Investing in property Vs. Investing in equity: Which gives higher returns?
Investing in property Vs. Investing. Investing is a great way to prepare for one’s financial future while potentially building wealth. Two kinds of investments that have gained immense popularity in recent years include stocks and real estate. On this page, we will consider both investment avenues in detail and evaluate which one would be a suitable option for a user.
Real estate returns
Mainly, there are three kinds of returns on real estate investment – expected return on investment, required rate of return on investment, and actual return on investment. The expected return is the amount of profit or loss a real estate investor expects to make from an investment property, which has expected or several known potential outcomes. Knowledge of the required rate of return on investment helps real estate investors assess and evaluate investment properties before deciding whether or not they should buy them. In other words, it is the necessary minimum return the investor needs for considering a particular investment property. The actual return on investment is the money one gains or loses from an investment property during a period compared to the initial value of the investment property Vs. Investing. In simpler words, it is the money that real estate investor receives from their investment in the said property.
Equity investment returns
Investments in equity funds are aimed at generating high returns. The money will be parked in shares of firms of different market capitalization property Vs. Investing. The returns from equity investments can only be estimated, and there is no guarantee on the returns earned. Among the various categories, equity funds have delivered the highest returns. They have generated before-tax returns within 10% to 12%. These returns, however, may fluctuate based on market movements and economic conditions. It must be noted that an equity investor should not expect to earn a steady return annually. Instead, there will be ups and downs, which generally average over time property Vs. Investing. Should individuals diversify investments and hold a basket of equity shares, they must ensure to invest consistently and stay invested for the long-term across market cycles. The return is likely to be near the long-term average.
Why Invest in Real Estate
There are several reasons why an individual should consider investing in real estate. Here is a look at a few of them:
- Real estate is viewed as a sure and secure investment option. This form of investment is both a long-term goal and an emotional asset for those who aim to have a property of their own. Although stocks and shares might fetch better returns over a three-to-five-year period, their risk is very high property Vs. Investing. Shares and stock prices can see colossal variation even in hours, days, or weeks. Still, real estate prices remain stable and are a safer option for investment over the long term.
- Rental yield can act as a good yardstick in the case of residential real estate. However, experts recommend that investors only get into it when the rental yield is over 3%. Real estate can take up to seven or eight years to double in value.
- Real estate asset never stops growing. After its purchase, the yield and returns tend to move up, varying as per the location property Vs. Investing. Even if one puts it for rent, the capital price shall only increase. Those seeking to build their retirement nest have the winning edge since they can leverage rental income until 58 years of age and then sell it for a lump sum to acquire another property. In recent times, demand in the real estate sector has witnessed a lull, mainly because of two significant events – the enactment of the Real Estate (Regulation and Development) Act in May 2016 and the government’s call for demonetization in the same year. While the two moves did come as a blow to many developers, it is expected to benefit the sector in the long run property Vs. Investing. It must be noted that the sector saw some positive movements in 2018.
Why Invest in Equity Investment
One of the main advantages of choosing the equity route is the possibility to increase the value of the principal amount invested property Vs. Investing. This comes in the form of dividends and capital gains. Here’s a look at some of the reasons why an individual must consider parking money in equity investments:
- There is potential for capital appreciation in the case of equity investments. If the business makes a profit, it could reinvest them back into the company for additional growth through increased market share, new product development, or other growth strategies property Vs. Investing. When the company’s value grows, the stock’s market price increases.
- For those who like to park money into various investment products, a stock market investment benefits them from diversification. Values of stock market investments change independently of other investments, like bonds and real estate property Vs. Investing. Holding stocks allows one to weather losses of other investment products. While stocks add risk to a portfolio, there is also the potential for significant gains, allowing investors to avoid risk-averse investment strategies.
- When individuals purchase shares of stock, they are given an ownership stake in the firm from which the stock has been bought. This means that parking money in the stock market also provides benefits that are part of being one of the company’s owners. Shareholders can vote on corporate board members and participate in certain business decisions. They are also eligible to receive annual reports that will enable them to understand the business better property Vs. Investing. It should be noted that the element of risk is higher in the case of equity share investment as compared to other investments like debts. The money parked in it is based on an investor’s faith in that business. There will be no collateral security attached to it.
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