Mutual fund vs Real estate

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What is better buying a house or investing in mutual fund ?

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Er. B
62 months ago

4 answers

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It also depends on your location and market. When you are in countries like India, China and Phillipense real estate gives you much better returns than any other bond. But at the same time - your initial investment has to be equally high. Also in real estate ( in the South Asian market) there are three categories - 
1. Land
2. Personal Real Estate
3. Commercial Real Estate
If you can invest somewhere near a metro or any growing city, any of the above can give you tremendous return ( Commercial real estate is not a very popular investment option there though). However, there is a lot of risks since the market is not very well regulated. Like in India, the recent collapses of big builders (DLF, JP etc) and the hook from apex court has made things little better for the new investors.

In North America, the real estate market is well regulated compared to south Asian countries. You can find the history of a particular area in terms of ROI. And hence decide your budgets too. As a small investor, there are plenty of options.

But if you are not into the investment of physical properties you can try REIT (Real Estate Investment Fund). However, REIT funds are not that great in India and China ( and many other south Asian market). India had a plan to launch a REIT fund in 2018 ( And same year China also promised), but I am not sure what is the situation now. Even if they are available, I am not sure how good.

Hitesh Mathpal
62 months ago
Many thanks - very interesting - Dr. David E. 62 months ago
Interesting. REI will take a long time to establish there. However, they need to regulate the real estate market first. You rightly mentioned the example of JP. Thanks - Maya 62 months ago
Appreciate it - Dr. David E. 62 months ago
Hitesh Mathpal really interesting...... thanks - Er. 62 months ago
DITTO - Dr. David E. 62 months ago
Thanks - Hitesh 62 months ago
Interesting information. - Charu 62 months ago
Valuable information. Investment in land and property in growing city shall be better preference. - Er. Jangyadutta 62 months ago
OK - not new info - Dr. David E. 62 months ago
As opposed to a dying city? - Dr. David E. 62 months ago
Valuable information.... - Er. 62 months ago
Thanks - Dr. David E. 62 months ago
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Real Estate Investment Trusts

In general, two characteristics of real estate as an alternative asset class are a deficiency in liquidity and a lack of direct comparability across properties. The lack of liquidity comes from the fact that the real estate market is a negotiated market with individual transactions that typically occur infrequently. 

Real Estate Investment Trusts or REITs were developed in part, to help offer greater liquidity to real estate investors. REITs are generally traded on organized stock exchanges, thus providing investors a mechanism for buying and selling real estate related investments in an efficient manner. Likewise, REITs generally allow investors to acquire diversified exposure to real estate securities, since REITs generally invest in multiple underlying properties. 

REITs essentially are a hybrid investment.

The investment category maintains aspects of both fixed income investments (with their reliable interest) and equities (ability to appreciate in value). REITs produce a regular stream of cash, primarily by collecting rents from the numerous tenants occupying the properties they manage. By law, REITs must pay out at least 90% of their taxable income annually as dividends to shareholders. This high dividend payout requirement means a majority share of REIT investment returns come from dividends. This amalgamation of characteristics has historically provided REIT investors with greater higher total returns than many other investments. 

According to NAREIT (National Association of Real Estate Investment Trusts), REIT total return performance over the past twenty years has outstripped the performance of the S&P 500 Index, the Barclays U.S. Aggregate Bond Index, and even the rate of inflation. REITs thus provide significant return benefits for medical professionals. 

Additionally, the correlation of REITS over the 20-year period from the end of 1991 to year-end 2011 demonstrated REITs maintained a low to moderate correlation with large-cap, small-cap, international stocks, as well as U.S. and international bonds.

For example large-cap equities and equity REITs were only 56% correlated in the same period. This indicates REITs also provide solid diversification benefits. A key portfolio advantage of REIT diversification is the potential to increase long-term returns without taking on additional risk. NAREIT has found that reallocating 10% of a diversified 60/40 portfolio to equity REITs would have improved annual returns by 0.5% per year on average from 1991 to 2011. That could add up to thousands of dollars of additional gains over 20 years without any additional risk. 

Any thoughts?
Any thoughts? 

