You may be wondering if real estate is a good investment compared to, say, the stock market. Not real estate as in your home, but rental or other kinds of real estate. Of course it is well known that owning rental properties brings many responsibilities and potential headaches for the landlord- but on the other hand, you’re almost guaranteed appreciation in value over the long haul. But is that all there is to consider when weighing the pros and cons of owning property vs. common stocks?

Well, I read an interesting take on the subject the other day that makes a good point. The idea was that, if you want to separate yourself from your money as much as possible, in an effort to avoid spending it or taking unnecessary risks with it, then owning property is the way to go because it is so illiquid. After all, you can make a killing in the stock market if you make the right decisions, but you can also lose your shirt. With real estate, you insulate your money from yourself in a sense, and it grows unencumbered by your potential stupidity. Sounds like a reasonable argument. However, this assumes you have a problem overspending, do not trust yourself to make good investments otherwise, and furthermore, that you are not making a lame real estate investment in the first place.

Without getting into the interest and fees you pay if you mortgage a real estate investment, if you invest in a real-estate property, the money you put into it becomes equity. Equity is the least liquid form of assets you can own, meaning it is about the farthest thing from cash. This is a good thing if you want to make an investment that you know you will not need to change for a long time (at least 10 years). The reason equity is so illiquid is that, in order to realize the value of your property’s value, you need to sell it, and getting someone to pay for it is such an involved process.

Conversely, unless you own some incredible $ amount of a company’s stock, selling your shares in a company with even a modest market capitalization is a relatively simple, painless task. And, any one of the vast number of investors (which has more than quadrupled in the last 15 years) in the stock market can buy it. With property on the other hand, you need to find not just someone who wants to invest in property, but in your specific property. This is not easy. Even after finding a buyer, you must prepare to be low-balled on the price, and may even get nailed for closing costs in order to offload the investment.

The bottom line is, even if you are a savvy real estate investor making all the right choices, the rewards only come with an awful lot of legwork and potential headache. In contrast, if you make the right choices in the market, your work is basically done.

This entry was posted on Saturday, February 23rd, 2008 at 6:50 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.