Thinking of stocks vs. real estate investing? Here are the reasons why you should venture into real estate first before stocks.
When people first venture into investments, there may be tons of options that come into mind on where to put their earnings and hard-earned savings. Even with the pandemic, these options have not been limited. Despite the hardships in employment set-ups and obstacles in generating extra income, many Filipinos are still venturing into investments. And that something is the one we always try to figure out. Their only real challenge is figuring out which asset they should invest in first.
This article will give you enough reasons why you should put your hard-earned money into real estate first before stocks.
What’s my goal in investing?
Investing is a way to increase the amount of money you have. From the definition itself, capital growth is expected at every investment decision you make. Remember that your main goal here is not just owning something but actually earning something.
In any investment type, you usually do this by buying something at a lower price then selling it with a premium that is your profit. Both in real estate and stocks, the individual does not dictate how much something should be sold. It needs the sentiments and demand of an entire market. So what makes real estate better than stocks?
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What is a Stock?
A stock represents ownership in a company or corporation. As a stock investor, you have a proportionate claim on the company’s assets – what it owns, and earnings – what it generates in profits. Another term for stocks is share or company’s equity. In stock ownership, it implies that a shareholder (stock investor) owns a portion of the company equal to the number of shares held as a proportion of its total outstanding shares.
What is Real Estate?
Real estate is the land, including any permanent improvements made or attached to the land, whether natural or man-made, including water, trees, minerals, buildings, homes, fences, and bridges. A real estate is a form of real property. It differs from personal property or assets that are not permanently attached to the land. These are items such as cars, jewelry, furniture, and other machines.
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In real estate, there are five main categories. These are commercial, residential, industrial, raw land, and land for a particular use. With its many types, there are various ways to earn from real estate. Some of these are through investing in pre-selling properties, flipping houses, and buying rental homes. But how viable is real estate as an investment compared to stocks?
Stocks vs. Real Estate Investing
Stocks and real estate are two different kinds of investment vehicles. At the end of the day, putting your money on either is still a personal choice. It will still depend on your personal goal, financial condition, tolerance of risk, and investment style.
To help you decide on which investment to venture into, here are some considerations you should think through. Since you are investing and your primary goal is to gain from that investment, an assurance of a high return on your investment is undoubtedly one of the significant considerations.
How to earn returns in stocks?
In owning stocks, you can make money in two ways. The first is through capital gain or appreciation. Here, if the company where you bought stock from performs well, the stock price may rise. If your revenue is more than the money that you put in, that is called positive return. On the other hand, if you get less, then it is called a negative return.
The second way to make money in stocks is through dividends. Thru this, the company pays out a part of profits to stockholders. A dividend is paid per unit share of stock. Suppose you own 10 shares in a company. If that company pays an annual cash dividend of 500 pesos per share, you will receive 5,000 pesos per year. Dividends may be paid or issued in various forms such as additional stocks, cash, or any other form.
Stocks is a well-known investment choice that can give high returns. But did you know that real estate could give you just as much or even more? Real estate can be considered as an alternative to stocks and with more advantages too.
For one, it offers lower risks and can give you better and more satisfying returns. Plus, it can also provide greater diversification. Because of good value appreciation, it is considered distinctive as an asset. Also, it can be a viable source of passive income.
How to earn returns in real estate?
Traditional real estate investment can be broken down into two categories: commercial and residential properties. Commercial properties refer to apartments, office buildings, and strip malls. On the other hand, residential properties refer to your house and lots, rental properties. This can also include flipping homes that you buy to resell for profit. In either of these categories, there are guaranteed returns or earnings.
Investing in real estate has many advantages compared to investing in stocks. Some of them are the following:
a. Real estate offers reliable cash flow.
A cash flow is said to be positive when there is more income than expenses. The more cash flow a property has, the better the return and the more income the real estate investor earns. In essence, cash flow in real estate is what you get after deducting all expenses from your property’s income. Cash flows from real estate are more reliable because real estate values do not fluctuate as much as stocks. This way, real estate investors can look forward and aim to own a property that can make money and deliver positive cash flow.
b. Real estate appreciates in value.
Every investment goal always points to a positive return on investment (ROI). For real estate investors, this is assured, especially when you decide to sell the property in the future. With real estate, profit is something that you are guaranteed. Real estate is an investment that constantly appreciates or increases in value over time. This way, you are assured that the property will most likely sell higher than what you bought it for.
c. Real Estate provides a higher return because of positive leverage
People tend to overlook real estate investing because of the preconceived notion that you must have the disposable money to buy a property. But real estate can be leveraged, and it is the most important advantage of real estate investing.
Leveraging is when you borrow capital to purchase a house and lot property, condo, or any real estate investment you want. That means even you can take this opportunity to leverage or loan money from the bank and buy a home.
As an investor, it will still depend on your choice of monetary vehicle. However, suppose you want to build your wealth faster. In that case, you may want to invest in real estate and stocks to diversify your portfolio.
If you do not have any real estate investment now, worry not. The best place to start investing is in the Philippines’ most trusted and biggest real estate developer the country, Camella. Here, surely you can never go wrong with your investment. Start by checking out our catalog of house and lots for sale. Alternatively, you may also look through our property locations around the country.