In today’s article, we decided to tackle some misconceptions or perhaps a myth that most of us hear over and over from people who are standing strongly in certain beliefs. There are those who believe strongly in the stock market versus those who believe strongly in the real estate market.
People who are 30 years or younger have a tendency to favor the stock market, and anyone who’s above 30 has the tendency to favor more Real Estate.
Some prefer working with the stock market because they consider that the process is longer when working with real estate. They want something happening today. If you put it into that perspective, then that is true because real estate is more of a long-term strategy, you need to wait longer.
Long-term, boring according to the younger generation. Just like with everything, what goes up must come down and if you make money extremely fast, then you’re also prone to crashes that will happen a lot faster. Meanwhile, with real estate, the process is a little bit slower, and it allows you to pick up on some cues for those who are very informed and staying on top of the market trends. In a way, it allows you some time to adjust and plan your exit strategy.
Stock Market Vs. Real Estate: Ensuring liquidity
Speaking of exit strategies, that’s another thing why people say that they prefer the stock market because it ensures liquidity a lot faster. What does that mean? For example, if you invested $1,000 in the stock market, and then within a few months, all of a sudden, an emergency came and you need cash right away, you could get it very easily. That’s liquidity.
What you do, you go into your application or the website or your broker, and you instruct them to immediately sell $1,000 worth of stock. In a matter of seconds, you will have the stock sold, and then probably within 24 to 48 hours, you’ll have that money transfer into your bank account.
In terms of liquidity in Real Estate, it depends on how you want to look at it because if we’re talking about the sale of a property, then yes, it’s true because it’s not so fast to sell a property. You cannot sell a property within a day. You have to prepare the property for that. You have to make sure it’s looking nice and pretty.
If you are sitting in a great market, then on average, your property can get sold within one to three months. If you’re sitting in a market today, right now in the middle of the pandemic, then it might take you a little longer to have your property sold.
We’re talking about somewhere between six months or so. It’s not so much because there’s no demand or people are not willing to buy the house, it’s more of the lending process. Lenders are taking a long time because they are facing a backlog, they have a lot of demands for mortgages so that all of it adds up.
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That is only one portion of the liquidity factor, but real estate could be extremely liquid because every single month you get what it’s called cash flow.
If you did your numbers right, and if you did the calculations right, and you bought based on the numbers and not your emotions, then you will have an investment property that every month it’s producing income for you.
Why people prefer the stock market: The entry point
Another reason why some people prefer the stock market over real estate is the entry point. In the stock market, you can invest in a stock with as little as $5 as opposed to real estate, you will typically need 5% to 20%, sometimes even 25% of the asking price.
If your property has an asking price of $100,000, well, that’s quite a hefty investment to make and not everybody has that kind of capital to come in. In that sense, that is true. With everything, you have to analyze the pros and cons.
How about becoming more creative? You can leverage everything that was made at your disposal so that you can take advantage of every investment strategy that it’s available in the market to help you get to that end goal that you would like to get.
Most people either are on one extreme or on the other extreme, but it doesn’t have to be that way. It is possible to become very self-sufficient in your 20s or 30s if you learn how to leverage all the investment tools available. For example, you’re relatively young, or maybe you started on the investment journey a little bit late and you don’t have that much capital to get started with. What can you do about this?
- One way to do that is by leveraging the stock market to create capital and help you get to real estate. You can start out with $5 and then, eventually, you’ll buy more.
Then we’re talking about $10, then eventually you go up to $100, and then slowly, you start building up your capital. You start building it up. You pick a nice combination of stocks for acquiring equity relatively faster, as long as you continue to monitor.
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Some of those are actually the tech stocks because thanks to them, the pandemic, the changes to the digital area have actually expedited. We’re seeing a tremendous growth in tech stocks.
- At the same time, you can leverage a good combination of stocks that can offer you dividends so you can take those dividends and reinvest them into your portfolio and that way you create some sort of a snowball effect. You start out very slow, and then as you continue to propel yourself forward, then the snowball gets bigger and bigger.
Then you will get as big to the point that you can manage to either 5% or 20% of the down payment that is needed and voila! there you go! In a short period of time, as long as you’re disciplined and you continue to monitor the market, so you can get out or get into the market whenever it’s convenient for you, then you will manage to amass enough money to invest in that first real estate property.
You’re starting off with one, and then so what you’re going to do, you’re going to let the cash flow roll come your way. You can use that cash flow and reinvest it into another property or make it grow faster by taking that same cash flow and then you go back to point one and then you start investing in the stock market. Then you do the same thing.
Reinvest in Real Estate and in Stock Market
You buy a nice combination stock that can grow and also create dividends for you. At the same time, you continue to reinvest that money and then you continue to propel yourself going forward and then forward until that point where you hit that big snowball effect again, and you’ll have enough to get another 20% down for another property and now you have two properties.
Then you repeat this process again, and then you’ll get to the third property, to the fourth property. In less than 10 years, you would amass a good nice chunky portfolio in both assets, in the stock market, and also in real estate.
Remember investing is not about just doing one strategy. Investing smartly, it’s about moving your money around to where it’s going to benefit you the most. That way you can protect your investment against inflation, the ups and downs in the market, that’s what all investing is about. It requires you to stay on top of the market trends.
Investing is not something that you can just do once and then completely forget about it. It’s the same thing with your health, it’s the same thing with your body. If you stop exercising, then your health is going to start decaying. Then if you start working out more, then you’re going to feel stronger and healthier. Same happens with investments.
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