Many property shares have a history of being stable distribution companies, although there are some exceptions. At the same time, it is difficult to pull all real estate shares over a crest in this comparison, as they differ widely in the types of real estate in which the different companies invest.
A company may only own a rental house, a second own industrial premises, while a third has a more sprawling portfolio, where they own a lot of wind turbines.
If I am going to be straightforward with you, I prefer investing in real estate, whether the choice is between it and real estate shares on the stock exchange.
Therefore, I prefer real estate
If we are now on the subject of money, invest and become rich, there is a term that speaks for real estate. A term that is very popular in the United States, namely OPM.
OPM = Other People’s Money.
In this case, it means creating leverage on an investment with the help of other people’s money, in most cases the bank.
What I do when investing money on the stock exchange is that I use taxed money that is 100% my own and invests in the company. Nothing strange about it.
When I invest in a property, I am interested in borrowing money from the bank, which, of course, makes a good deal. Let me take an example to make it clearer.
Read More: real estate bridge loans
Investing 100,000 USD in property shares
Let’s say that I invest 100,000 usd in any real estate share. This is equity, ie own money and no loan when I dislike lending to shares, while it is not as easy, especially not with a single share as collateral.
We think the stock will increase by 20%, of which we then sell it. If we fail to pay taxes, we have earned $ 20,000 on our 100,000. No wonder.
Investing 100,000 USD in a property
Now, instead, we intend to invest in a rental property. The property costs $ 1,000,000, of which I enter $ 100,000 and the bank remains usd 900,000. Because I have counted on the deal, income from rent will cover all expenses, interest rates etc.
After a while, we decide to sell the property and succeed then sell it with 20% profit, ie for usd 1,200,000. How much have we earned?
More recommendation: hard money lenders
First, the bank will have a loan of $ 900,000, and then there will be $ 300,000 left. If we also disregard taxes and fees, we have made a profit of $ 200,000 and thus 200% in profit!
For the same money, we will receive shares of USD 120,000 afterwards and, in the case of real estate, $ 300,000! Fairly fair difference.
Now, we must remember that these are two examples, but I still think you understand the principle of how I think. What could also happen in the case of a real property is that we pay heavily on the loan using the income from the rent, so in the case of sales, the loans may only be $ 800,000, which would mean that we could retain $ 400,000 after the deal!
As I said, this is a figure of numbers and does not necessarily make sense in reality. A property can of course fall in value, but so can shares.
Anyway, this is how I look at the difference between real estate and property shares.