Saturday, 23 February 2019

Should You Invest In Stock Market or Real Estate

You've been learning about how to invest your money and how to grow and maybe you've made a few investments but what's a better investment? The stock market or real estate. Both have their own pros and cons, and I have a personal preference which I will get to at the end of this article. But I want you to know both sides of the coin so you can make the best decision for yourself because you're not me so let's get into it.

Stock Market: The Pros and Cons

Pros: Easy To Start

The first advantage of stock market investing is that it's very easy to get started. All you have to do is go online and find a stockbroker and there's a bunch of apps out there as well they'll let you do this for free, you fund the account and you can start investing today

Pros: Liquid investment

What that means is let's say you took $100,000 and you invest it in the stock market, and then you realized oh no I need my money so I can buy a boat next week, well, because the stock market is liquid it's easy to convert your investment into cash, all you have to do is go onto your brokerage and sell your stocks and now you have cash

Cons: Paper

Investing in the stock market is a paper investment. What that means is when you invest in the stock you become one of the owners of the company on paper, if the managers of the company run it into the ground and it goes bankrupt you lose everything. You don't own something tangible that you can see, feel, and touch, you are just an owner on paper

Pros: No Physical Work Required

If you go out and you bought 10 shares of Amazon stock you become one of the owners of Amazon and you get to share in the profit when Amazon makes more money, but you don't have to go and work for Amazon. You are one of the owners on paper and you get to share in the profits without doing any of the work.

Cons: No Control

There is no control over your investment. If you invested in a company and the managers run the company into the ground there's not much you can do about it, you have some voting right but you can't really tell them here's how you should run the company and here's what you should do. You don't have that control in the stock market

Pros: Easy to Value

If you go out and you invested in McDonald's and you bought one share for $170 and the stock price went up to $200 a share, you know that if you sold your stock today you make a $30 profit minus your commission's, it's easy to value because the values are always public

Pros: Tax Breaks

If you invest in a dividend-paying stock, meaning a stock that pays you regular cash payments just for owning it, the money that you get from cash payment your dividend, this is taxed at a lower tax rate than the money you make from a job. Also if you only start for over a year and you sell it for a profit this is called long-term capital gains and that also get preferential tax treatment meaning a lower tax rate

This covers the pros and cons of stock market investing.

Now let's get into the pros and cons for real estate investing

Real Estate Investing

Pros: Tangible

When you invest in real estate you own something tangible, you own something that you can see, feel, touch, control, and manage the way you want. Let say you bought a house and as an investment, you can see the house, walk inside the house, what kind of windows are on the house and you can manage your investment property exactly how you want

Cons: Work Required

When you invest in real estate you make sure that all the bills are paid, you have to make sure that all the maintenance is done and you have to make sure that your tenant pays on time. This is why you should hire a property manager this way they handle all the work and you're working as the investor to find more investment properties instead of actually managing your investment, however even if you have a property manager you still need to oversee them make sure that they're doing their job

Pros: Income

You are creating passive income streams when you invest in real estate because you will get paid month after month whether or not you go to work because your tenants will have to pay your rent in order to use your property. This way you're not hoping and praying that your investment is worth more five years in the future, you are creating income today that you can use to either reinvest or you can use it to spend today. The stock market does have dividend-paying stocks however dividend-paying stocks usually pay less than the income you can get from real estate

Cons: Starting Takes More Work

If you wanted to invest in the stock market you could open up a brokerage and start investing today but if you wanted to buy real estate you would have to first find a property that you want to invest in and then you have to secure financing for it, it can be from equity, from other investors or your own cash or debt or some other creative financing. Then you have to find all the team players to help you invest in real estate like working with other real estate agents, real estate attorney, an accountant and property managers, and contractors, there's more work to get started 

Cons: Not Liquid

Because you invested something tangible your money is not liquid in real estate, it could easily take 30 to 90 days for you to list your property for sale and then sell the property and get the cash from selling the property, so if you wanted to buy a boat next week it would be much harder for you to sell your property to get the cash to do that

Pros: Tax Breaks

Real estate as the best tax break that is entire tax code has to offer, you can make a profit from your real estate income and show a loss on your taxes with all of the deductions that real estate gets like depreciation which you don't get anywhere else. Additionally, let's say you invested in the stock market and you turn $10,000 into a million dollars, you would get preferential tax treatment on the money when you invest in the stock market but you would still have to pay taxes on almost a million dollars. In real estate if you took $10,000 and turn in into a million-dollar with your property you can pay zero dollars in taxes with something called a 1031 exchange, so you can take all of that million dollars you just made and reinvest it in another property and pay zero dollars on that almost million of profit that you made
There are the pros and cons of real estate investing

My Preference

Of course, real estate, because I like to invest for income, I like cash flow and I like passive income streams I hate the idea of traditional long-term investing where you need to sacrifice your money this year and then again next year and then every year to the future and then you have to wait 5-10-40 years into the future to see if you make a profit I don't like that 

I like the income today, so I could take my profit and I can control my investment and I can decide how to use my profits whoever I want whether to be reinvested into more deals or to use it.

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