Investing in Stocks Vs. Real Estate

News Source: http://www.canadianmortgageupdates.ca/

Many people ponder whether it’s better to invest in stocks or mutual funds versus investing in real estate. As it is with so many things in life, it depends on the individual investment. Had you invested in Southern California beachfront property in the 1970s, you’d probably be set for life today. Had you bought Microsoft’s initial public offering you’d be set for life also. However, few investments work out as well as either of those.

There are several things to consider when deciding which you want to invest in. Buying stocks or mutual funds typically involves less long term work. You do need to study the market (or blindly take the advice of a stockbroker). However, once a decision is made, you’re a part owner of the company with no responsibility for the day to day operations. On the other hand, when you invest in real estate, you become a landlord and unless your cash flow is high enough to hire a property management company, you’re fully responsible for day to day operations.

But let’s look at leverage. When investing in stocks, there are a few options allowing you to leverage your investment. One is a margin account where you borrow short term from your stockbroker. Others include buying short or buying puts. Although, if you know what you are doing and with a little luck, you can make a decent profit with this leverage, this is short term leverage that has to be paid off in a few months or less with cold hard cash. Real estate investing typically involves long term leverage. It can be a traditional mortgage, seller financing, a private loan, or another form of financing. What makes this appealing is that tenants cover the cost of repaying the loan and the investor earns the equity. In the end, the investor owns a valuable asset that was paid for by someone else.