For those looking to increase their wealth through investment, there are two basic investment types to make: investing in stock or investing in real estate. While each method has been proven effective, real estate investment is a highly lucrative game that could end up making you rich in the long run — of the 1,810 billionaires living today, 163 of them, or 9%, got their start in real estate, making the industry the third-largest source of wealth. However, real estate investment isn’t for everyone. Take a look at the pros and cons of investing in real estate before deciding if it’s the right investment method for you.
Pros:
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The investment is physical.
Believe it or not, this is actually a huge deciding factor for many people when choosing how to invest their money. While investing in the stock market is also a great way to make money, for many people the main turn off is the way you can have money one minute and lose it the next. With real estate, this isn’t a concern. Your piece of land, your investment, is one you can reach out, touch, and even stand on. While money can come and go, your property investment will always remain.
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You are in control of your investment.
With each new property that you purchase, you essentially become the owner and CEO of your own small company for which you’re in charge of hiring (renting), maintenance (general upkeep), and growth (additions and renovations). By making renovations to improve the house, like a bathroom or kitchen remodel, you’re increasing the value of your investment, something you can’t do with stock investments.
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Real estate is a relatively stable investment.
When you invest in real estate, there is very little — if any — fluctuation that occurs in terms of value. While stock prices can double and halve in mere hours, real estate offers a stable alternative for investment for those who aren’t looking for the stressful ups and downs of stock market investment.
Cons:
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The investment is illiquid.
One of the major cons that deters people from investing in real estate is how illiquid — or how difficult to convert from asset to cash — the investment is. Where buying and selling stocks can be completed in a matter of seconds, selling a piece of property can take weeks or even months for proper paperwork to be signed, payments to go through, and sales to be finalized. So while real estate is a far more stable investment,
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It requires a lot of work.
Where stocks are easy in that, once you invest in them, your work is primarily done, real estate investments require a lot of work to be put into them for you to see substantial returns. Often times, people choose to hire property managers who act as the middleman and take the burden of maintenance off of the shoulders of the landlord, but if you don’t then you’re looking at fixing minor repairs as they arise, maintaining the property, finding your own tenants, and enforcing the lease on your own.
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If you can’t find tenants, you’re paying for your investment.
Another huge con of real estate investment is that you need other people to make your investment profitable. If you’ve purchased a rental property, you’ll need tenants to occupy the building or else you’ll end up losing money each month as you pay for mortgage, utilities, and general upkeep.