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Real EstateVs. Capital Market

As we all know that real estate in GTA area has performed very well in the last 20 years.

What are the advantages of investing in real estate?

The two biggest advantages in investing in real estate are

1) Borrow to investAs you can borrow the money from bank or any other lending institution in the upward market condition you can magnify your returns.

2) Generate rental income. Real estate generates approximately 4% rental income that can be used to cover a portion of carrying cost of the investments.

What are the disadvantages of investing in real estate?

There are many disadvantages also when it comes to investing in real estate.

1) High acquisition cost

When you buy a real – estate, acquiring the investment property involves a lot of fees and charges such as lawyer fee and closing costs, Land transfer tax etc.

The other things need to be considered while renting out the investment property are

a) Maintenance and repairs

b) A bad tenant might derail your plan as it is very hard to get a tenant out of your property.

Also selling the investment property comes at a cost like

a) Realtor’s Commission

b) Lawyer fees

c) Maintenance and repairs involved to list the property in market.

After selling the investment property the tax situation is very unfavourable as you have to realise the gains in that particular tax year. The gains can not be deferred.

In the current market condition, the liquidity is not a challenge but in a more balanced scenario liquidity is also challenge as it can not be sold in a short period of time like stocks or mutual funds.

What are the advantages of investing in capital markets?

Capital market in general have delivered 10 – 12% annualised rate of return. That means your capital investment gets doubled at least every 7 to 8 years. The other advantages of investing in capital markets are your investment are fully liquid and you can redeem the investment within 24 to 48 hours. From tax standpoint also it makes a lot of sense to invest in capital markets as you do not have to realize the gains in one tax year.

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