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?
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 right time to buy and sell but most of you get it wrong when making decisions into the 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.
Speculative trading is risky and some times 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 and while you dont always lose your asset, your asset may depreiciate and loose value.
When it comes to rental properties the risks are minimal. Tenancy & vacancy issues may arise at times which may effect your income but risk of losing your capital is bare minimum at any time.
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 dont 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 property for long periods of time.
Usually rental properties are not that volatile and planned for longer holding periods. However as there is lower risk to downside in case of emergency you dont have to hold it just to avoid losses and can therefore be sold if need be at any given time.
Actively trading real estate needs your constant input. It involves critical decision making and active involvment 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 every day stress and makes things easier for you while you make money.
Your active involvment in trading real estate, means you will need a lot more time to manage it. You must keep yourself ahead of the market tand that will involve research, visits and planning which all will take your rpecious time. Although This time can be reduced greatly if your assets are managed by a credible invetsment managment 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 may be a bit slow to liquidate.
So if you want to remain flexible and need to keep cash available from your real estate assets than speculative trading takes the cake.
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 an year as compared to a steady 10 to 20% in 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 than 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 comsisitently. The more success you have in your trades the better ROI you can achieve over time.
However even the experienced traders can not claim that they can make 50 to 60% consistently every year. In addition there are long time frames which are not even feasible to do any kind of such trading activity. If you are making an average of 20% per year than you should consider yourself mega successful.
In my opinion hardly 10% of people can make that kind of a claim. Where as the other 10% make any where 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.
The 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. Atleast 10% can claim that they made 15 to 20 % in long term consistently and some real smart investors make more than 30% at an average.
What makes more money?
While imlaak offers both programmes for its investors, so far our speculative trading programme has made more money for our clients. This however can change in future if real estate doesnt do well.
Fifteen years past perofrmance of real estate however concludes that people who invested in rental properties made 8 crores atleast from 1 crore in 15 years and 64 crores in 30. In comparision 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 atleast 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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Captain Shahnawaz Bhatti (Retd) is the founder and CEO of Imlaak which is based in DHA Lahore. He has represented a large number of investors in a wide array of real estate transactions. With more then 8 years experience in commercial real estate, marketing and real estate project management, he has a proven track record of guiding national and multi-national clients with their real estate portfolios and asset management. He is also an active real estate blogger and offers free advice through his articles. Imlaak handles real estate transactions valued at well over 9000 million every year. Our specific area of expertise includes strategic planning , transaction management, asset trading, partnerships & venture capitalist with experienced business owners, entrepreneurs, inventors & some proven-concept start-ups. In a very short time, Imlaak has introduced a new vision of professionalism, transparency and hard work in the real estate industry. ‘There is no better time to invest in real estate than today’ Captain S. Bhatti