Real Estate Vs Forex

Investing in real estate is a time honoured option that poses tangible advantages but also some real disadvantages, many of which can be countered by the benefits of investing in the currency market. But which one is better for the average investor?

It seems simple – put a down payment on a piece of property and then find a bank that will fund the remaining balance, and you are a property owner! You can then make the decision to either hold onto the piece of property with the intention of selling it in the near future for a profit, or you can establish it as a rental property that will generate some type of revenue stream on a monthly basis. This generally boils down to either a fix and flip situation or a long-term hold to generate monthly revenue and long-term equity.

On the other end of the investment spectrum lies the Forex market. This type of investment is quite different to simply purchasing a property for profit. In the Forex market, a trader will speculate on the fluctuating valuation of a pair of currencies, and attempt to make a profit based on trading these two units. Forex can feel a little bit disconnected when compared to a simple real estate purchase, as there is no physical or tangible commodity that is being purchased – rather, money is made by working the fluctuation between currencies.

Now that we have clarified the basic differences between real estate transactions and Forex investing, let’s take a look at some of the pros and cons of each investment opportunity. While both opportunities provide significant potential for both short and long-term financial gains, they are quite different when viewed in the real-world. 

Profit levels: This factor is obviously quite important, as the desirable net result of any investment is to finish with more money than when you started. However, profitability is viewed a little bit differently when you compare real estate investing and Forex. When it comes to real estate, purchasing a property at one price and then selling it at a much higher price is one of two ways to exercise profitability from the transaction. The other is to establish the property as a rent generating entity, which will provide a monthly influx of money that hopefully exceeds the mortgage payment, taxes, and miscellaneous expenses related to owning the property. When working the Forex market, profitability stems from a series of investments, rather than one large stake. Over the course of dozens of currency swaps, a smart and effective trader may see a 70% profit to loss ratio, which indicates seven out of ten positive moves. In the case of a real estate investment, however, having three failed investments out of ten could potentially bankrupt the investor.

Leverage: Most Forex investors take advantage of the power of leverage. A 50 to 1 leverage ratio means that a $1000 investment enables the investor to work with $50,000 in currency on the market. This can quickly amplify the profit potential during the trade, but it can also result in significantly greater losses than would normally be expected with a $1000 trade. When it comes to purchasing real estate, many investors lack access to enough capital to purchase a property outright. In this case, investors will seek financing from a bank, credit union, private lender, or investment group, which essentially creates a leverage situation. A 10% or 20% down payment allows an investor to acquire and put to work property that is worth 5 to 10 times more than the investor’s down payment.

Added expenses: Investing in the Forex market is a quick and straightforward operation. Generally, the investor will use an online trading platform that purchases currency pairs at a specific price – usually set by the trading group and typically including some kind of a premium. This premium is one way that trading groups generate profit, yet it normally represents a fairly small part of the entire transaction. Beyond that, there are few additional expenses related to Forex trading. When it comes to real estate investing, there is a litany of additional expenses that must be considered. First and foremost are any costs associated with the actual purchase. Down payments, lender fees and out-of-pocket expenses, combined with ongoing costs like insurance, maintenance, and legal fees can add up quickly. One unfortunate side effect of real estate investing is that you’ll need to provide nearly constant care for a large and costly asset.

The verdict?

Investing in real estate versus Forex does provide some benefits, but the flexibility of trading on the Forex market is undeniable. Some investors choose to purchase tangible real estate so that they can leave a legacy to other family members after their deaths. Whilst this is a noble thought, think of the benefit of providing real investable wealth as a legacy to family members, instead of a piece of property that must be maintained and managed. Forex is a different type of investment to real estate, and it requires somebody who wants to be involved, committed, and dialled into the global financial markets. There are few investment opportunities that can provide as large a return as currency swaps, so partner with a reputable firm today to help you to fully understand the power behind investing in Forex.