Mystery Revealed: The Truth About Property Vs Stocks

9 Crucial Questions You Should Be Asking

So you have some money saved up and you plan to use them for investment. You looked at your options… Stocks or properties? And then you see some terms that are unfamiliar to you and the questions start popping up. What is REITS? What are futures? What is going to give me the best returns?

Here are some factors to take into consideration.

1. How Much Do You Want to Invest?

One of the great things about investing in stocks is that you can start small, we are talking about as little as $100 per month, through the banks, using the dollar-cost averaging strategy. You will be investing in the STI ETF or selected blue-chip stocks in Singapore. If you want to manage your own portfolio, you will probably need a budget of between $1000-$5000.

With property, you will need a lot more capital. If you still want to invest in the property market but don't have that capital, you can consider investing in Real Estate Investment Trusts (REITS), which is less capital intensive.

2. In a Habit to Check Stocks Every Day?

If you are the sort of person who checks the stock market every day, you are bound to discover a new form of self-induced anxiety. Stocks are volatile and change prices frequently. One day you might find it to be bullish, the next bearish. For people who are new to investing in the stock market, this can be stressful.

To save yourself the stress of it all, invest in real estate. Property prices do not fluctuate the way stocks do.

3. Are you Looking for a Long Term Investment?

The truth is real estate is not as volatile as stocks and therefore profits by the mantra of slow and steady wins the race. To see a return on your investment in the property market, means you may have to sit back for a few years. The good thing about this is that if you are not looking to make instant cash, this is definitely a good decision.

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4. How Much Do You Want to Understand?

If you are new to both the stock market and the real estate market and you need to learn about each of these investment methods from scratch, you have a better chance of doing that with real estate than with stocks.

It is not hard to spot a “hot” property in Singapore, or to know which areas and neighbourhoods are more in demand then others. The relevant information that you will need to make an informed decision such as past transaction history, rental numbers and developmental plans in the next 5 years are all well documented.

With stocks, you will require a deeper understanding of how businesses work in general. You will need to know how to read financial statements, understand business directions across various industries. You will also need to devote study and reading time to get in-depth technical knowledge especially when you are investing by technical analysis.

5. Are You A Maintenance Person?

Maintaining a property is dependent on the sort of unit you buy. Smaller units may not demand too much of your attention, but if it's a waterfront property you might as well make an experienced property manager your best friend. If you are investing in REITs and stocks you don't have to worry about the next roof replacement and a fresh paint job.

6. What Are Your Thoughts On Diversification?

Diversifying your portfolio is a recipe for success that investors recommend all the time. We already established that stocks don't require that much capital to start with. This makes it easier to invest in different stocks.

With property it is not that easy to spread out your investment. First off, to buy a single unit you have to save up a hefty sum and then to spread out your real estate portfolio you would have to save that sum again to buy a second property. Even then you have not really aced the diversifying game. If you are going to make a Property Investments you are probably not going to be diversifying for some time.

If you are still determined to invest in real estate for its many benefits, REITs provide you a better option of investing in different property types.

7. Are You Okay with the Investment Not Liquidating for a While?

Will you wake up one day with an unexplainable temptation for cold hard cash? Or perhaps what is more likely is that you may find yourself managing a cash flow that requires immediate liquidity.

Stocks can be converted back to cash quickly if you need it. Selling property takes time and negotiation. Unless you are planning to sell at a big loss, it is not easy to find a buyer who is willing to pay for your asking price from the get-go.

If you are uncertain about your cash flow in the short term, you might want to think twice about investing in Property. If investing in property still appeals to you, you can consider putting your money in REITS, which allows you to invest in a Property while still retaining liquidity.

8. Passive Income Or Capital Gain?

With real estate who says you have to wait forever to see the fruit of your investment. Property can also serve as a diverse asset in terms of the additional income it helps you earn. Whatever unit you choose to purchase you can always rent it out for a consistent passive income.

With stocks your ROI can be based on the dividends you earn on your investment or with a profitable trade.

How smart are you financially and do you have the necessary financial IQ to ride out this coming recession? Take our free quiz here and stand to win a free 30-day Property Income Coaching ($6,700 value) at the end if you qualify.

9. Are You Aware Of Additional Costs?

If you compare real estate with stocks you will find that the latter is a bit easier on taxes. In Singapore, there are currently no capital gains taxes on stocks.

On the other hand if you are operating in the real estate market you have to deal with property tax, the ABSD, the SSD, and the tax levied on second and third properties that you purchase. But that is not all, there is insurance cost, and maintenance costs attached as well.

That said, it does not mean that you are careless about costs when it comes to stocks as well. Different kinds of stocks have different hidden costs. For example, mutual funds have a hidden cost called the expense ratio. Some funds charge you a marketing fee. Be mindful also of costs like the front end load and back end loads and terms like purchase and redemption fees.

The financial world has not made it easy to untangle all of these complex and hidden expenses. It is easy to miss these costs out but spotting them is extremely important because it eats into your profit.

Conclusion

When comparing stock vs SG properties vs REITS, the real estate market in Singapore has some significant advantages whereby investors who may not have a financial background could pick up the investment fundamentals easier than others. If you are looking for a steady mid to long term investment strategy, properties and REITs might just be it.