If you are thinking of delving into the investing bandwagon to save up for retirement and/or generate another source of income, you are on the right track. Investing is a good long term strategy to gain financial freedom and independence down the line. It boils down to one simple question: ‘How to invest?’. Stocks and real estate are completely different investment strategies, and both have their pros and cons. It is crucial that you grasp the fundamental basics and understand what makes each investment unique in its own way. To make money with either investment requires time and dedication because no one will spoon feed you the necessary knowledge and expertise to succeed in either field.
How to Invest in Real Estate
Real estate is a lucrative business, and almost anyone with enough capital and resources can go down this path and invest for the long haul. If you are a smart investor, you understand the correlation between location and returns. Location, location, location is the way to reap and enjoy good returns on you real estate ventures. Understanding the real estate market is necessary to know which housing markets are good for buying and/or selling real estate. For example, Dallas, Texas is a real estate powerhouse this year and everyone is buying real estate in this prime location to reap the financial rewards. If you want to know more about the best places to invest this year and how to invest in real estate in general, head over to Mashvisor for more insight and analytics. You can also search for the best rental real estate across the country with key KPIs, i.e., cash on cash return and cap rate.
How to invest in real estate boils down to the two main types of real estate: commercial and residential. Residential real estate is more common because it incurs less risk and is also less costly to invest in. Whether you want to buy a rental property or invest in an office building, it is imperative you conduct deep real estate analysis to study the best investment strategy to align with your long term plans and goals. And if we want to break it down further, you have the choice to invest in either traditional or Airbnb properties. You have to decide which rental strategy works for you and is aligned with your long term financial goals.
Advantages of Investing in Real Estate
- Appreciation of your property: your real estate property increases in value over time.
- Tax advantages: just like most businesses, investors get tax benefits as a result of owning real estate.
- Steady source of income if you decide to rent out your investment property.
- You can invest in multiple real estate properties to double your fortune and returns.
- Real estate is a safe investment, especially for the risk averse investor.
- Real estate can be financed and leveraged.
Disadvantages of Investing in Real Estate
- Real estate is an illiquid investment: when you invest in a property, you cannot sell it right away.
- There is never a guarantee in real estate: the housing market is cyclical and far from static.
- Real estate requires management and maintenance.
How to Invest in Stocks
Unlike real estate, investing in stocks is a whole different dynamic and entails a lot of risk and uncertainty. For beginner investors, it might be a challenge because you are going up against professionals including institutional traders and investors with more knowledge and time to invest. When you own stocks, you receive ownership in a company and become a shareholder. When the stock market is good, you will profit. In times of economic downturns and/or financial crisis, however, you will see diminishing returns. The Standard & Poor’s 500 index, aka S&P 500, is used as a benchmark to assess the performance of US stocks and the overall US stock market. Hiring a broker or an adviser might be highly recommended to anyone without previous knowledge or experience in investing in stocks. Investing in stocks is a bit more tricky than investing in real estate because you are not dealing with a physical property and there is a lot of risk investors take on, but the financial rewards can even be greater than real estate return on investment.
The Types of Stocks
- How to invest in Market Order: a request to purchase or sell a stock at the current market price.
- How to invest in Limit Order: an order that executes at a specific price that you set.
- How to invest in Stop Order: an order that is triggered once your stock reaches a specific target price.
- How to invest in Stop-Limit Order: limit order is triggered once your stock reaches a specific target price.
- How to invest in Trailing Stop Order: a stop order based on a percentage change in the market price.
Advantages of Stocks
- Stocks are very liquid, quick, and easy to sell.
- Greater returns, averaging 20%-50% growth in one year.
- Easy to sell.
- Having a well-diversified portfolio is a good hedge against market volatility and uncertainty.
Disadvantages of Stocks
- The stock market is very volatile.
- You could lose your entire investment. If a company does poorly, investors will sell, sending the stock price plummeting.
- Stockholders are paid last if the company goes broke.
Whether you decide to invest in stocks or in real estate, make sure you do not rush and study your investment very thoroughly to reap financial gains. Real estate can be easier to understand for most people because it involves the purchase of physical aqssets. Stocks, on the other hand, are not as intuitive as the real estate market. Make sure you hire a broker to guide you if you are making your first purchase. Unlike real estate, understanding how to invest in stocks does not guarantee positive returns due to the volatility and uncertainty of the market.