Invest in Real Estate or Stocks?

I have some amount of earnings apart from the ones that I save for my necessities. I want the earnings invested in some real estate or may be in stocks. I do have some knowledge on stocks but, earlier my cousin had invested in the stocks and had a set-back. I know that you need to be updated in that but – What is a better option from the two???

[glock35ipsc]

Don't know what your age is, and whether or not you are looking long term or short, but the stock market is on sale right now. Unless you have educated yourself well on buying stocks, I would stick to mutual funds, index funds, or ETF's for now versus individual stocks.

Real estate might be a good buy depending on where you are located. Where I am at, real estate has hardly been hurt at all compared to the rest of the country, especially the hot markets (Las Vegas, Phoenix, Florida, etc...), so there aren't really any good buys like foreclosures.

[Fernando]

Re:Invest in Real Estate or Stocks??

Real Estate or Stocks ---- I would prefer real estate just for the sake that I don’t know much about the stocks ….. but as the case with your cousin goes …. I would advice you to have some investments in the real estate market as the place is at a boom now and you may get good returns for the investments there. Being updated on the stock market is a must for investments there but I find investment a risk in the stock market.

[sweeps]

Why not do both. Invest primarily in a broad stock index fund plus a small amount in a REIT fund.

[zetta]

Over the long haul, money can be made in either arena. The important thing to do is to educate yourself and figure out how to either invest or buy real estate sensibly, avoiding high-risk get-rich-quick schemes.

For investing, avoid day trading. Start with index funds or balanced managed funds from high quality firms (American, Fidelity, T. Rowe Price, and similar).

For real-estate, avoid flipping houses. Learn how to evaluate and manage rental property. Consider REIT's as an alternative.

[maat55]

Unless you are investing in a REIT, real estate as a hard asset is tricky and demanding. Unless you have a good working knowledge of investing in real estate, I would invest in Stock Mutual Funds.

If you choose to invest in RE, I would set the money aside in an HYS account and learn the ins and outs first. Good luck.

[Broken Arrow]

I'll always be into stocks, but I'm going to look into REITs, probably next year....

[Scanner]

If you are into both, this was on my follow list at yahoo:

Ticker symbol: ICF

Of course, like a dunderhead, I let it fall off my watch list and just saw it went down to a low of $69/share. . .to me, that's a steal.

I think I would have been really tempted to throw money at that one when it dropped below $70. It's probably still a good long term hold at $77.00. I originally wanted to jump on this at $75.00 so I'll watch it close this week. . .maybe sell off some more of my international and jump into ICF.

PS: If I were to guess on this. . .I would say real estate is going to be a "sideways" market for probably until 2012 at least. I think the best strategy is to trade on this, rather than buy and hold, although again, I don't think you would get totally ripped off at $77.00

[Marketiva]

In our days the real-estate is not a good place for money investing. Just take a look at the stocks of Orco Property Group . . .

[cipixul]

IMHO, you need to do both if you can, but both are fairly complex over short time and long time so you might get results better in one part than the other or faster than the other. Stock market is volatile and risky but can get you great returns while real estate is not that volatile and gets you returns slower but with big amounts of money...

I believe real estate has a big advantage over stock market though and that is the ability to control your investment(upgrade the house, fix stuff in it, which will get you more revenue) while in a market you have absolutely no control. Also, generally real estate has good passive income and you can get into real estate business with other people's money(bank loans) while in the stock market noone will lend you money to invest.

If you can, go 80% for real estate and 20% for stock market.

[momof1in150]

The good thing about real estate is that you can write it off and shelter part of your investment through depreciation. If it is a rental you can write off the repairs, taxes, mortgage interest and more importantly the depreciation. If you live in a depressed market then buying a couple of properties that you can use for rental income might be a good choice. If you go the rental property route then do the math for the worse case scenario (vacant property) so you know how much you need to have in the bank to cover the mortgage on the property. Most investment properties are requiring 20-30% down right now.

[jIM_Ohio]

IMHO, you need to do both if you can, but both are fairly complex over short time and long time so you might get results better in one part than the other or faster than the other. Stock market is volatile and risky but can get you great returns while real estate is not that volatile and gets you returns slower but with big amounts of money...

I believe real estate has a big advantage over stock market though and that is the ability to control your investment(upgrade the house, fix stuff in it, which will get you more revenue) while in a market you have absolutely no control. Also, generally real estate has good passive income and you can get into real estate business with other people's money(bank loans) while in the stock market noone will lend you money to invest.

If you can, go 80% for real estate and 20% for stock market.

Bad advice, IMO and quite one sided advice at that.

If you are in realestate, it will be possible you will owe money and/or the property will cost you money. Owe and cost more than you have, owe and cost more than you can make, and owe and cost to point it could bankrupt you.

