Angel investing and early-stage investing, whether it is at the seed, start-up or early growth funding stage, is undoubtedly a high-risk, high-return asset class. These investors are high net worth individuals who invest in businesses that are just getting off the ground by gauging and forecasting the likelihood of success. Through their investment, they become part owners and shareholders of the company.   

The real estate investment sector, on the other hand, refers to the creation of wealth by investing in infrastructure, land, commercial or residential properties and similar verticals, either independently or as part of a partnership of investors.

Both investment options are illiquid and yield long-term returns, unlike equity, where you can quickly wash your hands off and post profits. The investments can be purely passive and they continue to remain significantly different from each other.

So, which side do the scales of profitability tip?

The attraction of early-stage investing is exciting as the potential for the profits to be as high as ten times are not unheard of. So the chances of money raining in if the start-up succeeds are immense. Exit successes stories of Instagram, Trivago and the likes keep fuelling this investment sector, where the astronomically high payoffs make it difficult to turn a blind eye.

What’s the catch then, you may wonder. The “IF” is the catch. 

A lot of start-ups fail to take off as anticipated. Globally, about 10% of the ventures fail within the very first year of founding and 90% of them have gone under, within five years of setup.

That’s a concern, and not for the weak-hearted investor, who risks losing their entire investment. In the angel investment arena, one must also be prepared to wait it out for the returns to flow in, as it offers limited liquidity with no immediate cash flow. The conventional time to realize profits may range anywhere between five to seven years.

So how does real estate compare to this glitzy world of angel investing?

The value of real estate appreciates over time, and like any other investment, getting into the deal at the opportune time and the appropriate price will determine how much profits you potentially clock. It’s like the classic case of the slow and steady winning the race. Real estate is a long-term investment and capital does double, albeit over several years. 

So why this and not that, you may wonder!

Two significant things. One – you will most likely never lose all your money in real estate, unlike angel investments. Second – real estate is partly liquid when things start going south. 

Let’s explore how.

In real estate, tangible assets or collaterals exist that act as the safety net for most investors. Yes, the assets cannot be sold off immediately to recover capital, but at least the option exists to recover part or most of the investment. 

Additionally, investors may also reap the benefits of steady cash flow based on the asset class chosen. A fall-back opportunity like this is crucial in contrast to, say, a start-up that, if tanked, the entire investment becomes non-recoverable. As the saying goes, riskier investments usually yield better returns. However, your funds are finite and the pandemic that altered the global macroeconomic fabric has brought this reality closer.

Also, seasoned investors get into real estate deals as a team rather than individually. This lends credibility to the project itself and mitigates the risk largely, where multiple investors work for the success of the investment. 

Real estate is also inherently less susceptible to fluctuations in the market, and even when it does, the time it takes to go downhill saves the day for the investor. A multi-tenant property will also continue to generate rental income for investors irrespective of minor upheavals in the economic conditions. This steady cash flow is practically non-existent in angel ventures where the greens are visible only at the end of the tunnel.

The tax benefits offered by certain markets are additionally lucrative when dealing in real estate. For instance, the capital gains taxes on profits registered can be practically written off by repeatedly investing in similar asset classes, over a long period of time. The avenue of deduction of depreciation of the asset, against the income generated, further increases the profitability of such investments.

The exciting gamble of angel investing is thrown off balance at one end by the lack of cash flow and uncertain liquidation at the other. There is no denying the sporadic reward of the start-up if they score.

Real estate has historically proven to appreciate over time, offering cashflows coupled with tax benefits to its investors.

Purely on the premise of stability and alternative profit assurance, the scales tip heavily in favor of real estate as compared to angel investing.