If you are an investor, you have numerous options to make your money grow. But precisely which assets you should choose can be a mystery. Should you buy stocks? Or should you put your money into crypto?
The answer depends considerably on the stage you are at in your life and your goals. People heading up for retirement probably shouldn’t bet their life savings on continued rises in the price of bitcoin. But, likewise, young investors are possibly leaving unrealised returns on the table by avoiding stocks.
What about real estate? Which type of investor stands to benefit the most from buying property?
People Who Want Dividend Income At Lower Risk
The problem with stocks and shares is that they’re risky. A company might deliver a healthy dividend for a decade, but then all of a sudden, it dries up. Customers leave, a new competitor emerges, and it’s game over. The stock tanks and the dividend doesn’t return. It’s Schumpeterian creative destruction in action, and you just got destroyed.
The returns to property, however, are different. Not only do property assets tend to rise at or above the rate of inflation, but you can also make rental income from your assets. There’s no risk of a house going out of business and losing all its value, so it’s a much safer investment than most other kinds of assets.
People Who Want To Have A Second Income
Stocks do pay dividends, but typically, they are pretty low. Most investors make a return on the stock market when they sell after having waited for the price to rise to the desired level. Waiting for the right time to sell, however, can take years and, sometimes, decades.
So what assets can you buy to obtain a second income?
As estate agents point out, property can provide you with a steady income stream from day one. All you need are tenants. What’s more, you don’t need to buy an entire house outright. You can purchase property instruments called REITs, which buy you the rights to a chunk on the rental income from a portfolio of properties held together with other people. In other words, you can buy a slice of the property market without having to go through all the usual hassle.
People Who Have Good Credit Ratings
No bank or financial institution in its right mind lends to investors so that they can plough money into the stock market. However, if you have a good credit rating, you probably can gear up when buying property, grabbing bigger returns as a result.
Let’s say that you want to buy a property for £100,000 that will generate annual rental income of £10,000. You have £50,000 in the bank and need a mortgage of £50,000 to cover the rest of the cost. The interest on the mortgage is 3 per cent per year, coming out as £1,500 per year. So by buying the house, you can generate £8,500 in net income per year – income that you couldn’t have had without leverage.