Real Estate vs Stocks: Which Is the Right Investment for You

Buying a home, renovating it, and reselling it quickly at a higher price is a growing business venture. And one that’s competing with the stock market.

Some argue that real estate is a better investment than stocks because it’s less volatile and more tangible. The truth is that both have their own advantages and disadvantages.

So, before you decide which is a better investment, get to know more about the pros and cons – summarized for you below. You’re welcome!

Investing in Real Estate

Real estate investing is a strategy that has generated long-term wealth for many people over the last couple of decades. Many investors would tell you that this is a better way to invest because it feels more real as you’re buying tangible goods.

And it’s no secret that real estate can be very lucrative nowadays, obviously depending on different factors such as location, debt leverage and demand.

Investors will mainly be interested in two types of real estate – residential and commercial. Investors who buy residential real estate are investing in places for people to live in. Investors who buy commercial real estate are investing in properties with the aim of leasing spaces to businesses. For example, to provide a workspace or storage space.

To succeed in property, it’s important to make the most of capital that’s invested. Real estate investors usually get a mortgage to invest in more properties and ultimately make a profit from their properties.

This is the bright side of investing in real estate, but if your capital isn’t used to its maximum advantage, investors might be left with huge debts that exceed the the total worth of their properties.

Exploring the stock market

Simply put, buying a stock is a way to invest in a public company. A stock represents a share in the ownership of the company, and as an investor you’ll receive a portion of its earnings and assets.

You’ll make a profit as long as the company’s performing well. However, during times of financial or economic crisis, you may experience some losses as the earnings of the company decrease. With this in mind, choosing a long-term strategy and building a well diversified portfolio should help keep your earnings steady .

We know that the stock market can be intimidating, especially with all the confusing information about economic indexes, and financial terms that few people understand. But don’t worry, we're here to help you become a smart investor, and show you everything you should know about stocks.

Should I buy Real Estate or Stocks?

Now that you’re up to speed on the difference between real estate and stock investing, let’s dive into some cold hard facts and compare the overall performance of these popular investment strategies.

Rate of return

It is difficult to predict whether you’ll earn more investing in real estate or stocks. The return on every investment depends on the skills of the investor to read the signals of the market, as well as other external factors.

But if we look at the stats, we can safely say that stocks wins hands down as a long term investment. Over the past 60 years, stocks have returned an average of 7-10% a year compared to just 2-4% for real estate.

Liquidity

This just means how easily assets can be converted into cash, or how easily you can sell something. For example, you can sell stocks in just a few clicks, while with real estate it’s a time-consuming process.

To sell your property, you’ll need to list it, fill out the paperwork, handle negotiations and so on.

Fees and expenses

When it comes to costs, stocks are a much smaller investment than property. And trading is becoming even more cost-effective, with new ways to invest.

If we take a look at the expenses for real estate (sales agent commission fees, home inspections and insurance policies, to name just a few), you can start to understand how profit margins get smaller and smaller.

Diversification

Unless you have a lot of money, owning properties in Beijing, California, Paris, Amsterdam, and other desirable cities, is just a pipe dream.

Some argue that you can diversify your property portfolio through real estate investment trusts (REITs), but most of these trusts specialize in one real-estate sector. For example, you’ll see office REITs or healthcare REITs.

A portfolio of stocks on the other hand is a lot easier to diversify, and you can even buy Exchange-Traded Funds (stock bundles that are already diversified).

Ease to protect

If the stock market gets ugly, you can easily sell your investments (although we do recommend that you make long-term investments). But when the real-estate market hits rock bottom, you’ll struggle to get reasonable offers.

Even if you do get lucky and receive an offer that helps you break even, you’ll still be stuck with the complicated and long-winded process of selling your property.

Initial costs

When you purchase a property, you’ll need to make a down payment and have cash available for any initial repairs. If you don’t move into the property while you’re refurbishing, you’ll still have to pay taxes, maintenance, utilities, insurance, and more – costs that gradually eat away at your funds.

In comparison, stocks can be as cheap as you choose. For example, you can buy fractional shares (a fraction of a whole share) to start investing with as little as $5, make one-off investments and purchase more shares later on.

What's the bottom line?

At the end of the day, we can’t really tell you if one strategy is better than the other. It really boils down to what your interests are, and where you feel comfortable investing your money.

Find investing in stocks intimidating? Don’t worry, you’re not alone. All you need to do is to build up your confidence to start investing!