Rental income vs Speculative trading real estate

Rental income vs Speculative trading real estate

Rental income and speculative trading real estate are both different tools to achieve your objectives in real estate investments. Imlaak’s one crore challenge specifically revolves around speculative trading and how you can multiply your investments from 1 crore to 2 billion in 30 years. On the other hand, we have rental income which has proven to multiply your investments 8 to 9 times in 15 years. So how do both of these fare with each other and which is the right kind of investment for you?

Experience

In order to be successfully trading real estate, you need a lot of experience. If you lack experience, you are more likely to make mistakes while trading real estate and fail most of the times. In the world of speculative trading, things are more easier said than done. It is much easier to look back at things and see the right time to buy and sell but most of you get it wrong when making decisions in an unknown market.

One the other hand in order to acquire rental properties you may need a lot of info but you can do pretty well without lots of experience. It is simpler to execute and easier to manage.

Risk

Speculative trading is risky and sometimes you can lose a lot of money or end up waiting for a very long period. One bad trade can upset your entire portfolio and long-term goals. Risk is where the basic problem lays with this kind of investment. It is not always a win-win and while you don’t always lose your asset, your asset may depreciate and lose value.

When it comes to rental properties the risks are minimal. Tenancy & vacancy issues may arise at times which may affect your income but the risk of losing your capital is the bare minimum at any time.

Holding Power

If you are venturing into the world of speculative trading, I always suggest that you must have an appetite for holding your assets. As warren buffet famously quoted about stocks that if you do not want to hold an asset for 10 years don’t bother holding it for 5 mins. That is true for real estate as well, it can be a bumpy unpredictable road and you should be ready to hold the property for long periods of time.

Usually, rental properties are not that volatile and planned for longer holding periods. However, as there is a lower risk to the downside in case of emergency you don’t have to hold it just to avoid losses and can therefore be sold if need be at any given time.

Psychological pressures

Actively trading real estate needs your constant input. It involves critical decision-making and active involvement at all times. In general, speculative trading will create more psychological pressure and constant decision-making can lead to stress.

This one certainly goes to rental properties which offer much more stability and security. This reduces your everyday stress and makes things easier for you while you make money.

Time

Your active involvement in trading real estate means you will need a lot more time to manage it. You must keep yourself ahead of the market and that will involve research, visits, and planning which all will take your precious time. Although This time can be reduced greatly if your assets are managed by a credible investment management company, however still it will take more time as compared to rental income-generating real estate.

Liquidity & resale

Liquidity and resale is an important part of your plan. Assets usually involved in speculative trading offer better liquidity. You can usually find buyers at any given time if the price is right. Rental properties on the other hand maybe a bit slow to liquidate.

So if you want to remain flexible and need to keep cash available from your real estate assets then speculative trading takes the cake.

ROI

When it comes to calculations, speculative trading real estate obviously has a higher ROI than rental income. It may exceed more than 40 to 60% in a year as compared to a steady 10 to 20% in the case of rental properties. This reason alone can be the major reason why some would choose speculative trading over rental income. After all, we are here to make money and if there are more chances to make money in speculative trading then why should you look at other places?

Chances of Success

Well ROI alone isn’t enough to predict how much money you will make. In order to succeed, you need to make money consistently. The more success you have in your trades the better ROI you can achieve over time.

However, even experienced traders can not claim that they can make 50 to 60% consistently every year. In addition, there are long time frames that are not even feasible to do any kind of such trading activity. If you are making an average of 20% per year then you should consider yourself mega-successful.

In my opinion, hardly 10% of people can make that kind of a claim. Whereas the other 10% make anywhere between 10 to 20%. The remaining 80% dont make this much and are usually below 10%  and a huge percentage even makes losses as well.

Things are totally different when it comes to rental properties. Making a steady 10% plus is almost a bare minimum when it comes to rental properties and more than 80% easily achieve this. At least 10% can claim that they made 15 to 20 % in long term consistently and some really smart investors make more than 30% at an average.

What makes more money?

While imlaak offers both programs for its investors, so far our speculative trading program has made more money for our clients. This however can change in the future if real estate doesn’t do well.

Fifteen years past performance of real estate, however, concludes that people who invested in rental properties made 8 crores at least from 1 crore in 15 years and 64 crores in 30. In comparison, successful speculative trading should give 6 crores in 10 years, 38 crores in 20 years, and 3.2 billion from just 1 crore in 30 years at least on papers.

Speculative trading is obviously more attractive and seems too good to be true. However it comes with its own risks and downside, if you want to be stress-free the only good solution is rental income, the choice is yours.

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