Real Estate vs Stocks: Determining the Better Investment for you
Real estate remains one of the best ways to invest your hard-earned money. Some people are of a different view and see stocks as a better option. Below, we provide reasons why real estate could be a better investment option. This blog will help you determine which is the best option for you.
Let’s dive in!
1. Returns from shares are unpredictable.
Share prices are usually volatile and prices can fluctuate by a big margin even in a short time. It can be very frustrating as you need to keep track of the stock market. You could sleep a millionaire and not be one the next day. You may watch being profitable today and making losses tomorrow. This can be frustrating. I purchased Mumias sugar Shares in 2007 at Ksh 13. I watched in pain as the shares fell under a shilling, wiping my full investment to zero.
In contrast, real estate provides a stable investment avenue. Rent from real estate provides a reliable cash flow on a month-to-month basis.
Prices of land remain stable and on an upward trend. In case you invest in rental properties in Kenya, it guarantees a stable amount of income every month. Most cash from shares comes in the long term when you receive dividends. The amount of dividends is never guaranteed.
2. It’s Easy to Become a Real Estate Expert.
Buying and selling of shares need a high amount of expert knowledge. The average person does not know how the Nairobi stock exchange works. You have to understand which company is splitting shares or making losses. You need to understand which industry is making money and also the economic movement. As this is not easy, you then rely on stock brokers and financial advisors to help them make decisions. This makes the stock market favor people with particular expertise.
For real estate, it’s easy to become an expert if you choose a niche and specialize in it. If you specialize in an area like apartments for sale in Kilimani you can be an expert in this area. For land, areas like land for sale in Ruiru allow you to make a comfortable living. You also do not need to be an accountant or have a degree to become an expert in real estate. There is no financial software is necessary to be successful in real estate. You could make a profitable income by becoming a local expert. If you track the history of land transactions and prices in a specific market, you can spot a good bargain.
3. It’s easy to value real estate.
It’s easy to arrive at and compare property values. Even if you are not an expert, there are so many people you can ask or do your research. You can compare the prices of similar homes in an area and determine properties with a fair price. For rentals, you can ask around to determine how much rent you can charge.
If you need to know the average prices of houses listed for sale in an area, you can check out a few properties. From these, you will have a good idea of property prices and you can tell the average rental income you can expect.
For shares, you need to understand terms like earning per share and nominal share values. If you do not get a good understanding, then it’s hard to understand the value of shares. Throw in terms like issued and paid-up capital in a company and you get completely lost.
4. You Can Inspect Real Estate.
When buying or selling a house, you can do your due diligence before you buy. You can follow resources on the process of buying and selling property in Kenya. This way, you will be sure you are buying a property with clean documents. Doing this ensures you do not lose your money.
It’s hard to do the same due diligence before you buy shares in a company. When you buy shares, you have to trust that other buyers have done the research. You will be unable to walk to Safaricom and ask to inspect their books because you want to buy shares. You have to trust the audited records.
5. You can add value to Real Estate.
Once you buy shares, you cannot influence the price unless you are very senior in a public company. For shares to rise in value, you have to trust the company management to make this happen. You only buy shares, go home and hope for the best. You will have no control over the shares you purchased. In real estate, you have ample opportunity to add value to your property. You could buy land, build on it and sell it for a profit. You can also buy a house, renovate it and sell it for a profit as well. For rental properties, you can renovate houses and then charge extra rent.
6. Availability of financing.
When investing in real estate, it is easy to get financing. Banks like Housing Finance have been offering up to 105% financing when you seek to buy a property. You can also get financing to build a house in case you are looking to set up rental properties. Without the need to put up the full cost, it becomes easy to start. This is because you bypass the usual large capital outlay needed in real estate.
Better still, you get to use the returns from real estate to pay off the bank. In case you use a bank mortgage to buy a house, you can use the monthly rent received to pay the loan.
7. You can use a real estate title as security.
If the property you have bought has a title deed, financial institutions will assist you to pay. They will keep the title as security. The security remains with the institution until you complete payment. Once payment is complete, the property is transferred to you. This allows you to start becoming a real estate investor even if you have not saved a lot of money.
The above advantages point to real estate financing as being superior. It is not guaranteed that real estate is the best option when looking to invest. You need a careful analysis when investing in real estate in Kenya. Real estate investing has several disadvantages when compared to investment in stocks.
The disadvantages of real estate over the stock market include:
1. Real estate requires more time and effort
Real estate needs a lot of hands-on work compared to stocks. This is true when it comes to rental properties. As a landlord, you will be dealing with water leakages and finding tenants. Regularly, you will be reconciling payments and making repairs to your property. Even if you hire a caretaker to take care of your property, it will still need some of your time to manage the property.
When you buy shares, you own part of a company. owning part of a business through shares doesnÃ¢â‚¬â„¢t need any work on your part. The company management handles the day-to-day management of the company. You will get benefits when the company makes a profit without having to work.
2. Shares provide more liquidity
It is easier to sell your shares than it would otherwise be to sell real estate. It may take you a few days to weeks to get your money once you sell your shares.
When you own a piece of real estate and need to sell it for cash, it can take a while. While several real estate listing websites exist, your property may stay in the market for a while before finding a buyer. After you find a buyer, the process of sale takes a while. This is to help processes like title searches and signing of documents. Financing processes also need to take place before the property changes hands.
3. Shares allow you to diversify
You can diversify much more with shares than with real estate. You can buy shares in different companies using limited funds. This way, if one company does not make a profit, you could still make money from the other companies.
In real estate, you will have fewer properties. Well, unless you’ve got unlimited funds. This makes real estate unattractive when compared to owning shares. For real estate, you can still diversify by choosing the locations and types of properties you buy.
4. Capital Needed.
Investing in shares does not need you to have huge sums of cash. With some mutual funds or individual shares, you can invest as little as Ksh10,000. You only need to buy shares in multiples of 100. This way, if a share costs 10 shillings, then Ksh 1,000 is enough to get started. Real estate requires more money in your initial investment.
5. Management costs
If you invest in property rentals, it will cost you money even if the property is not occupied. Costs of utilities, maintenance, and caretaker costs will still be due. In case you took up a mortgage to build, you could end up losing money every month. This is because you are paying interest on the mortgage.
For investment in shares, you do not incur month-by-month charges. You may pay brokerage fees for the management of your stock investments. This cost is lower than the cost of running an apartment building.
6. Due diligence for land
When buying land, you still need to conduct due diligence. The market has more news of people losing their investment when buying land than when buying shares. There is a long history of failed real estate companies than in the stock market.
Real estate returns could prove to be profitable over time for investors willing to put the work in. Before you invest, consider your risk tolerance when debating whether to invest in real estate or stocks. Investments in the stock market often experience short-term volatility. This can lead to emotional decisions to buy or sell at unwise times.