Most people who want to establish a financially-secure future choose
to invest or trade in real estate. Indeed, if you take a look at the
list of names of the wealthiest people in any category, most of them
have allocated major portions of their assets in real estate. Donald
Trump, who made his fortune in real estate is very popular and his
success story is an inspiration to all of us.
Books like Rich Dad, Poor Dad , by Robert Kiyosaki and other
property investing books written in the last fifteen years, introduced
the average person to real estate investing. Thanks to these books, many
people have opened their minds to new possibilities which they can now
envision for themselves.
This article will not dispute the validity and the wisdom of
investing in real estate. However, it might not be the best option for
everybody. Each of us has different limitations and our circumstances
vary. At the start -- for most of us -- we have to choose which area to
specialise in since there is only so much money to go around. What I can
do, is to at least highlight a few aspects of trading and investing in
both areas. I then leave it to you to decide what you would like to
focus on.
I should let you know that I have not yet invested in real estate
myself, but I have considered it and I have asked myself the same
questions you might be asking yourself now. I have read a lot on the
subject matter and my assessment is purely based from my readings.
Individuals using real-estate as their vehicle to create wealth may have
different perspectives and I strongly advise you to seek their counsel
to gain a more balanced outlook on this issue.
PASSIVE INCOME OR CAPITAL GAINS
If you like the idea of buying property to receive rent revenue,
then the real estate market maybe better for you. You can structure your
properties and contractual agreements to maximise the passive income
you get from your tenants.
However, if you prefer to buy a property mainly because you think
you can resell it at a higher price later, then you want to make money
mainly from capital gains. If this is your philosophy, then forex could
be a better trading vehicle for you than real estate because exchange
rates fluctuate faster than real estate prices. Furthermore,
transactions are easier and they are instantaneous to complete.
CAPITAL
To buy real estate, you need have at least 10% of the acquisition
cost of the property, if your bank is willing to lend you the other 90%.
If the house costs $350,000, you will need to cough up $35,000. That is
a year's gross income for many people.
If you want to start trading forex, most brokers allow you to open a
trading account for just $200. With $50, you can trade 10,000 units of a
currency, if you have a margin ratio of 200:1.
LIQUIDITY
Whenever you want to buy or sell currencies, there is always someone
willing to buy from - or sell to - you at the most competitive price.
The forex market is the biggest market in the world and if you have
hundreds of thousands of dollars you want to exchange for another
currency, you can do so within a couple of seconds. To buy or sell a
house or an apartment, you expect to wait for weeks, if not months.
PRODUCT HOMOGENEITY
In the real estate market, one house is not the same as another.
Each property is unique. One might have a better foundation, a worse
design or a prettier garden than another. Knowledge of these strengths
and weaknesses become a significant factor if you are to make money from
a transaction. Therefore, if you enjoy or if you are good at selling,
promoting, negotiating and bargaining based on these differences, the
real estate market is for you. Further, your lawyers, accountants,
advisers, real estate agents and consultants play a significant role in
your success.
If you want to trade currencies, there is no need to negotiate the
price with the other party. If you are a seller, there is no need to
educate potential buyers as to the benefits of your product. If you are
buying, you have piece of mind that you are getting the best possible
price for the currency from your broker at that particular point in
time.
TRANSACTION COSTS
Buying and selling real estate is much more expensive than buying and selling currencies.
'SHORTING' MARKETS
When you have a property and you suspect that its price will go down
in the future, your options are limited: hang on to the property or
sell it now. In forex, if you suspect that a particular currency will
depreciate in value, then you can exchange it for another currency. You
buy it back again after it has already reduced in value to realise your
gain.
MEDIATED TRANSACTIONS
In real estate you are dealing directly with the other party, taking
on the other side of the transaction. This is why you need to go
through a lot of paperwork and consult your lawyers to ensure that you
know about the options available to you when the other party fails to
fulfil his or her end of the bargain.
In forex, you do not have to worry about whether a buyer or a seller
is going to fulfil his or her end of the bargain for whatever reason,
because you are not directly dealing with that particular person. You
are dealing with the broker who ensures that somebody will always take
the other side of your trade.
CONVENIENCE
The forex market is open 24 hours a day. You do not have to meet the
buyers or sellers in person. You do not have to conduct meetings with
lawyers, accountant, bank representatives and so on. You can buy and
sell currencies in your pyjamas at midnight if you like and the
transaction will be complete before you go back to bed.
CONCLUSION
All in all, if you are an investor looking to make money from a
combination of rent revenue and capital gains, you may want to invest in
real estate for the long-term. If you are a trader wanting to profit
purely on capital gains, then trading forex is probably better for you
than trading real estate because you can start with a small fund and
your rate of return is limited only by your ability to trade well. The
transactions are mediated, it is more convenient and transaction costs
are a lot smaller. The market is also more efficient due to product
homogeneity and liquidity. Lastly, there are opportunities to profit
regardless if the prices are going up or down.
I believe that if done right, neither venture is more or less
riskier than the other. The risks are up to you to manage. With this
article, I hope I helped you make a decision appropriate to your
circumstances.
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