Let’s compare the two: The nice thing about stocks is that you simply invest your money in a fund and sit back and watch it, hopefully, grow. Obviously, it is not this easy, as a lot of homework needs to be done up front to make sure you are placing your funds in the right investment so you can get the returns you hope. Stocks may also generate dividends giving you periodic cash payments to reinvest or put in your account. Some funds have fees and you would need to consider the cost of these fees in choosing your investment.
Alternatively, you can buy real estate. If you are considering buying a single-family residence, you would need a down payment, and a mortgage if want to borrow funds. You would plan on rental income exceeding the mortgage payment so you could receive monthly income. The nice thing about rental real estate is that you have someone else pay your mortgage payment for you, thereby increasing your equity on a monthly basis. You do have to consider maintenance costs, such as replacing appliances that go out, or an air conditioner that no longer works. You may want to consider a home warranty to help offset these costs. There are also wear and tear costs in the property that may require attention, such as re-painting. You would also hope, over time, that the property would appreciate so you can make money if you sell it.
So, what is the better option? Well, that depends on your preferences and options. The similarity between the 2 options is they may provide monthly profit in the form of dividends or rental income. The rental real estate appears that it may take more work, but it could be very rewarding in the long run. If you have a tenant payoff your mortgage, then you will receive the full rental payment as income for as long as you own the property. If you own several rental properties, the monthly income increases to a sizable sum. It may be difficult to find stocks or funds that provide monthly dividends that compare.
Another thing to consider with rental real estate is that you can leverage many properties with the same amount of funds you would otherwise invest in stocks. For example, if you have $200,000 to invest, you can put it in a mutual fund or use it as down payment for several investment properties thereby using the leverage of a mortgage to increase your ownership, and profit potential, in many properties.
If you are considering rental real estate, contact us and we can go over the pros and cons.
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