If you own a stock your worst case is you lose 100% of the money you put into the stock. Nothing more. Stocks have a lower cost of ownership, have more liquidity and have less up front costs or legalities compared to real estate.

80-20 real estate to stocks works if you have money like Donald Trump to put up front or finance the real estate endeavor. To the rest of us stocks will work better.

1) better long term return (9% for stocks, 3% for real estate annual returns)
2) lower up front costs. Most real estate goes for at least 100k and requires 20% down (20k). You can buy stocks for $50 per purchase (or less) for fees of $4 (or less).
3) Liquidity. Selling a house takes time and money, and could take YEARS to unload the property. One house near me was on the market for TWO and a HALF years. You can sell a stock 5 days a week 8 hours a day.

[cipixul]

jIM_Ohio, great points you noted there... indeed real estate is not as liquid as stock investing but it's safer. After all the worst case when you have an empty house and you pay the rates leaves you with the house at the end. If you have tenants, then they pay part or full of the rate.

Real estate to me is more like an old school business, and stock market investment is something more modern. After all what you buy and sell on the stock market is virtual stuff and real estate market delivers houses to people.

If you go into real estate you will have all sorts of legal issues and will have to learn more about the laws and tax deduction, but then again on the stock market there is no deduction possibility but there is tax.

If you're saying that you invest in the stock market but still want to feel secure and not lose more than 100% of your money, and consider it's a bad thing to work with other people's money(the bank), then I think your reasoning is strange.

-----
Financial Course Blog | Update your financial strategy

[maat55]

I would never buy anything that you could not turn around and sell quickly without debt. Buying real estate comes with responsibilities financial and physical, not to mention much research and due diligence.

In other words, you don't just walk up and buy a house to sell or rent, expecting to make a profit. You have to know the market and find good deals, then be capable of dealing with people in confontational senarios.

Individual stocks and hard real estate are investments you have to work hard at.

I would suggest to a beginner in real estate two things. Buy and live in your first rental property for a year or two(Two preferable) getting a good deal and fixing it up. It should be a property that is below your financial qualifications. Then look for a personal residence leaving it to rent.

Second, read a few real estate investing books and find a successful mentor that will help you with decission making on your first few deals. Books will tell you to pick an area and get to know its value and rental prices before you make an offer.

[jIM_Ohio]

jIM_Ohio, great points you noted there... indeed real estate is not as liquid as stock investing but it's safer. After all the worst case when you have an empty house and you pay the rates leaves you with the house at the end. If you have tenants, then they pay part or full of the rate.

Real estate to me is more like an old school business, and stock market investment is something more modern. After all what you buy and sell on the stock market is virtual stuff and real estate market delivers houses to people.

If you go into real estate you will have all sorts of legal issues and will have to learn more about the laws and tax deduction, but then again on the stock market there is no deduction possibility but there is tax.

If you're saying that you invest in the stock market but still want to feel secure and not lose more than 100% of your money, and consider it's a bad thing to work with other people's money(the bank), then I think your reasoning is strange.

You post reaks of self promotion, and it appears you do not know the details of what you are writing about.

1) After all the worst case when you have an empty house and you pay the rates leaves you with the house at the end.

Worst case is you still owe property taxes, have no income to pay for it, then have property foreclosed on. Or you have tenants which trash the place and cannot be legally evicted without significant legal expense, then it costs you to rebuild the place, while collecting no rent (yet incurring expense for taxes and mortgage). Ever rented or been a landlord? In the USA?

2) stock market investment is something more modern

Whether something is modern or old school is not a reason to avoid or do something. Look at historical rates of return. We have nearly 80 years of stock market data which give a volatile annual return of 10%. Inflation is 3% and real estate is 3-4%, meaning real estate appreciate BARELY keeps up with inflation. In the USA.

3) stock market there is no deduction possibility but there is tax

again, where are you investing. 75% of the money we invest in the market is fully deductable in a 401k and shielded from taxes until retirement, then we pay normal income taxes on the investments.

4) work with other people's money(the bank), then I think your reasoning is strange.

You oversimplify to make yourself appear right. Real estate being "better" or "safer" than the stock market is the thought which is damaging (has damaged?) the US economy right now. And the world economy.

Being a land lord works- I have friends which do it. There rates of return are lower than what I get investing, but they have more time than liquid cash. If times got tough, they would owe more than they have saved and that could be a problem. With real estate it is very possible to lose more than you put in (see current US real estate market) and get a lower rate of return (which is barely a real rate of return) than other more liquid investment.

In general to get higher rates of return in real estate (above the 3-4% annual return) a person needs to put up signicant money (MILLIONS) and deal with commercial or high rise type endeavors.

Donald trump might put 100 million up to build something to return him 110 million (10% profit) or maybe 120 million (20% profit).