Reading Time: 3 mins
Many investors consider buying real estate properties as means of long term investments. Some invest to get a monthly passive income in the form of rent income, others invest to make capital gains over the long term. The decision to invest in real estate or stocks is a personal choice that depends on your financial situation, risk tolerance, goals, and investment style.
Real estate investments are tangible investments that hedges against inflation but it requires a lot of work and money out of the pocket. On the other hand, stock investments are liquid investments that’s easy to diversify but it takes effort to choose them wisely
How do you make money?
In stocks investing, you make money by two ways
- Capital gain: The increase of the share price over time. For example, buying shares at 10 EGP and then selling them for EGP 12 after one year, which represents 20% annual returns.
- Dividends: The profits companies make and distribute to their shareholders.
Similarly, in real estate investing you make money by:
- Capital gain: by buying a property for EGP 1 million and selling it for EGP 1.5 million after a few years.
- Rental profits: by renting your property and getting a fixed amount of money on a monthly basis.
One of the major advantages of stock market investing is there’s no minimum required capital, you can start investing with as little of 1 EGP. On the other hand, real estate investing would require a large capital investment, as you will most likely be buying a residential property on your own or participating with few other investors.
The stock market exchange allows for an active exchange of securities between investors at different prices all the time. Investors are always willing to pay different prices for stocks which determines the stock price. This makes sakes investments more liquid than the real estate market. In real estate investments, you have to wait until you find someone to buy your property at a given price and the process might take weeks or months.
Although investing in real estate in itself can be a form of diversification, injecting all of your capital into it can be quite risky. This is because you’re totally dependent on one sector or maybe one instrument, if it falls, your capital will also fall. On the other hand, you can have a better risk management strategy in stock investing, as you can diversify your portfolio by investing in different unrelated sectors, so if one or two sectors have negative performance, other positive performance sectors will narrow or even compensate for your loss.