Differences Between A Real Estate Investment Portfolio And A Stocks & Bonds Investment Portfolio

Making an investment decision can be very overwhelming because many things need to be put into consideration so as to manage risks and maximize profitability.

Both a real estate investment and stocks and bonds investments are unique and present great investment opportunities for investors all over the world. While both investment options come with considerable risks and possible profits, they are different in several ways. Understanding the following differences between the two investment options will help you make a well-rounded investment decision.

1. Definitions

Real estate portfolio is comprised of deals such as purchases, sales, renting and leasing of real estate properties such as homes, offices, industrial buildings and land. Most people who invest in real estate usually focus on high-profit investments and low volumes.

Success in property investment can highly be boosted through effective marketing since it’s sales-driven. Stocks and bonds, on the other hand, are investments that are issued by publicly traded companies and government entities respectively with the aim of raising revenues from the members of the public. These investments present either short term or long term opportunities for the investors, and there are both risks and profits involved.

2. Investment Options

People who invest in the property or real estate have several investment options to help them generate profit. Some of these options include buying an old house, renovate it and then sell it at a profit or buy a house, renovate it and rent it out at higher rentals.

Buying land is a long-term investment, and usually, the land appreciates after several years and thus can be sold at a higher price. When it comes to stocks, an investor can buy stock and hold them for a short or long term until capital appreciation is achieved. Others will prefer investing in promising start-up companies hoping to earn substantial profits in the future.

Most bondholders prefer to hold their bonds till maturity so as to collect their money and full interest thereon. However, there are those that usually prefer selling their bonds when they predict a decline in interest rates rather than waiting for maturity and therefore receive smaller profits but within a short time.

3. Management Of The Investments

Managing real estate is more involved because it requires you, as an investor, to deal with people throughout.

There are many variables to deal with when it comes to real estate management and this include closing a sales agreement, collecting rent, hiring contractors and maintenance of the real estate property. All these can be very overwhelming, and you may require to work together with a real estate asset management company who will help you carry out most of these tasks in a diligent manner.

While you may not delegate the entire work to the property manager, their involvement will ease your work and improve efficiency. When it comes to stocks and bonds, all the management work of the investment is done by the leaders who head the corporations. It means that you will not be involved in the management of your investment or the company you invested in at any given time.

4. Insurance Of The Investments

There are numerous reasons for insuring your real estate properties, and the most financial institution will require you to get insurance cover especially when dealing with a mortgage. It is very important to insure all your real estate investments because when an incident such as a fire occurs, you will recover the amounts lost and therefore rebuild the damaged building.

When it comes to stocks and bonds, no insurance is applicable because no insurance company will be willing to guarantee you the expected value of your investment at maturity. Stocks and bonds, unlike real estate, are not tangible investments, and therefore their values are vulnerable to many changes in the economy such as stock market clatters.

5. Leverage

When buying property investments, investors usually use leverage, which means they will pay part of the purchase price of the property from their pockets and take a loan from the bank to pay for the remaining amount.

If the property you are buying costs an amount of $120,000, a bank may allow you to pay for only $30,000 and they will clear the rest but hold the property you have bought as collateral. However, when it comes to investing in stocks and bonds, no bank will agree to loan an investor for this purpose. This means leverage is a term that does not exist when investing in stocks, bonds or mutual funds.