If you’re looking to expand your investment portfolio, there is a range of options that you can choose from. Some of them require more effort and monetary value, while others come in handy at a lesser investment capital. Two such things that are widely favored as investment options are real estate vs bonds.
Real estate investment can range from private to commercial properties. You invest your money either by leasing or buying your preferred property. The investment amount, however, depends on an array of factors like the size of the property, the location of the establishment, and the age of your chosen project. Once you invest in one, you have the option to lease or rent it out and further your monetary gains.
Bonds, on the other hand, involve less capital investment. Bonds are usually issued by corporations or government organizations. You put your money in buying them and enjoy your return on investment through the rate of interest that is paid. Once the bond has matured, you get your principal back along with the interest for the entire tenure which is decided as per the interest rate. Depending on the type of bond, the risk, interest rate, and tenure are decided. They are a type of fixed-income investment that can be a part of your retirement planning portfolio.
If you’re wondering which one to leverage, here’s a detailed comparison of both to help you choose.
Real Estate Vs Bonds: What are the benefits of each investment option?
When you’re investing in real estate, you’re not just investing in your today but also securing your tomorrow. It is an asset that will be passed down to your future generations. Even if you do not wish to occupy the property, you can rent it out and keep earning from it month after month. The best part about a real estate investment is that with time, the value of the property will increase, and should you decide to sell it off, it will be of a huge profit to you. In fact, if you rent out your property, the per month income will be able to help you pay off your property loan, if any, and leave you with a margin of profit, thus making it a lucrative asset.
Bonds give you a higher return on investment however, that is only in the short run. You can choose to resell your bonds before maturity and make a profit out of it and there are bond traders who will help you bid up the price of the bond to take it way above the face value. However, there are certain terms and conditions associated with it like for example, that will be applicable only if the net current value of the interest and principal together were higher than the alternative bond investments.
Every investment comes with certain risks and real estate and bonds are no exception. While the risk involved is much lower in the case of real estate, here’s a detailed look at the probable perils of each.
Companies offering the bonds can default and this will lead to loss of money for the investor. To avoid this, if you’re investing in bonds, you should always keep track of the bondholder’s S&P ratings.
On the other hand, real investment involves a lesser risk. It is your property and unless there is some natural calamity or accident, there is almost no risk involved in the property. In case you’re taking it on a lease, it is always advisable to read the terms and conditions carefully so as to avoid any unnecessary risk. Thus, real estate investments give you the power to be in control of your money.
Inflation is another factor that has a different impact on bonds and real estate. Bonds pay a fixed interest rate over time, so they are heavily influenced by inflation. Real estate, on the other hand, frequently benefits from inflation as a result of rising rents and property values. While the value of bonds is fixed, real estate investors stand to benefit from property appreciation and rental increases as a result of inflation.
Bonds do not receive many tax breaks and are frequently not taxed at the federal level. Investors must pay income and/or capital gains taxes on bond revenue, regardless of how small their returns are. Real estate, on the other hand, provides several tax advantages, including the possibility of multiple tax deductions. It is well known that real estate investors can benefit from the depreciation deduction, which allows investors to deduct the wear and tear on rental properties from their taxes.
Liquidity of the asset and exit options
Bonds are especially useful when you need some immediate cash. They can be sold off easily through bond traders and you can also get more than the face value if you meet certain criteria. Real estate, on the other hand, is a more tangible investment. Selling a property takes time, and sometimes can take months to get the right value for the property.
For bonds, the debtor needs to pay back the principal when the bond matures. This entire amount is termed as face value. Most of the time, bondholders resell them in a secondary market before the bond matures, either privately through a broker or publicly on exchanges. Because of this reason, the value of the bonds can fluctuate until it matures.
For both real estate and bonds, the resale value is of utmost importance. The value of real estate properties goes up with time. Thus, if at any point in time you want to sell it off, you will always be at a profit. Whatever the market scenario may be, the prices of properties will never go down. Be it a recession or just a low phase, it may affect other investment options like bonds but not real estate. It is for this reason most investors choose real estate as a lucrative option.
While selling off bonds, a lot of factors come into play while reselling. While they can easily be sold off or traded in the secondary market, it is not always guaranteed that it will generate a higher profit.
To sum it up, real estate may call for a higher investment but in the long run, it is a more stable, risk-free, and profitable one. Even in volatile market scenarios, it will not involve any risk of monetary loss and will be an asset for you and your future generations in years to come. Bonds will surely give you a lot more money in a shorter span of time but if you’re looking to expand your investment portfolio to sustain your lifestyle and financial gains, real estate is the way to go.
The 21st century has made it even easier for you to invest in real estate. You can do your research online on both commercial and residential properties. In fact, there are dedicated websites like Assetmonk that will help you in browsing and closing down on a property of your choice.
Want to make some investments in real estate? Assetmonk is a wealth-tech real estate investment website that can help you find properties in Bangalore, Chennai, and Hyderabad that meet your requirements. We guide our investors in the process of conducting due diligence of our assets on the portal and our offerings are tailored to your unique investment requirements. Check out our regular posts and blogs to stay informed about the most recent real estate news, trends, and tips.
Real Estate Vs Bonds FAQs:
Bonds are usually issued by corporations or by government organizations. You can invest money in buying them and at a later point in life, you can enjoy your return on investment through the rate of interest that is paid. Once the bond has matured, you will get your principal back along with the interest for the entire tenure which is decided as per the rate of interest.
Benefits of investing in real estate::
- Long-term investment
- Earn rentals
- Capital appreciation
- Huge profits on reselling
Benefits of investing in bonds:
- Short-term investment
- High returns
- Profits on reselling
Companies offering the bonds can default and this will lead to potential loss of your (investor’s) money. Anyways you can avoid this by keeping a track of the bondholder’s S&P ratings.
Whereas, real estate investment involves a lesser risk. It is your property and unless there is some natural disaster or accident, there are almost zero risks involved in the property. Thus, real estate investments give you the power of controlling your money.
Bonds are useful when you need some immediate hand cash. They can easily be sold off easily through bond traders and you can also get more than the face value if you meet certain criteria.
However, real estate is a more tangible investment. Selling a property takes lots of time. And sometimes, it can take even months to get the right value for the property. Thus, it’s comparatively a higher illiquid option.
The value of real estate properties increases with time. Thus, if at any given point in time you want to sell it off, you are sure to be on the profit side. Be it any situation in the market, the prices of properties are never likely to go down. Such low situations may affect investment options like bonds, stocks, etc but not real estate.
On the other hand, while selling off bonds, a lot of factors come into the picture. Though they can easily be sold or traded in the secondary market, it is very unsure to generate a higher profit.