When it comes to investing, real estate and mutual funds are two popular options. Both have their intrinsic advantages and disadvantages, and it is imperative for the investor to understand these difference so that they can make informed decisions. At the same time, it is also crucial to be aware of their relative merits and demerits before taking the plunge.
First and foremost, real estate investments are generally recession-resistant. While mutual funds could be volatile and subject to economic downturns, real estate tends to be more stable. During uncertain times, property values may decline temporarily. However, they typically recover in the long run, making real estate a reliable investment choice.
Real estate investments also have the potential to leverage finance. Even though it requires a significant sum of money beforehand, reputed banks provide loans for up to 80% of the property’s value, allowing investors to multiply their purchasing power. For first-time homebuyers, this means saving on rental expenses. In contrast, the rental income generated can often cover the monthly mortgage payments within a few years for those investing in additional properties.
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“Real estate is the only tool for long term wealth generation and people don’t tend to encash profit at every high since it’s comparatively less liquid than mutual funds and its value increases with time. It also provides exceptionally high returns in the long term. Besides, realty is a prized asset; it adds to the net worth of the owner, making it extremely beneficial. This can be leveraged financially to fund other purchases. Further, one can easily fund one’s purchases as home loans are available from reputed financial institutions at the cheapest rates compared to any other loans. Mutual fund, on the other hand, offers no such benefit,” says Gaurav Gupta, General Secretary, CREDAI NCR.
Mutual funds, equity, and investing in stocks require diligent research and analysis to make profitable investments. Often, you will have to take the services of a broker or a firm to navigate through the labyrinth of mutual funds, and this entails a service charge. It is crucial to consider market trends, company performance, and economic indicators.
“Real estate offers the potential for long term appreciation and passive income through rental properties. It’s crucial to assess your financial goals, risk tolerance and investment horizon before choosing anything. Besides, real estate is among the highest rated assets and have a tremendous impact on a person’s networth,” says Nayan Raheja of Raheja Developers.
While mutual fund investment offers the potential for high returns, there is no guarantee of success. Market fluctuations have often resulted in significant losses, especially for inexperienced investors. On the other hand, real estate provides a tangible asset with inherent value. While for end users, it saves rental for investors and generates a steady rental income.
“Real estate is a lucrative investment option, offering substantial appreciation and excellent returns. Its inherent potential for value growth, coupled with rental income possibilities and tax advantages, makes it a robust asset class for building wealth and achieving long-term financial stability. Investing in property is a smart strategy for financial growth and portfolio diversification. Moreover, with data indicating an increasing share of the real estate sector in the country’s GDP, now is the right time to invest in this sector,” said Gurpal Singh Chawla, Managing Director of TREVOC.
Home loan interest deductions, depreciation allowances on rental properties, and exemptions on capital gains tax for long-term investments can significantly enhance the overall return on investment in real estate. These tax incentives can help investors reduce their tax liability and increase their net earnings.
While mutual funds, equity, and stocks have their own merits, real estate investment offers unique advantages. With its recession-resistant nature, potential for high returns, rental income generation, inflation hedge, and tax benefits, real estate makes an appealing option for many investors that can strengthen one’s financial position in the long term. However, it is vital to evaluate the risks and limitations of real estate investment and conduct thorough research before making investment decisions.