Real estate investing and stock market investing both have a common goal of achieving winning returns, yet both implore different processes that require unique mindsets and emotions. Both investment assets have similarities in that they both require finding a quality investment, buying that investment at a fair price, and managing the investment for long term profits, and maybe a long term potential sale. Each of these steps for the two investment types require different logic, process, and an internal emotional approach to gain success.
Investment real estate requires analysis of potential profitability of the purchase where after all costs are covered the investment yields returns in the black. Step by step the real estate process is unique to itself as the most common attribute of a successful investment property is location, location, location. A property with a premier location that is highly desirable may only come up for sale once in fifty years if at all.
Real Estate Diversity
Investment real estate professionals require a diverse quiver of arrows in their arsenal that includes knowing their market, knowing their rental market, knowing comparable comp sales, understanding construction costs, and staying on top of loan rates. These real estate investors have to be able to assess all these attributes fairly quickly to determine if a property that has come available for sale is worth making an offer to own.
Real estate also has the component of the investor being able to alter the structure on the property in order to create value. This sort of sweat equity, as if it often referred, is a unique component to real estate investing which allows the investor final product control of the process.
Quick evaluation, superior location properties only becoming for sale seldomly, and the ability of sweat equity are components inherent within the investment property process. These elements may seem similar, but are quite different within stock investing.
Stocks are unique as they have the element of always being for sale. Their current price is available on your mobile phone, computer, or most electronic devices. This aspect of investing in stocks makes it a very difficult emotional investment to handle. Emotions or thoughts of “I’m missing out” or “should I buy more” become forefront to investors and create emotional tug and pulls.
Learning to properly take the time to analyze a potential stock investment and then have the patience to wait for the performa numbers to be realized is very difficult. Waiting doesn’t feel normal, as we are brought up to believe that always doing something is productive. Making a purchase or a sale can feel productive when done correctly, otherwise it can cause anguish.
Arriving at a reasonable valuation price for a stock requires confidence in your analysis abilities. This is different from real estate investing where in most instances properties are valued based on recent comparable sales. Within the stock market there are no comparable sales. Yet there are many ways to find a stock’s value, and knowing if your valuation is solid can be tricky.
Within a real estate investment there is only going to be one willing seller and one willing buyer for a property’s transaction. When investing in a stock there are many sellers and many buyers for the same stock at many different prices. There is also plenty of stock available, so knowing when to buy and sell becomes even more important.
When you make a stock market purchase you know fairly soon if you made a good investment based on the stock’s current price. In real estate there is no check against a purchase price other than the entire real estate market, or a comparable sale that may occur in the future.
Whereas location, location, location are essential in real estate investing, within stock investing this aspect is the investor’s ability to determine a company’s successful long term durability of a product or a service. Within stock investing there is no sweat equity where an investor can change the path of the investment unless they are a large enough investor able to buy a seat on the board of directors or purchase control of the business.
The greatest amount of wealth in the US is generated by business versus real estate, as evidenced by the recent Forbes 400 richest list where only 3.5% of the people are listed in the real estate business. It takes less capital to buy a stock than a real estate property in the US, and yet most growing businesses need a headquarters to exist. It doesn’t make one better than the other from an investment point of view only different.
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