When it comes to investing, there are a lot of options to choose from. You can invest in real estate, stocks, bonds, and really any other asset (tangible or otherwise) that you can imagine. Each has its own set of pros and cons that you need to take into account before making a decision.
One of the biggest debates when it comes to investing is whether you should invest in stocks or real estate. Both have pros and cons, and technology has democratized access to both. With tools like real estate lead generation software and stock market investment apps, investing is now more accessible than ever.
So which should you choose? Let’s dive into that below.
Advantages & Disadvantages Of Investing In Real Estate Vs Stock
Real estate has long been considered a sound investment, providing stable returns and security that is unmatched by most other investment opportunities. However as we all saw in 2020 and 2021, the stock market has the potential for delivering unprecedented returns, making some investors look deeper at investing in real estate vs stocks.
Below we’ll explore the pros and cons of real estate investing and the stock market to help you make an informed decision about where to put your money.
Advantages
1. Real estate provides stable returns and cash flow; stocks may not
While the return on real estate can vary, the returns on rental properties are far more stable than stocks.
2. Real estate is a physical asset that can be used as collateral; stocks are not.
When looking at real estate investing vs stocks, remember that Rental properties help you invest in more rental properties; by putting up your investment property as collateral, you’re able to secure loans from financial institutions (or other investors) and secure more investment properties, allowing you to expand your business.
3. Real estate offers tax advantages; stocks may not
Owning real estate gives you access to tax write offs for property taxes, property insurance and more. Depending on your stock investment strategy, stocks may not offer access to these same write offs.
4. Real estate typically appreciates in value over time; stocks may not
The thing about real estate vs stocks is, real estate rarely depreciates in value. The chance of “buying high and selling low” is much greater with stocks than with real estate.
5. Real estate is a more tangible investment than stocks
While stocks are a great investment, many investors look for more “tangible” assets. You can’t “show” someone your stock portfolio. Investment properties, on the other hand, are something you can touch and see. And on top of that, they have a tangible, accepted market value.
When investors use a real estate comp software, they’re able to make accurate guesses on what real people are really willing to pay for this tangible asset.
The stock market, on the other hand, is largely based on speculation.
Disadvantages
1. Liquidating real estate investments can be more difficult than liquidating stocks.
In a market downturn, it’s easier and faster to unload stocks than it is to sell investment properties.
2. It can be more difficult to find tenants for real estate investments
Real estate investing is usually more involved than investing in stocks, and a lot of that legwork comes in the form of finding tenants. Depending on the area and rental agreement, you could be looking at finding and vetting new tenants every month.
3. Property taxes and maintenance costs can be high
Property ownership comes with costs. Property taxes, mortgages, HOA fees, maintenance, etc etc. Finding a reputable property manager is absolutely crucial if you plan on renting out several properties.
4. Fluctuations in the real estate market can cause losses on investments
When looking at real estate vs stocks, remember that every investment carries some element of risk. Real estate is no different, and is not a “100% sure-fire” investment.
5. It can take longer to see a return on real estate investments
Real estate investing often operates on a 10-15 year time horizon. For some investors, this may not provide returns fast enough.
Advantages & Disadvantages Of Investing In Stocks Vs Real Estate
It’s no secret that the stock market can be a risky investment (case in point – this past year). And when you’re looking at investing in real estate vs stocks, there are some cases where it makes sense.
But to assess this for yourself, we’ll look at some of the pros and cons of investing in the stock market.
Advantages
- Potential for higher returns than real estate
Real estate investing isn’t a “get rich overnight” operation. And while it’s very rare, the stock market has the potential to create these overnight success stories.
- Diversification of assets across many companies
The stock market helps investors diversify their portfolio. While investors can diversify their real estate portfolio between residential and commercial, stocks allow investors to invest across all industries.
- Easier to enter and exit the market than real estate
While there are several real estate investment platforms that allow you to invest in partial properties (think Fundrise), at the end of the day when looking at real estate investing vs stocks, technology and automated investing has made stocks an easier investment environment to enter, and with less of a learning curve.
Disadvantages
1. The stock market is unpredictable and can be volatile
Despite what they may say – it is nearly impossible to predict the stock market. Real estate markets are far more stable entities.
2. There are fees associated with buying and selling stocks
You usually incur a broker fee when buying/selling stocks. When you buy and sell frequently to try to time the market, those broker fees can eat into your profit margin.
3. The stock market moves up and down much faster than the real estate market
If your profit strategy is based on timing the market, you may have to make decisions in a matter of minutes that will make or break this strategy. Most investors aren’t built for this style of investing.
Investing In Stocks Vs Real Estate: The Verdict
In the end, whether you choose to invest in real estate or stocks will depend on;
- How much time you have to invest in a learning curve
- If you’re willing to actively take care of properties and look for tenants (or hire a property manager to do this)
- What your “risk vs reward” appetite is
- How important it is for you to be able to exit your investments quickly
After reading the blog, it is clear that both real estate and stocks have their own set of advantages and disadvantages. Real estate is a tangible investment that provides stable returns and security, while stocks offer higher liquidity and easier diversification. However, stocks are more volatile than real estate, and real estate requires more initial capital and time. It is important to consider your financial situation, risk tolerance, goals, and investment style before deciding which one to invest in. As a Real Estate Management Software services provider in India, ProBro can help investors manage their real estate investments more efficiently and effectively.