Trading Pal Blog

You can't dwell in a portfolio of shares and you can't sell just your bathroom to raise some extra cash. What are the advantages and drawbacks of those two types of investment?

You never find out the price of a property until someone is willing to buy it and someone else is willing to sell it at the same price. Stocks are very liquid since there is an exchange quoting current prices for each trading day.

Borrowing to buy shares is risky while paying cash for a property is rare indeed.

Property is very much an all or nothing proposition. You buy a residence and you sell the whole of it. Besides capital gain you can rent the property and it ties you to the duration of the lease. Some smart operators had the idea of getting folks to invest in a portfolio of properties by holding a number of units while others have a time-share arrangement in a holiday condominium. Those arrangements turn out having the pitfalls of both investment types and none of the benefits.

Shares allow you to accumulate a position over time taking a small risk at first because your holding is only a few shares (the broker's commission compounds but then you could use CFDs instead). People stay for the long haul to qualify for dividends.

Renovators look for properties they can repair and maintain in order to add value. In real estate the location is crucial. Proximity to schools, public transport, shopping centers is built into the price. What maybe a good family home for you may end up a real loser as a rental property.

You would think a rural owner close to a urban centre has the option to subdivide his land into residential blocks and make a nifty profit. That's the theory but in reality it is a 10 or 20 years endeavour and will require making circles around local authorities.

If you plan to buy land, build a house on it, sell it and repeat the procedure as an investment strategy this is a full time profession - not a dabbling investing hobby. The construction industry is known to attract unsavoury operators and local authorities are sure to change the rules with more and more regulations - not less!

Two big premises maybe falling apart with real estate: ongoing capital gain and cheap credit through a buoyant finance sector. The recent global financial crisis has shown that like everything else inflated house prices will have to come down to earth while the few banking institutions left will tighten their credit assessment.

Real estate transaction costs are substantial (conveyancing, local council duties, agent's fees) but online brokers have brought commissions to a bare minimum.

It seems people are either happy playing the property game or researching stocks with good growth potential but rarely do you find those who have the mindset to actually do both.

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