Special offer

Real Estate vs Stock Investing: What's the Difference?

By
Education & Training with Interurban Properties

There are many real estate vs stocks debates going on out there. Some people believe real estate is always a better investment than stocks, while others insist that real estate is not worth the risk and argue that stocks should be your go-to investment option.

 

However, it's important to note that real estate and stocks are two different investments with different pros and cons.

 

In this article, we break down how they're different from one another so you can make an informed decision about which type of investment to pursue yourself or your family!


Be honest about your risk tolerance and lifestyle preferences

How should I choose a stock or real estate? The choice should be honest to me to determine my risk tolerance and my lifestyle choices. Both investment strategies are available with their advantages and disadvantages, which is very much dependent on one's finances and budget.

 

Learn about the difference between the two will guide you in your way of planning for the future. It is easy to create diversified wealth by investing using index funds in a range of sectors.

 

In real estate, money can tie up at the onset of the sell-back, but people can buy and sell companies on any occasion on stock markets. Like stocks, it is possible to invest dividends in investment income in REITs similarly as a stock does and increase its value for its investment.


Real Estate vs Stocks

If you want to buy a house, you need to make some money and set aside a little money first. Since investors may borrow real estate from others, it is sometimes possible to expand any of your holdings even if they are difficult to cover with any form of.

 

This attractive property attracts potential investors because it is a tangible asset that can be managed with the benefits of diversification. Most investors are making money from rental and appreciation.

 

With stocks you don’t need lots of money to start it can become part of your monthly routine over time creating a passive income. 

Investing in Real Estate

Real estate investment opportunities fall under two broad categories: residential and commercial. 

 

Commercial premises include apartment complexes, offices, strip malls and strip stores. 

 

Real-time can be purchased or traded or bought or sold. Residential real estate is more complicated because it includes real estate like personal residences, vacation homes and timeshares.


Pros and Cons: Real Estate Pros

- Diversification: real estate investment provides an additional investment option.

- Appreciation: real estate is theoretically able to appreciate at a price. This is one of the only asset classes that increase in value as the real estate cycle progresses from a downturn to recovery to a boom.

- Low maintenance: real estate doesn't require much work besides paying for upkeep or hiring someone to do it for you.

- Legal ownership: real estate investments are more tangible than stocks, so there's less of a chance of getting ripped off.


Cons

- Higher risk: real estate investments carry high levels of risk, including the possibility that you won't be able to sell your property at all.

- Higher transaction costs: real estate purchase transactions cost more in commissions, closing costs and realtor fees. You also have to worry about maintenance and repairs, which can be costly if you're not good at DIY work.

- High opportunity cost: real estate investments might lead to less money for other types of investment like stocks and bonds.

 Tell Me The Difference Between Investing In Real Estate and Investing In Stocks?

Real estate stocks are generally correlated with interest rates fluctuations over brief periods. Rising interest rates are bad for REITs, and the Federal Reserve had eight hike rate adjustments in the last three years. 

Over more prolonged periods, however, the effects of interest rates tend to balance out, which can give us an in-depth look at how their performance stacks up. For those looking at the most prolonged period, you will find that they perform similar to property, however with a significant competitive advantage to the real estate. It will be an imperfect conclusion because other ways to invest in real estate besides real estate will also be different.


Real Estate as an Investment Has a Much Higher Return Potential

Lenders typically finance investment properties with down payments of between 20-25% of an investment property. For an investment in a primary home, the downpayment requirements can significantly decrease.

This leverage is an effect by which modest returns become extremely strong. It's the second advantage to rent investment properties on real estate to create passive income. 

Property investment trusts gain additional tax benefits because they avoid corporate taxes when they pay most of their income as dividends. Rental income combined with other tax advantages can produce an investment strategy with attractive long-term gains, the author says.


Investing in Stocks

Stocks are more speculative than real estate and require a lot of knowledge to be successful. You have to know which stocks will rise in value before you invest your money into them because otherwise, the worst thing that can happen is for your investment to go down instead of up.

With stocks, you can use services like Motley Fool to help you pick stocks without having to invest your time in lots of research. Check out this Motley Fool Stock Advisor review for more information.


Investing in Stocks Pros and Cons

For most investors, it doesn't require a significant investment to enter the shares. Unlike real estate, the stock is not a hard-to-sell commodity and is primarily bought and sold quickly.

If you decide to sell your stocks, you may incur more taxes on the sales. 

 

If you trade stocks, it might be necessary to raise taxes, but that is unlikely unless you have a lot of money on hand. 

Stocks tend not to go up much quicker. This can be harder for an investor, even when the underlying stocks are in a panic. Some stocks go sideways for years, or else they go sideways for long periods.


Pros

- Investing in the stock market is straightforward and doesn't require a significant investment to enter.

- There are lots of investing books around to help you learn about investing.

- It's possible to sell stocks without incurring a lot of taxes.

- Stock prices don't tend to go up much quicker than other types of investments.

- Some stocks even go sideways for years, or else they go sideways for long periods.


Cons

- Investing in the stock market requires a high level of knowledge and experience because if you pick wrong, it may result in a loss instead of profit.

- Investors might incur more taxes on the sale of stocks.

- Stock prices can go up quickly if the underlying stocks are in a panic.

- Stocks don't tend to hold their value and other types of investments such as real estate or bonds, which means that they might not be a good investment for some people.

Investing in stocks can be risky and requires a high level of knowledge, but the pros often overshadow the cons. You don't need to invest a large amount of money in entering into this market either, which is one reason why it's popular with beginners looking for an investment strategy that doesn't require much risk. 


Real Estate vs Stocks Conclusion

Many people are unsure of the difference between investing in real estate and stocks. To start, it's essential to know that both investments require a lot of time and knowledge before you invest your money into them.

 

The most apparent difference is that when you invest in real estate, the property becomes a hard-to-sell commodity, while with stock trading, shares are mostly bought and sold quickly.

One big pro for buying stocks is that they don't typically go up as quickly as other types of investments like real estate or bonds do. 

 

This means there isn't much risk involved if an investor doesn't have a large amount of money on hand (not to mention how easy it is to enter this market).

 

Investors should do their research on both, and to have a truly balanced portfolio, you could consider opting for real estate and stock market investing.

 

This post was written by Mary Elizabeth and has been published with permission. You can find her writing at MeMoreMoney.com.