Should I Invest in Real Estate or a Small Business?

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Hey Taylor - Would you recommend investing in real estate or a small business? I’ve got some extra savings I’m looking to invest and trying to decide between the two options. - Justin

Hey Justin - I’m a big fan of both, honestly. If you have the capital and know what you’re doing, I encourage you to explore either option. Since doing both probably isn’t realistic, we can get into the details a little and hopefully figure out which is best for your situation.

First of all, are you planning to invest in someone else’s small business or start your own? Small business investing doesn’t have to entail all the blood, sweat and tears associated with running a company. Of course, when you’re the engine behind the operation, you get to take home a much bigger slice of the pie.

Compared to real estate, business investing comes with higher risk and the potential for higher reward. If you provide funding for another entrepreneur as a loan or in exchange for equity, you can reduce the risk by limiting your exposure. Still, the return all depends on the business and the circumstances.

Real estate certainly comes with risk, but dropping property prices don’t cause land to disappear the way a struggling economy can swallow up small businesses. Even if prices fall significantly, they’re pretty much destined to rise again at some point.

Another important question to ask yourself: is this investment more about diversifying assets or increasing income? Most new companies take a little longer than expected for earnings to pick up, so you shouldn’t expect a quick turnaround on that investment. Meanwhile, if you buy a rental property and pay in cash, you turn that capital into equity and start seeing monthly revenue in a comparatively short amount of time.

You also need to consider how much effort you want to put into investing. If you have the time and interest, you might really enjoy teaming up with a small business owner and calling some of the shots. You could similarly have fun becoming a property owner and renting the place out. If you want to let your money do the work, investing in an expanding company with a solid foundation might be more your speed.

Both of these options are included in my financial bucket list, which you can read about on Active investing is great for your money and your mind, and I think real estate and small businesses make great additions to your financial portfolio. I would spend a little time thinking about what interests you more, then make sure you let sound reasoning and logic drive your decision. Make informed choices and you should be able to move forward without regrets. Good luck, Justin