Real estate and stocks have different risks and opportunities, but the physical asset is a better option. Real estate is not as liquid as stocks and tends to require more money and time, but it does provide a passive stable predictable income stream and the potential for substantial appreciation. The DCANS Group Limited (DCANS Properties parent) invests in both real estate and stocks across multiple countries and we're better placed to choose real estate over stocks in Ghana.
Investing in real estate is a tried-and-true practice for building wealth. It can be done as simply as owning your home rather than renting and by owning property or shares purely for investment purposes.
Unrestricted Access to Assets
Stocks are subject to market, economic, and inflationary risks, but even if real estate prices tank, the brick-and-mortar remains in place and you can touch it and drive around it giving you 24/7 control over it instead of the typical 10am to 3pm access to trade stocks. You don't need a middleman to invest in real estate as pertains with the stock market where you only have to trade or invest in it via a stockbroker. If you choose to invest in realty via a rea estate broker, that is your choice as it's not required that you invest in property via a middleman.
Less Volatile / Stable Investments
Stock prices are much more volatile than real estate. The prices of stocks can move up and down much faster than real estate prices. That volatility can be stomach-churning unless you take a long view on the stocks and funds you purchase for your portfolio, meaning you plan to buy and hold despite volatility.
If you're risk averse, real estate is the best investment for you over stocks. It requires less research to invest in real estate than you would do to research over 40 different companies listed on the stock exchange, combing through their financials and what not. The illiquid nature of real estate can be countered with equity release to get cash out of it quickly than you may even get with selling stocks and not to think of the t+3 payment policy.
Investing in real estate is an ideal way to diversify your investment portfolio, reduce risks, and maximize returns. Investing in real estate tends to offer more long-term stability with lower risk over time.
Easy to Understand
Investing in real estate is easy to understand. While the homebuying journey can be complicated, the basics are simple: Purchase a property, manage upkeep (and tenants, if you own additional properties beyond your residence), and attempt to resell for a higher value. Also, owning a tangible asset can make you feel more in control of your investment than buying slivers of ownership in companies through shares of stocks.
Investing with debt (mortgage) is safer with real estate. You can invest in a new property with a 20% down payment or less and finance the rest of the property’s cost. Investing in stocks with debt, known as margin trading, is extremely risky and strictly for experienced traders. Easier to get a loan to buy a property than invest on the stock market. It's not for nothing that there are so many lenders who will provide you a mortgage than give you stock market trading loan.
When you buy real estate, you acquire physical land or property. Most real estate investors make money by collecting rents (which can provide a steady income stream) and through appreciation, as the property's value goes up. Also, since real estate can be leveraged, it's possible to expand your holdings even if you can't afford to pay cash outright.
For many prospective investors, real estate is appealing because it is a tangible asset that can be controlled, with the added benefit of diversification. Real estate investors who buy property own something concrete for which they can be accountable.
Rents never go down in this part of the world. Neither do property valuation dwindle. Additionally, property owners are in charge of pricing their own asset and that can never be the case with stocks. When you buy stocks, you buy a tiny piece of that company. In general, you can make money two ways with stocks: value appreciation as the company's stock increases and dividends. Not every listed company pays dividends and value appreciation is not guaranteed either.
And none of the two ways (value appreciation and dividends) are in your hands - one irresponsibility of the management of the company whose shares you hold can crash the stock price in a twinkle of an eye, and a some board members of the company you hold can just choose not to pay dividends but their board allowance will still get paid.
Multiple Income Sources
Real estate gives you about 2-3 predictable returns than stocks
1. Rental Income
2. Capital Appreciation
3. Security for a low-rate loan
Hedge Against Inflation
Real estate ownership is generally considered a hedge against inflation, as home values and rents typically increase with inflation. The double digit property appreciation alone almost always exceeds inflation. Add rental income into the mix, and you have your own cash cow milking for you.
There can be tax advantages to property ownership. Homeowners may qualify for a tax deduction for mortgage interest paid. There also are tax breaks when you sell a principal residence that may allow you to avoid capital gains taxes. And investment properties can earn tax breaks through depreciation, or writing off wear and tear on the property.
Selling stocks may result in a capital gains tax. When you sell your stocks, you may have to pay a capital gains tax. If you’ve held the stock for more than a year, however, you may qualify for taxes at a lower rate. Also, you may have to pay taxes on any stock dividends your portfolio paid out during the year.
If your financial goals are to provide financial stability and security throughout your adulthood or to build a nest egg that you can cash in on for retirement, there’s one clear winner. Investing in real estate can provide you with all of that and more. Whether you own your own home or own multiple investment properties, savvy real estate investment can also give you a bigger payday than expected with less risk.