positive cash flow. This loss, as well as expenses, such as utilities and insurance, are deducted from ordinary income. Even if you end up selling the house, you can avoid paying capital gains tax if you buy another property. The tax benefits are very decent in real estate. But, of course, not everything is the sun and the rainbow.
Unlike stocks where you can read a company’s financial statements, do a little research on the company, and decide whether or not it’s worth your money, real estate takes a lot of work. To find a suitable rental property, you may need weeks, if not months. This is only part of it. Once you start renting it, you will face different types of challenges like finding decent tenants who can keep paying the rent and will take care of the house. The house is in constant need of maintenance, something always breaks and needs replacing. All this will come with additional costs and expenses. This also means that it may be difficult for you to move to a different city or country because your property may need you there all the time. However, investing in the stock market does not suffer from all these problems. You can be wherever you want. You can simply follow the news and performance of your portfolio from the comfort of your smartphone.
Stock Market – Endless Opportunities
What I love about the stock market is that it can teach you more about the business world than your 4 year degree. Every time you analyze a company before putting your green dollars into it, read its financial statements, understand its cash flow, study its past to get more clarity about its future decisions, and get a better understanding of its products and sales. In addition, you need to have a deep understanding of how the economic machine works, the role of banks in business cycles, etc. So, if you want to start a business, this knowledge will be the backbone of your startup. But the stock market is not just about buying and selling shares. The financial system is so complex that there are more ways to make money in the stock market than most people know, like short selling a stock when it’s high and buying it back when it’s low, does it sound complicated?
If you dominate the stock market
It will open up a door of opportunity for you. Even if you don’t have the time to do all of that, you can keep your savings in an index fund and be sure that in the long run, you can expect a 10 percent return. 3. Leverage When you buy a stock, it is just a digital document on your smartphone screen. You have almost no control over it, since your individual action will not give you much influence when the company owns another 5 billion shares. While real estate gives you complete control over your investment, you can touch, feel, and control it. In addition to the passive income it can provide, as we discussed above, you can use leverage. Say you have $25,000, putting $25,000 in value buys $25,000.
By contrast, the same real estate investment can buy $125,000 worth of real estate with a tax-free mortgage and interest. 4. Where should you invest? So where should you invest? The answer is, it depends! If you are interested in passive income, real estate is your option; However, if you want higher returns, the stock market is definitely a better option, especially if you are an amateur investor and have little money to start with. But, you should also take into account what you find interesting. If you find it too boring to analyze companies and do endless paperwork, this may not be for you. Factors such as where you live also play a role. Perhaps in your city or even in a country, things are different. So you have to come up with your own conclusion based on your circumstances.