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Carlos Caraballo's Blog

By Carlos Caraballo | Agent in Fairfax County, VA

Real Estate Investment Vs, Other Investments


Real Estate Investment vs. other Investments

What are the benefits of an investment in real estate versus putting your money into the stock market, or even low-risk options such as GIC’s or a high-interest savings account? There are many different advantages that we will discuss further in this article.
Let’s look at three options:
1. Putting your money into a high-interest savings account;
2. Investing in the stock market; or
3. Investing in real estate.

Option 1: A high-interest savings account. Let’s assume you can earn 1.5%-2% on an annual basis at best. At this rate, you’re struggling to keep up with inflation; however, it is a safe place to put your money. This is essentially a low risk, low return option and may be a good alternative for those who prefer to have no headaches and expect very little return on their investments.

Option 2: The stock market. It is possible to attain strong returns in the stock market; however, this potential comes at the price of risk. Over the past few years, more and more people have become dissatisfied with the unpredictability and volatility seen in the stock market. They are unwilling to entrust their life savings, only to see them disappear or radically diminished overnight.
 
Option 3: Real Estate. Real estate is a safe and reliable asset class, with the potential to yield high profits. It is secured against real property and can be safely leveraged to maximize returns. When you compare the historical returns of real estate with returns provided by the stock market (as measured by the TSX 300 Index and the S&P 500 Index) over the past 20 years, we can see that real estate significantly outperforms all other investment types. The strong performance of real estate can be partially attributed to the fact that bank financing is readily available for quality real estate acquisitions. Consider this: There is a multi-unit residential building for sale which yields 20% return on investment annually. Your bank is confident in the property and offers to lend you 80% of the purchase price at a 4% annual interest rate. Therefore, not only are you profiting from the 20% annual return on investment from the money you are putting in personally, but you are also earning the difference between the 4% interest rate you are paying the bank and the 20% annual return on investment the building is generating on the remainder of the purchase price. With the availability of bank financing for multi-residential buildings, you annual returns can grow exponentially.
The bottom line is that multi-residential buildings offer a secure and profitable investment. However, the key is to identify the right property, a solid location and manage the property well. If each of these factors is taken into account, any potential risks will be mitigated, while profits will be strong. The stock market, on the other hand, offers far less control: we are at the mercy of someone else’s business decisions. This can prove to be profitable but can also lead to disaster as many investors have discovered. Real estate offers the best of all worlds. It is very difficult to fail as long as you keep your eyes on a few simple factors: location, physical condition of the property and management.

Comments

By Sherry Harvey,  Fri Mar 30 2012, 12:00
The perfect storm for buying real estste for a home or for investment - amazingly low prices, low rates, available labor.

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