Both lease property and mutual funds are frequently owned investment resources. When comparing both asset categories, there are stark differences. A potential investor comparing mutual funds to leasing property should determine which most matches her investment goals. Like all investment options, there are pros and cons for both mutual fund investing and real estate investing.
Mutual funds are managed investment pools that own stocks and bonds and are managed by a professional portfolio manager. Purchasing mutual funds provides investors access to a diversified pool of securities in one investment. Real estate investing generally involves buying rental properties, financed by a mortgage, and renting them out. Investment real estate can be single family homes, apartment buildings or industrial buildings.
The stock market as represented by mutual funds is considerably different from the housing market. The stock exchange is more volatile and the value of a mutual fund may change considerably within a short time. Real estate investing is–most of the time–a long-term pursuit of wealth through steadily increasing values. The two types of investment have periods where investors earn money and intervals when losses occur. The primary concern when picking between the two asset categories is which one has the most potential for gains in value.
A significant difference between mutual fund and property investing is the use of leverage. A property agent can borrow an important part of the cost of a house. This leverage also leverages the profit possible. By way of example, an investor has $100,000 to spend. That amount would buy $100,000 of mutual fund shares. The identical money could be a 20 percent down payment on an investment property worth $500,000. If each investment goes up 10 percent in value, the mutual fund investment comes with a profit of $10,000 along with the property investment has gained $50,000. That’s the upside of leverage. The flip side is that the 10 percent decrease would price the mutual fund investor 10 percent and the property agent could lose half of their invested capital.
Mutual funds and investment property are significantly different when it comes to ease and cost. Investing in a mutual fund involves completing an application and writing a check. Promoting a mutual fund involves making a telephone call. With no-load funds, there’s not any cost for either trade. Mutual funds make it possible for investors to change their thoughts fast with little if any price. Real estate investing entails research, looking at various properties and picking out the right ones, completing mortgage and purchase paperwork and significant fees. Promoting an investment property may take months and there are significant commissions and prices. In case the lease from a property doesn’t cover the mortgage and other expenses, there’ll be an ongoing cost to maintain the investment.
Real estate can offer significant investment returns to the investor who knows the market, does her research and has the financial resources to handle the times when repairs are needed or a tenant leaves. As the saying goes, all real estate is local, so the investor needs to discover the real potential of the region where she wants to make investments. Mutual fund investing is hands off, placing your money in the hands of a fund manager and trusting he will be able to produce the investment returns you want. If a specific fund doesn’t work out, you can move your money to another fund or alternative asset class.