There are plenty of ways to invest in real estate, such as buying rental properties, investing in Real Estate Investment Trusts (REITs), buying, and selling houses, and real estate crowdfunding. While real estate investing is a lucrative option and can potentially provide higher returns than other asset classes, there are some bottlenecks associated with real estate investment. In this article, we will discuss why you should invest in gold instead of real estate.
1- Investing in Real Estate is Capital Intensive
Real estate investment requires a large capital, and you must take out a mortgage to fund your real estate investment. Not every investor has the required amount of capital or the credit score to be eligible for a mortgage, which makes real estate a capital-intensive investment proposition. While you can indirectly invest in real estate using other options, such as REITs and crowdfunding that lowers the capital required to invest in them, the drawback of investing in these investing vehicles is that you do not own the underlying asset fully but only own a portion of the underlying asset equivalent to your investment.
On the other hand, gold could be bought and sold in smaller proportions, so investors with low capital can also buy it. You can easily invest in gold by buying physical gold bars, gold coins, gold stocks, gold ETFs, and virtual gold.
2- Real Estate Involves High Transaction Costs
Buying real estate not only requires large capital, but it also incurs high trading costs as well. For example, if you buy a real estate property, not only would you have to pay for the price of the property but also the transaction costs, such as closing costs, government fees, appraisal fees, the agent’s commission and closing costs, title search fees, etc.
In contrast, buying gold involves negligible trading costs as you can readily buy and sell it due to plenty of buyers and sellers available on the market.
3- Real Estate Investment is Illiquid
Because of the high capital required for real estate investment, there are infrequent and low trading activity on the real estate market with few buyers and sellers. This means that if you want to buy or sell a real estate property urgently, you won’t be able to do it easily.
On the other hand, gold can be quickly bought and sold at the prevailing market price. Even if you buy or sell large quantities of gold, you will easily find buyers and sellers on the market. This makes gold a liquid investment as you can quickly convert it into cash.
Conclusion
Investing in gold and real estate have their own benefits. Although real estate is a really popular way to building asset for yourself, it wouldn’t hurt to diversify your portfolio in order to have long term gain.