Once you have successfully laid down your financial goals and fully repaid your students loans and so on, you can immediately figure out which is the best investment plan based on your requirements. You are probably weighing the pros and cons between real estate and stock markets. In numerous ways, real estate investmentis a lucrative option, but at the same time, it involves huge cash and risks.
While weighing your options, several factors must be considered:
Risk versus returns
Regardless of where you choose to put your cash, real estate, or equities, the first step should include assessing the risks against the returns expected. One reason why most people still prefer equity investments is that they are easy to analyze. You are presented with historical data, which may not represent what future holds but would give you more control over the risks involved once the amount to be invested is finalized. investing in index fund is a risky investment, but with high-expected returns.
On the other hand, when investing in real estate, you will soon realize that it is relatively harder for you to quantify. Although there is plenty of information on home price and average rents, it is the unpredictable nature of the market that will prove costly. With equity market investments, your risks are limited to your initial investment made. However, this is not the same case with the real estate investment. You can easily find yourself in more debts that your property is valued. This can easily happen if the real estate market suffers a sudden downturn or due to negative changes in the neighborhood.
As a landlord, you need to ready yourself for vacancies and regular repairs which can easily eat into your gains. Before making up your mind on investing in real estate, take time to calculate the expected mortgage, operating and maintenance cost as well as taxes. At the same time, figure out how much you are expected to earn from the rent collected. Although every investor is different, the expected returns will determine the best investment option between real estate and equity investments.