subject: Leveraging Your Investments: Reasons Why Real Estate Investments Win Out Over Stock Investments [print this page] Leveraging Your Investments: Reasons Why Real Estate Investments Win Out Over Stock Investments
When the economy is down, people take a careful look at their investments. Prior to choosing to invest further, so too must they consider their alternatives. Two popular investment alternatives are leveraged investments in either real estate or stock. All leveraged investments are not made alike, though. What comes next is an explanation of the pros and cons of both.
You must first have a broad idea of what leverage is in its most simple terms. Despite having paid less funds on it than it would cost to possess it full-out, leveraging, in its simplest form, involves managing or taking control of an asset. Real estate and stock investments are both included under this definition, although they are handled in ways that are slightly different from each other.
Home mortgages are where this arises most in relation to real estate investments. Usually, it only takes about 20% of a house's total purchase price to obtain ownership of it from the institution lending you money to purchase it. This is how the majority of people in the US are able to buy their own house, since a lot of people cannot afford to acquire a home outright. Point in fact: can you name even one friend or acquaintance who bought their house by paying all the costs upfront?
You oftentimes don't borrow money to purchase stock options, on the other end of the spectrum. By buying the individual stock option, you automatically gain the right to control the asset sans the cost of truly owning it on the whole. What you're basically doing instead is getting the right, at some specific future date and price, to purchase a certain number of shares of stock.
The main distinction between real estate investments and stock investments, then, usually depends on motivation. While people acquire real estate investments for a number of of reasons such as home ownership or as a second investment property, stock investments are bought solely for earnings. Your risk regarding stock investments is consequently increased. If the market decreases the value of your home, you can usually wait it out, while still living within it, for instance. You stand to lose a lot of money in stock investments if the price of the stock decreases, as you won't be able to cash out for what you initially acquired it for in the first place. Your most secure bet is thus a leveraged real estate investment.
