Comparing Real Estate to Other Investments
Why Real Estate Investments
There are many choices to make when it comes to real estate investing and each of them has pros and cons that must be considered. In this article, we at Gupta and Sen, will compare how Real Estate turns out to be a better investment decision as compared to other investments like stocks and businesses. While planning your investment strategy and understanding how real estate investments compete with other investments in these areas, one must consider the following:
One of the major reasons why real estate investments are so popular is the huge returns they offer. When you purchase and hold real estate investments for a long period of time, they tend to give you great returns in the long run. This is because, similar to stocks and businesses, real estate investments are ownership investments. This means that not only do real estate assets provide returns at the end of the investment period, but they also generate an income.
These investments have the potential to provide returns that can compete with those of stocks i.e. 8 – 10% annually. Real Estate Investment Trusts or REITs are publicly traded companies that invest in income-producing real estate such as apartment buildings, office complexes, and shopping centres and can provide around 10% of returns annually. If you let Gupta and Sen choose the best luxury or commercial properties for you, your real estate investments can even give you a return better than 10%.
Just like every investment, real estate prices also fluctuate. However, these prices don’t suffer as much as stocks when it comes to the effects of market volatility. Let’s go back and see how the stock prices of Tech and Internet businesses began to skyrocket in the late 1990’s and started crashing drastically in the early 2000’s. Even the leading companies in these industries saw their stocks fall by 80-90%. Real estate properties can sometimes fall by 10-20% in value, or even more. The best way to minimize your risks is to buy and hold properties for very periods, like 7-10 years or maybe even more.
Liquidity is the cost and ease of selling your investment and getting hold of the capital invested. Now liquidity can be a hindrance when it comes to real estate. Real Estate can be considered illiquid, meaning that it takes much more time to sell your real estate asset compared to selling stocks with a few taps on your smartphone or making a phone call. However, this illiquidity can also be considered a strength. As mentioned earlier, it is best to hold real estate properties for long periods, say 7-10 years or beyond. This not only minimizes risks but also provides better returns. Being illiquid prevents us from selling our investments early and breaking even, or even incurring a loss. It can be the same for stocks, where because of having high liquidity, investors can miss out on the benefits of holding the stock for a long time and reaping the benefits of exponentially high returns.
However real estate properties can be more liquid when compared to investments made in your own or someone else’s business.
Compared to investing in stocks or mutual funds, one requires a far greater amount of minimum capital to invest in real estate which can be in lakhs or crores or tens or crores. Incase individuals are unable to make as huge an investment, there are choices like Indian Real Estate Investment Trusts (REITs) in which you can pour lesser funds. You can purchase exchange-traded stocks of these investment stocks or even invest in a real estate portfolio by investing money in a REIT mutual fund.
Real Estate investments have an individuality when it comes to price behaviour. This means that if the market falls, the value might be steady or even rise unlike stocks or small businesses where the overall market sentiment plays an important role in determining the direction of its prices or the value of the investment. However, there can be certain situations where real estate prices can move in sync with the market direction, just like the 2007 – 2008 market slide. Due to the slide, business performance and growth started to slow down leading to lesser profits and ultimately to lower real estate prices.
Opportunities to Add Value
It is easier to add more value to your real estate investment than to do so in stocks. You can maintain the property well, develop it more which can help generate better rental income. It is also possible to buy the property at a price under market value with good negotiating skills and legwork. Even though you can try doing the same in the stock market, full-time money managers can make the process difficult. We, at Gupta and Sen, will help you identify real estate investment opportunities in the market to which you can add a good amount of value for better returns for a stress-free investment. Sounds like a good plan to discuss, doesn’t it?
When you invest in real estate properties you can gain from many tax benefits and increase your returns. One of them is claiming depreciation expenses. Depreciation is the inevitable reduction of asset value as time passes. Depreciation is an expense that is attached to the value of the assets, it is not an expense for which you make an upfront payment. You can mention the expenses of depreciation in your accounts and claim the amount in tax returns.
When we compare Real Estate with other investments, we realize that there are pros and cons attached to all forms of investments. These comparisons must be taken into careful consideration while developing an investment strategy since the pros must be strengthened, and provisions and a plan of action must be in place to minimize the effect of the hindrances. Gupta and Sen has been working on such real estate investment strategies and plans for Indian HNI and NRI Investors for years, diving deep into the luxury real estate market and coming up with great real estate investment opportunities resulting in better-than-average returns for our clients. Connect with us, should you choose to talk about the best properties that you can buy right now that will give you substantial returns on your investments.
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