We have all heard arguments about which investment will give you the best returns; investing in stocks or real estate? While real estate is a tangible asset, stocks are non-tangible. Both these investments depend upon a variety of market factors, but the extent to which they are impacted varies greatly. In order to decide which one is better for you, here is a closer look into real estate and stocks.
Investing in real estate involves buying a tangible asset like building or land. Real estate can include either commercial property (for office use), residential property (like apartments and villas) or land. Many people consider real estate a great investment because of its steady appreciation over time and the variety of investment options it provides.
An investment in stock essentially means that you are buying a piece of the company. This means that you are entitled to share any profit that the company makes in the form of dividends. While investing in stocks requires a low initial investment, its appreciation can fluctuate greatly depending upon market conditions.
Real estate or stocks?
Here are the most important factors you need to look to decide which asset suits your portfolio best.
1. The level of risk
Stock markets are known for their volatility. This could be due to a variety of factors such as recession in the economy or any uncertainty within the company due to issues with upper management or low profitability. This will have an adverse impact on the value of your stocks in the form of low returns. Although stocks are a great form of passive income and can provide high returns, there is a certain degree of risk that is inevitable.
Real estate is largely insulated from small scale market changes. The degree of risk in real estate can be mitigated to a large extent because, as the property owner, you have greater control over the variables that could contribute to the risk. You get to choose the management team and the tenant which significantly lowers the risk associated with real estate.
Buying a home in a great location is also one of the best ways to mitigate risk. Factors such as close proximity to major IT parks, industrial areas, excellent social infrastructure and planned infrastructure development will help homebuyers be assured of high returns on their investment. Codename Dil Chahta Hai by Shriram Properties located off Hosur Road is a good example in this regard, being located just 15 minutes from Electronic City.
2. Ability to diversify
Stocks allow you to diversify your portfolio with just a small sum of money. You could invest in company stock, mutual funds or indexed funds. The variety of stock investments allows you to spread your risks.
Real estate also has a number of options for investment. Investors can choose between commercial property, residential property or a plot of land depending upon how much capital they have. These days, there has been a huge spurt in the affordable housing segment, which has played a big role in opening up the market to young, first-time investors.
Since stocks are an intangible asset, their only value is monetary. If your stocks are devalued, you stand to lose a large portion of your investment in an instant.
Real estate, on the other hand, is a tangible asset. Even if the property value dips momentarily, you will always have the security of being able to live in your house. Real estate also gives investors the option of earning a secondary income through rent. In the event that you don’t want to move in to your new home, you can find a tenant and gain a stable monthly rental income. To make it easy for you to find tenants, it is essential that you invest in a home close to offices and IT Parks. Electronic City and its surrounding areas in Bangalore, for example, is a bustling IT and manufacturing hub where homeowners can find good tenants with complete ease.
With various subvention plans, you can also invest in real estate with a minimal investment and over a course of time, acquire the property with easy payment plans. This means that you can be a property owner by paying a very low down payment on an under construction property and enjoy the benefits of appreciation from then on, without making any more payments till the project is ready for possession!
4. Investment knowledge
Investing in the stock market requires you to be fluent in a number of investment terms. You will also need to have a proper understanding of how the market operates, the conditions which can influence it and when the right time to buy, trade or sell is. For a new investor, this can be very daunting and could unwittingly lead to investment mistakes.
While real estate also requires some basic knowledge of the market, the knowledge barrier to making an investment is significantly lower. Since it’s tangible, an investor can inspect the property for themselves, look at the location advantages and research the reputation of the builder before investing. This can help them make a good investment decision.
When it comes to ROI between a real estate and stock, there are a variety of factors that can affect it. Ultimately, it comes down to your personal preferences and which investment can help your portfolio generate the highest returns. If you value a diversified portfolio, you can consider investing in stocks. But if you are looking for greater control over your investment and a higher return over time, an investment in real estate is the best choice. Use the factors listed above to help you make the investment decision that’s right for you!
If you are planning an investment in real estate, explore Codename Dil Chahta Hai, an exclusive collection of affordable luxury homes by Shriram Properties. With its prime location, excellent amenities and intelligently designed living spaces, these 2 and 3 bed homes are the perfect choice for any discerning investor!