Investing in Main Street Versus Investing in Wall Street

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With the Dow Jones Industrial Average having seen a steep decline along with most other major US and international stock indices, many American investors now are in despair about where they should position their investment capital. Meanwhile, the savings rate for American consumers has never been lower. As the credit markets continue to tighten and people have less access to spending cash this could further hamper an economic recovery.

The US government seems intent on doing everything possible to save the banks that are too big fail but they are also funding the high flying lifestyles and big bonuses of the Wall Street executives at the same time. For example, according to a Bloomberg report “Morgan Stanley has accrued $10.7 billion of employee- compensation expense this year, almost twice as much as its pretax earnings. The vast majority of this remuneration hasn’t been paid yet. Now it probably will be, assuming the firm survives through next month.” The outrage over tax payers funding the bonuses of reckless Wall Street traders with US taxpayer dollars should, in my opinion, be much more vocal.

It is one thing to raise a voice in a blog or to make a change with your vote in the presidential elections but I believe a much more effective means of protesting reckless corporate behavior is not to invest in the companies with your own money. An alternative to buying stocks from Wall Street is to invest directly in Main Street. There are numerous ways to invest directly in Main Street. One investment idea that is gaining in popularity for many is the purchase of an apartment building. It does make a lot of sense to have your money invested in a hard asset during times of inflation and economic uncertainty.

Here are some popular Main Street real estate investments along with their potential rewards and risks.

Buy a residential home and rent it out:

Rewards:

Prices of residential homes have declined dramatically over the last 12 months. You should be able to get a good deal. There are many foreclosures and bank auctions to chose from.

Risks:

Prices could continue to fall. Tax rates for residential homes in many areas are very high. Continued residential foreclosures could cause prices to remain weak for an extended period of time.

Buy land:

Rewards:

Land prices in many areas have remained somewhat constant. If you purchase land in a rapidly growing metro area you could see great appreciation.

Risks:

Raw land does not produce any income. Land is notoriously illiquid. This means that you may have to wait a long time to sell it when you need money. Prices of land increase and decrease rapidly. There is a lot of volatility in land prices.

Buy a shopping center:

Rewards:

Top national chains can be a source of predictable and stable income.

Risks:

It can take a long time to replace a commercial retail tenant. When you have a vacancy you still have to pay your taxes and insurance. More and more sales are taking place online. The future for commercial real estate in the retail sector looks very weak.

Buy an apartment building:

Rewards:

Apartment building investments can show a steady rate of return with stable base of renters paying monthly rent.

Risks:

If the economy continues to weaken many jobs will be lost. There will be an increased number of people who are unable to pay their rent.

Photo Credit: ckubber

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.