A lot of individuals might be stuck in the dilemma of trying to decide which investment platform to get involved in – Real estate vs stocks. Well, if you are one of them then you are just in the right place. In this article, I would be trying to bright to the limelight all you need to know about real estate investments as well as stocks.
I would also give a list of pros and cons as it pertains to each investment platform and hope that I would help you in making the right decision for you. Without wasting your time any further let’s get right down to business by first understanding a little bit of what both investment platform entails and mean.
What is Real Estate Investing?
Real estate as we all know is a rising progressive and lucrative industry totaling up to a multitrillion-dollar market as of today.
Real estate continues to grow and be a vital part of our lives. We all at some point need roofs over our head either as a place of work or as a home or as a place which we can engage in leisurely activities and these buildings are constructed and built with certain materials for this key purpose.
Understanding the framework of real estate is embedded in the concepts of Economics, risk and Investment. Real estate investing is a simple game with one goal which is to make profit on capital or on investments used.
Real estate normally requires time for profit to accumulate and as such is called a long-term investment. While all investments have a certain degree of risk, as it relates to real estate investing, the potential for profit most at times surpass the risk involved.
The concept of Real estate is multifaceted and as such before you delve into the world of real estate you would need to narrow down the type of real estate investment you wish to be involved in
How to get Started in real Estate investing
the potentials attached to the real estate sphere is one of the largest as it pertains to economics. With undeniable potential benefits and risks, lending traditions, and access to cash flow cycles you can attest to why so many high-up investors choose this platform.
There are however certain standards to what is legal and what isn’t and as such a proper study of the opportunities is required before adding up such investments to your portfolio. It is also key to note that most investors as it pertains to real estate rarely buy investments directly in their name for a number of reasons which most are of security.
Most real estate investors do this as a form of a fail switch or lifeline in case of asset freezing or some other lawsuit settlement issue that might take a toll on your stated assets.
For this reason, most real estate investors form legal entities for purchasing investments such as limited liability corporations (LLC).
These are basic rules that anyone that wants to get into the market has to be aware of. As they say, “information is power” and with this, you can afford certain mistakes as a newbie in the real estate investment market.
What are the ways to Invest in Real Estate
There are a number of ways in which you can invest in real estate. Of the numerous ways that are known, Real estate investment trusts, or REITs, are particularly the most popular in the investment community.
Investing through a REIT gives you certain benefits in which you don’t buy the real estate property directly but buy shares of the corporation that owns the real estate property of interest and practically distributes its income as dividends.
What are stocks?
Now we have grasped the basic concept of real estate, let’s look into the next market of interest which is the stocks market.
Essentially, stocks which are also known as equity is a security that represents the owner of a fraction of a corporation. The owner of the stock, however, is entitled to portions of the corporation’s assets and profits equal or equivalent to how much stock they own.
The standard units of stocks are called shares. Stocks could be purchased or sold in a stock exchange market. Stocks could also be sold on private sales and are the foundation of many investor portfolios.
All transactions that are stock-based must also conform to government regulations which are meant to protect investors from various fraudulent activities which include money laundering.
Over time, it could be said that stocks are one of the most stable investment platforms which have withstood the test of time and have the longest standing profitability with minimal risk. You could also purchase stocks from online stockbrokers as well as online exchanges that support the stock feature.
Taking a look at stocks without going deep into specifics, stocks are majorly divided into two main types which are: common stocks and preferred stocks.
Common Stockholders have the right to receive dividends and vote in shareholder meetings whereas preferred stockholders are limited and are not at liberty to vote in stakeholder meetings.
Preferred stakeholders typically receive a higher return on investment and in event of liquidation or bankruptcy a greater claim on assets as compared to the common stakeholders. So, there you have it, the basics behind stocks and what it truly means.
Next, we would be looking at how and where these stocks can be purchased to better solidify the knowledge so far. So, let’s get to it.
How do you buy a stock?
To get started on your stock investment journey you would need to acquire some stocks which are bought or sold on stock exchanges such as NASDAQ or the New York Stock Exchange.
Most at times, you would be required to wait for a company to go public through an initial public offering which makes their shares available for the general public and interested investors to buy and sell on an exchange.
Typically, investors make use of a brokered account to purchase stocks on these exchanges which would list the purchasing price (bid) or the selling price (offer) for the stock.
The price of a stock is greatly influenced by supply and demand factors in the market amongst other variables as well.
Real Estate vs Stocks
Now let’s get right down to the main purpose of this write-up. I would try to compare both investment platforms on a specific basis rather than a whole to help grasp the concept properly and discern which is the right fit for you. So first on the list is Returns:
Returns: Real Estate vs. Stocks
As benefits are concerned, the stocks investment is the most likely best fit as it has a high return rate.
Unfortunately, this return on investments is not always constant and there also is a roof to how much in benefit and gain you can make off the venture.
Comparing both factors as it pertains to benefits and returns however is a bit dicey cause factors that affect price, values, and returns as well vary greatly for both platforms.
Risks: Real Estate vs. Stocks
When it comes to real estate and the risks associated with it, it is the most important risk that you do your research and a lot of it I might add.
Real estate is a long-term game, never a sprint or a get rich quick scheme. You would have to do your due diligence and wait for your returns in due time. In Real estate, you don’t have to worry about liquidation but you also can’t cash out quickly either so if you are in need of some quick cash, sadly your real estate investment can’t come to the rescue.
Other risks also exist as it pertains to handling repairs and managing rentals, however is for those with rental properties. As an investor, you may consider hiring a contractor to handle repairs and renovations of your properties and also a property manager to oversee the upkeep of your rental.
This would greatly reduce the stress and time spent overseeing the investment.
On the other hand, as regards stocks, the stock market is subject to several risks like market, economic, and inflationary risks.
Stock values can also be extremely volatile with unpredictable price fluctuations in the market and this volatility can be caused by any such news ranging from geopolitical to company-specific events.
Stocks are also subject to the economic cycle, monetary policy, regulations, tax revisions, and changes in the interest rates set by a country’s central bank.
Other Stock risks may be as a result of the investor themselves. Choosing not to diversify your holdings also exposes you to greater risk.
In my own personal opinion, I think that stocks pose greater risks than real estate but also bear in mind that stocks can give you that 1000% ROI, and it could also be withdrawn and used to solve immediate problems. But you know what they say, “greater risk, greater reward”.
Next up is a shortlist of the pros and cons of each investment to help streamline your decisions. There’s really nothing better than a double check especially when money is involved.
What are the Pros and Cons of Real Estate vs Stocks?
For real estate investors, there are a few pros that come with having a few real estate investments in your portfolio. As a real estate investor, you have leverage over your capital with a lucrative long-term cash flow and no liquidation risks.
Unfortunately, real estate requires a good share of capital to get started and due to its lack of liquidity, it can’t be sold at a moment’s notice.
Other disadvantages include the costs associated with property management and the investment of time that goes into repairs and maintenance.
- Passive income
- Tax advantages
- Hedge against inflation
- Ability to leverage
- More work than buying stocks
- Expensive and illiquid
- High transaction costs
- Appreciation isn’t guaranteed
Okay, that’s it on real estate. Now, let’s take a look at what stocks have to offer.
As a stock investor, you don’t need to break the bank to get started, and to top it all off, stocks are liquid and can be sold or both at any time. A big win for stocks here.
Also, the lists of stocks to choose from are endless and as such provide a means to diversify your portfolio.
Sadly, however, stocks are quite volatile, leading to a riskier investment. Also, selling your stocks may result in a capital gains tax.
- Highly liquid
- Easy to diversify
- Low transaction fees
- