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Real Estate is a more Effective Wealth Creation tool than Business

Friday, June 06, 2014

 

Check out the "rich lists" and you will find many business owners. A lot of these entrepreneurs started out with a small business operation or an innovative idea which developed over time into a very large corporation.

There is no doubt that business investments can deliver an extremely lucrative outcome but there can be drawbacks.

Interviews with high net worth business owners reveal a common theme -- an intense focus on the business and a very significant commitment of time, often at the expense of personal needs and relationships. Today's business world is an extremely complicated scene with various facets to consider -- you are required to wear many different hats or pay for a lot of professional advice.

By contrast, an investment in real estate can deliver all the benefits of a business investment and more, but without all the management headaches.

As with a successful business investment, real estate will give you capital growth, an income stream and tax advantages however with business investments there is an appreciably higher risk (many businesses fail) and a drop in liquidity (it can often take a very long period of time to sell a business operation and they can be difficult to value).  The easiest way to say it is that wealth through property investing is just so much easier, understandable and far less risk.  Far more investors lose in business than by property investing. Property investing, by its very nature, investing in bricks and mortar, provides a far more stable and secure investing foundation.

Another factor is funding -- often lenders are reluctant to support the growth plans for a business because it is difficult to get a clear picture of its current financial situation or future prospects. There are generally no such problems with real estate loans because of the easy availability of records and financial data and the more tangible and transparent nature of property assets.  For example, banks will lend up to 95% of the value of a property whereas in most cases they want lend at all for business unless you have property to offer as security. 

While it is possible to operate as a "silent partner" or withdraw from a lot of the day-to-day worries and workloads of a business investment by employing managers, it is in an investor's interest to monitor a business closely.  Property can be a set and forget investment basically as your property manager can look after it for you.  Whereas a business requires constant day to day management.

Property Investing is simply far easier than business investing.

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