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Real Estate Versus Other Investments
Real estate specialists sometimes overlook the fact that competition for the investment dollar is keen and unremitting. As such, real estate must compete with other investments.
If any individual or institution has capital available, there are many ways that money can be invested, depending on expectations that prevail in the market at any given time.
Some of the more conventional investments vary constantly, but relate to the four main investment characteristics, namely:
- Security.
- Risk.
- Liquidity.
- Tax Considerations.
It will be seen that the more secure and liquid the investment, the lower the rate of return unless there are other factors at work in the economy, which give rise to different expectations, e.g. inflation.
Types of Investment
- Cash in bank.
- Government bonds (CBS).
- Corporate bonds.
- First mortgages.
- Second and subsequent mortgages.
- Real estate.
- Mutual funds.
- Preferred and common stock.
- Commodity futures (e.g., coffee, sugar, wine).
- Base metals (gold, silver).
- Currencies.
- Antiques.
- Business.
Advantages
- Investor has a high degree of personal control.
- Real estate offers excellent opportunities for capital growth during inflationary periods.
- Additional return is received in the form of the reduction of mortgage debt.
- In times of economic stability, real estate offers a higher than average rate of return.
- Under certain circumstances, improved real estate offers income tax shelter in the form of depreciation allowance.
Leverage
- Real estate is one investment in which the Investor can participate with a minority equity. As a 25% down payment is commonplace, the Investor can lever capital growth in the ratio of four to one. This is similar to buying on margin, or being "highly geared" in investment jargon.
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