Which is better, real estate or safe investment?

Question

I was wondering if a person has $500,000, which would the better choice to invest in; real estate or safe investment that yields 7%?

I mean think about it, if a person puts $500,000 in a safe investment that yields 7%, he would make $35,000 a year. In 20 years he would earn $700,000 off of that safe investment.

Or should he put $500,000 into real estate and sell it in 20 years?
I mean would this be the better choice? Would he get more money out of this method?

Answer 1

they stopped making new land so its only going to go up.

Answer 2

It depends on what do you consider safe? Personally, I think if you could make 7% a year. Guaranteed, I'd take that. I think that real estate appreciates around 5% a year over the long haul. That doesn't count the fact that its not a guaranteed investment, requires maintenance and will cost you money while you own it. So theoretically, I'd go with the 7% "safe investment".
People get excited about real estate when they see it double in a couple years. They don't take into account that it was flat for 10-20 years without doing anything at all. Some areas even longer than that. Real estate isn't a sure thing but if you have the time to devote to it, it does have a chance of making more money but I'd look for trends in real estate before buying. It's just not as safe as some other investments and it's definately not as liquid.

Answer 3

First of all,, it's illegal for any stock broker or his agent to guarantee an investor anything. Therefore, you may, or you may not realize a 7% return on a "safe" investment. The return may be more,, or it may be zero, and there's a possibility it could be a negative return,, meaning you lost your butt, and your money.

With $500k, I would suggest you diversify your investment,, in other words, don't put all your eggs in one basket. Invest part of it in real estate, part of it in mutual funds if you don't understand the stock market, and part of it in short term investments. You never know when you might need to liquidate an asset to survive a catastrophic event.

The price of real estate is determined by supply and demand,,,, demand will continue to increase while the suppy will continue to decline,,, space occupied must be subtracted from space available. That's why a rental property that cost $50k 10 years ago now sells for $100k. In the meantime the investor has enjoyed a rental income (most rental investment properties are expected to yield 1% per month X .8 occupancy rate) which has doubled over the life of the investment to keep up with inflation. For example; a $50,000 investment should get $500 per month in rent or $6000 per year. 6k / by 50k = 12% for a starting point. The amount invested is not going to change, but the amount of rent recieved will increase right along with inflation and after 10 years the rental income will be $12,000 per year or 24%. If prices double again after 20 years, the rental income will equal 50% of the initial investment, or $25,000 per year. Now,, compare that to a "safe" investment. Property will continue to increase in value. How much depends on where it's at,,

Answer 4

Real estate... you gave a twenty year hypothetical situation.....let me give you a twenty-two year fact - based situation....
Twenty-two years ago I bought a house for $ 47,000. today I constantly get offers in the $ 700,000. range. That's for the lot ... Twenty years ago I bought a three unit building next door to my house for $ 56,000. The land under it is also worth $700,000.!!
Now...because they're right next to each other and can be combined into one big parcel...developers throw in an extra $350,000-$ 400,000. in their offer.
Like one person mentioned " they ain't making any more "
I'm also very familiar with the " income property" aspect of real estate and believe me..you can make a down payment...and from there on , tenants pay the mortgage, the taxes, the repairs,the insurance....and your profit. But at income tax time you're barely making anything ( on paper) because of depreciation and write-offs.
I love to invest and a 7% return is a bad year...but even twenty good years would never put you in the same ballpark as real estate.......Unless of course you buy the proverbial "swampland" or maybe the guy next door starts raising pigs !!!
P.S. The REIT investing that someone else mentioned is one way you can better that 7% per annum you were forecasting.
You keep hearing about a "real estate bust" on the news, etc...but believe me that is " homebuilders" that is not all real estate. Income/ commercial property...the way to go.

Answer 5

There are two thing you have not taken into account is taxes and inflation. Every year your $35,000 is being taxed as you make it and every year your $35,000 and your $500,000 becomes worth 3 to 5% less. So right off the bat your $35,000 is effectively only maybe $20,000. In 20 years it is effectively almost nothing and your $500,000 is worth about $250,000 at the most. On the other hand $500,000 invested in income producing property will keep up with inflation. The income from the property will be taxed at a very favorable rate due to depreciation. The income also will be indexed to inflation so each year the income will increase.

I hope this answers your question.

Answer 6

I don't know where you can get 7% on a "safe" investment. I think real estate is expensive and would probably prefer investing in the stock market at this point. If you like real estate, you can buy a REIT (real estate investment trust). This is a company that trades like a stock but the company owns real estate and usually pays a nice dividend. Here is a portfolio of some interestin REIT stocks:

http://www.top10traders.com/ViewPortfolio.aspx?userID=565

This link is from http://www.top10traders.com - this is a free site that lets you create a portfolio of stocks with $100,000 in "play" money. Each day the site ranks the best performing portfolios, so you can see how your picks perform compared to other investors. You can also read posts on investing from the best traders, as well as share your own investing ideas. There is also a charting feature , so you can see how your portfolio performs compared to the S&P 500.

Here are this month's best traders:

http://www.top10traders.com/Top10Standings.aspx

Hope this helps.

Answer 7

It depends on the real estate market where you invest. But truly - after 9-11 the real estate market became the best place to invest. It's not as hot as it was 5 years ago - but real estate is very often a good way to invest your money. It will almost always get you more than 7%. You can even invest your IRA's and 401K's in real estate.

Answer 8

I don't think you should put all eggs into one basket. Real estate has varying investment branches, from tax liens (which safely earns 12-18% if done correctly), to foreclosures, rehabing, etc.

While there are many success stories on how people doubled their money with real estate, there are equally a good number amount of failing ones. I lost money initially because I didn't diversify, but I learned my lesson and have started to invest my money in tax liens and other real estate ventures.

Answer 9

With real estate, you take a risk. It depends on where you live too or where you were going to buy. The market it always going up and down. I would say go for the real estate. You could always lease the home if you were not able to sell for a profit. You def. do not have to wait 20 years to sell a home and make a profit in Cali. You could wait 3 and sell it and make nice profit - regardless of if the market is up or down just as long as you picked a desirable location.

Answer 10

real estate is better but it takes a lot of research. You can start investing in several investment properties w/ 500000.00 rent them long term and earn more then 35000.00 a year, but you would have to decide if you would manage them or let management agency does for you, then they will charge you a fee. All the cost is tax deductable. In 20 years your investment will cost 5 or more millions.

Answer 11

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