Should you put your money in the stock market or into real estate?
Typically, when trying to make this decision, the main focus for most people is the potential returns from each investment. But there are many other things to consider when weighing the odds of success as a stock market investor versus success as a real estate investor.
What are the pros and cons of investing in real estate versus stocks, and which option should you choose? Upkeep Media Inc. helps us answer this question.
The pros and cons of stocks
Pros
- Lower entry cost
The first reason to buy stocks is you don’t need a lot of money to get started. This makes it accessible to everyone, regardless of their capital.
- High liquidity
Stocks are traded every weekday on the exchange, and finding a buyer is easy. The money you put into stocks is readily available for use during emergencies.
- Low transaction fees
Typically, the only fee you pay is stamp duty/broker fees when buying stocks. You don’t have to deal with complicated accounting as a stock investor.
- Easy to diversify
It is easy to build a diversified portfolio with stocks because of the number of stocks and ETFs available. This helps to spread your risk.
Cons
- High volatility
Stocks often experience huge price swings. Events in the company or economy can trigger sharp downward movements in the price of a stock.
- Vulnerable to emotional decisions
Because stocks are easy to convert to cash and volatile, they are subject to panic selling.
- High taxes when you sell
The lower transaction fee of buying stock is offset by the high tax rate when you sell your stocks.
Pros and cons of real estate
Pros
- A source of steady income
Rent from a property provides predictable and substantial income. It is possible to start earning from a property from day one of buying it.
- You can utilize leverage
Leverage lets you own and profit from more real estate than you can actually buy using your own money. By putting down 20% of the purchase price, you can take ownership of that property as if you paid 100% of its sales price.
- A hedge against inflation
Putting your money into real estate effectively secures it from inflation because real estate appreciates faster than the rate of inflation.
- Numerous tax advantages
Property investors can make tax deductions on several daily costs of running their property.
Cons
- High entry costs
It costs a lot of money to get into real estate investing. If you don’t save enough money to make the property down payment, you will be unable to invest in real estate.
- Not entirely passive
Real estate is not entirely passive. You need to care for the home’s physical structure, advertise for tenants, and see to the comfort of those tenants.
- Illiquidity
Real estate is not easily converted to cash. If you need money at short notice, you can’t get it by selling the property because you have to wait to find a buyer.
- High transaction costs
There are lots of costs involved when you buy real estate. These costs can impact the profits you make on the property.
The verdict: Real estate vs. Stocks
· Income
Even if the rates differ, all rental properties will produce a steady monthly income stream for its owner. This income is fixed, and the owner can increase it by raising the rent or reducing costs.
Conversely, not all stocks pay dividends. Stocks that do pay dividends may not do so monthly. Moreover, there is not much an investor can do to improve the number of dividends received.
· Real estate is tangible and insurable
When you buy real estate, you invest in two tangible assets: the physical building and the land on which it is built. Additionally, the pro
perty’s value is based on the practical uses to which it is put. People will never stop needing a place to live or do business. Real estate, due to being tangible, is insurable. Along with the physical structures, the income from the property can be insured.
· Leverage
When you invest in stocks, your earning is limited to how much money you have, which is not the case with real estate. A property investor may have X amount of money but can buy and profit from property worth five times the money they have. You can’t do this with stocks.
· Risk
The risks involved when investing in property are lower than when investing in stocks. With a real estate investment, there is no chance of the property’s value falling to zero. On the other hand, stocks being intangible assets can lose their value to the point where the entire investment evaporates.
The conclusion
Real estate is the preferred investment option because you can achieve as much as 3-5 times the returns you get from a comparable investment in stocks when you buy a property with leverage.
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