Real Estate vs Stocks. Which is the better investment?

Nowadays, everyone is looking in investing money. With the record depreciation of the currency and the inflation caused by it, people want new sources of income. Investing is a healthy activity and should be done by people of all ages. However, before investing the money you should know where to invest the money. In order to make a better and more calculated decision, you need to educate yourself on that matter. In this blog we will differentiate between real estate and stocks investment. Please note: we are only differentiating between the two and weighing out the pros and cons. Our blog should not be taken as financial advice and you should always do in depth research. This blog sheds light on real estate and stock investment.

What is investment? What is profit?

For starters, lets first look at what investment is. Investment basically means putting your extra money in a place where you will get profit on it when you take the money back. For Example: You give money to someone to setup a stall. They give you a small percentage on every sale they make. This way as their sales increase, you will not only get the money back but also get an extra sum of money. This extra sum of money is called profit.

What is real estate investment?

Real Estate is considered a good form of investing money all around the world. You buy either a piece of land or an existing property. Then you can either sell them for a higher price or rent them out. Moreover, people buy a piece of land and rent them out to wedding event companies. They set up their tents and arrange weddings in an open-air environment. This way the person who owns that piece of land gets monthly rent and earns money continuously from a single piece of land. Such type of earning is known as passive earning or passive income. This comes in handy as you can focus on your main streams of income while this generates some extra sum of money.

Why do people invest in real estate? How can I earn profits by investing in real estate?

Real Estate is a good avenue to invest your money in. That is because of multiple reasons. In countries like Pakistan the real estate business generates a significant amount of revenue for the economy. People are more comfortable in investing a chunk of their savings in real estate. Let’s look at some of the reasons as to why they do that:

• Real Estate business is always relevant because with increasing population, more and more people need a place to live in. You can invest your money in a house or an apartment and rent it out. This type of investment serves you with a steady income. Apart from homes buying shops or office spaces and renting them out is also a good way of investing your money.
• With time the value of your asset increases. If you invest your money in an office space today its value is bound to go up with time. That is because in a lot of places, specially in cities empty space is shrinking. This causes the value of physical assets to appreciate.
• Buying a house or a piece of land in a place is also a good way of parking your money. The reason behind this is, when that area develops your asset will appreciate. In case of brand names that have established their value in the market, values appreciate a lot. This gives you profit in real terms.
• Real estate is a physical asset which you can use yourself if needed. You can later on sell it or rent it out as you please.
• In good housing societies like DHA, the rent of a house appreciates every year after a tenant has lived there for one year. What this means is, if you own a house and you have rented it out. After one complete year of your tenant living in that house, the rent you are charging will increase by a certain percentage each year. What you can do is, if you have a two-story house and you’re only utilizing one story to its full potential. You can rent out one portion and generate some side revenue.
• If you buy property in an area that is more developed and well established it would be more expensive. However, if you intend on renting it out, it would be beneficial. That is because of one solid reason. When you buy a real estate asset that is in a developed society, near a commercial area its rents go up. In comparison to other areas, their rents are more. This is more beneficial for the investor.

All these ways you can invest your money in real estate. However, you need to be careful while buying existing physical assets. You need to properly research about the asset before deciding.

What are stocks? How can I invest in stocks?

Now, what are stocks? In layman’s terms when you buy a company’s stocks you buy a tiny chunk of that company. They can be bought through a stock exchange. For Example: Pakistan Stock Exchange. Now how do you earn profits by purchasing a chunk of a company? Well, it is simple. As the company, whose stocks you purchased, earns more profits you get a percentage too depending on the number of stocks you bought. The larger the amount of stocks you buy the more profit you get. This is beneficial if you buy large chunks of stocks. Some examples of companies whose stocks you can buy are Toyota, Honda, Facebook etc.

How is money lost in stock investment?

However, what the real question arises is that if this is so easy where should I invest and how much? Well, it is easy technically but there is a small caveat to it. Let’s look at the cons of each type of these investments to fully understand. With stocks you can make a lot of profit or lose all your money. How is that? To understand that first understand how you earn money in stocks. You buy a stock at a price of let’s say, 100 rupees per stock. You wait for it to get higher than 100 rupees and then you sell it. Now, let’s say you bought a stock at 300 rupees and then the price of the stock crashed. Now the value of stocks falls down to 100 rupees. This is how you lose money.

The stocks are highly affected by the political scenario of a country as well. For Example, Pakistan Stock Market has witnessed historic losses in the month of June 2022. That is mainly because of the political unrest in the country. Hence you should be very careful while investing money in stocks. You should always conduct proper research before investing money anywhere. People get easily excited after they invest some money and get profits on it. They invest everything they have and lose all of it.

What are the cons of real estate investments?

Now, let’s look at some of the cons of real estate as well. Real estate assets require maintenance. If you’re not careful while buying one, you might end up putting a lot of money in repairs. That is the money you can invest in another asset. Thus, you always properly inspect a property while buying one. Another problem people face is asset management. Let’s say you have a business, or a job and you want to invest your money in property as well. You will have to give a lot of time to your property to make sure things remain okay. For example, you have rented out a home space to a family. If anything breaks you will have to get it fixed. Now a simple way of solving that problem is by hiring a property manager that looks over all of these things, but that also comes at a cost.

What is the risk factor between the two types of investments?

If we come down to at narrowing down the differences between the two types of investments based on risk factor, stocks are certainly riskier. This is an unpredictable market. It can go really up or crash to the ground. Whereas real estate is not that risky of an investment. All it needs is some good research and a keen out to look for problems while buying a property.

At the end of the day, it all comes down to you. If you feel like you have a lot of money and you should test your luck on the stock market, you should go for it. However, if you need a more secure area to invest your money in you should invest in real estate. It specially goes out for people who don’t have a lot of money lying around and are not in their prime, consider real estate. Although real estate requires management and you would have to invest your money in repairs from time to time, it is a steady income.

A wise word from us

Irrespective of where you invest your money, always conduct proper research. Learn about the thing you want to invest your money. If it is about stocks, learn about the different types of stocks, when you should buy one, when you should sell one. Educate yourself about the risk factors of that investment and build a proper exit strategy. An important thing to note is, never invest all of your money at once. Specially if you are new in that area. Always invest small chunks of savings. That is for if you lose your money, you don’t lose all of it.

What is Bodla Group and how can we help?

We are a construction group. We have made our name in the industry by making high quality and affordable priced homes. Our work in DHA Multan has earned us the reputation that we enjoy today. Amongst several other projects that we have successfully completed over the years, building of new homes and renovation of old homes is one of our achievements. We believe that owning the dream house should be easy and accessible for all.

Investment can be a difficult decision for many, specially in these difficult times. However, it is also very important for personal growth. Invest your money in the high-quality projects that we have built. Houses appreciate in value over time. We believe that while you make your profits in real estate business, the person to whom you’re selling should have a well-built, good quality house. This is a win-win situation for all. Join our Bodla family today and invest your money in your future.