Your decisions about investing can have a huge financial impact over a lifetime. Investors can now access an overwhelming amount of financial information. It’s difficult to know the pros and cons of a particular investment. A good place to start is to compare stock investing with real estate investing. If you understand these two broad investing categories, you can start to make some informed decisions.
Benefits of real estate investing
A real estate investor may own a residence or a commercial building. Real estate investing used to mean buying one property at a time. In many cases, there was only one owner or a small group of people.
Real estate crowdfunding allows you to invest a varying amounts of money in real estate depending on your goals and desires. You have the advantages of real estate investing with the added benefit of diversifying your investment into many different properties. Here are some real estate investing benefits:
- Control: The real estate owner has a high level of control. The owner, for example, can choose to refinance a mortgage loan, which lowers the investment cost. You may also choose to make improvements to the property.
- Leverage: You can control an entire piece of property without having to pay the full price in cash. Say, for example, that you put $20,000 down on a $100,000 property. You borrow the remaining $80,000. You’re able to control a $100,000 piece of property with a $20,000 investment.
- Hedge against inflation: Inflation is defined as the overall increase in retail prices over time. As prices increase, it takes more dollars to buy the same amount of goods. Historically, real estate prices have increased as other prices increase due to inflation. So, while other investments may not do well as inflation increases, your real estate may go up in value.
Drawbacks to real estate investing
Some real estate investments are not registered with the Securities and Exchange Commission (SEC). Your real estate investment may not have as much disclosure as a stock or stock mutual fund.
Advantages of stock investing
Many stocks have been traded between investors for decades. Even if a stock has been traded for a short time, you’ll find a great deal of information about the company’s financial statements and the historical stock price changes. While past performance doesn’t guarantee future performance, you can review the historical price changes.
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