Dr. David E. M
62 months ago
Very well insight. - Hitesh 62 months ago
Many thanks to you - Dr. David E. 62 months ago
Mark Cuban wrote an interesting piece on his website. On it, he asks; “so what’s the difference between being underwater on a mortgage and underwater on a stock?” - Dr. David E. 62 months ago
Dr. David E. Marcinko MBA very informative .... - Er. 62 months ago
Many thanks for kind words - Dr. David E. 62 months ago
A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. While there is no legal definition of the term "mutual fund", it is most commonly applied to so-called open-end investment companies, which are collective investment vehicles that are regulated and sold to the general public on a daily basis. - Dr. David E. 62 months ago
Totally agreed ,also mutual funds are coming with disclaimer ''Subject to market risk". So it has definitely a big risk ahead. Now a days also buying a property is not that easy .lots of frauds are there in real eastate business. - Er. 62 months ago
Mutual Fund investment has risk. - Er. Jangyadutta 62 months ago
ALL investments have risk - Dr. David E. 62 months ago
All investment has risk and you can reduce the risk by calculating risk factor perfectly and by doing research on scheme or plan you are going to investment. - Er. 62 months ago
Agreed - Dr. David E. 62 months ago
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All things being equal (which is rare) it is a no brainer question. Stocks will beat real estate in the aggregate every time. So a mutual fund that invests in stocks and generates average returns (low cost index fund) will beat the average real estate investment over a similar time period. One can easily find exceptions on both sides but it becomes a pointless exercise with 20/20 hindsight. Real Estate and Equities move according to different cycles and respond to externalities differently and that makes myopic comparisons fantastic while distorting the long term expected return.

Anthony J
62 months ago
Todays an ETF or ondex fund might be better - Dr. David E. 62 months ago
Real estate investment is comparatively secured and long term investment. - Er. Jangyadutta 62 months ago
Much easier to get diversification with equities than real estate. - Anthony 62 months ago
Of course but REITS have helped the last two decades, or so. - Dr. David E. 62 months ago
If you take the leverage factor out the appreciation for real estate is more like a bond. You get the leverage because of a strong underlying asset. With stocks you get less leverage because a share is less tangible than real estate. That is precise reason why stock is better investment. You get paid a higher risk premium. - Anthony 62 months ago
But, REITS can be for capital appreciation, OR income OR total return. - Dr. David E. 62 months ago
income REITs like bonds - Dr. David E. 62 months ago
capital appreciation REITs like stocks- - Dr. David E. 62 months ago
combined hybrid REITS for total return - Dr. David E. 62 months ago
The original question was real estate versus mutual funds. REITS are in between the two and not really a real estate investment in the pure sense. - Anthony 62 months ago
Sorry disagree = real estate diversificatuon is REIT - Dr. David E. 62 months ago
With a REIT you are also buying a management company which you don’t do with direct asset purchase. - Anthony 62 months ago
YEP - So, do you want to hunt for tenants, vet them, repair the RE, get insurance, collect rents, evict non-payers, wait for appreciation, etc etc etc? - Dr. David E. 62 months ago
direct asset purchase = requires more upfront money and more risk - Dr. David E. 62 months ago
I don’t want to so I buy stocks. But the initial question was “buy a house or buy mutual funds" - Anthony 62 months ago
REITs can be residential [house] OR commercial - Dr. David E. 62 months ago
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Investment in mutual fund is preferable because diversification and professional money management play important consideration for investor as it offer choice, liquidity and convenience, but charge fees and often require minimum investments.

Er. Jangyadutta D
62 months ago
TRUE in the old days - todays an ETF might be better. - Dr. David E. 62 months ago
A MF investment for a house is a REIT - Dr. David E. 62 months ago
Er. Jangyadutta Das,CEO,Consultant,Researcher, well said,Mf is liquid money we can change the plan and adjust your profit and loss as well..But in real estate you need also maintenance cost to manage your properties. - Er. 62 months ago
Dr. David E. Marcinko MBA ETF is great now.Again it needs a huge research and knowledge to invest in proper manner. - Er. 62 months ago
In all sectors and industries - Dr. David E. 62 months ago

Have some input?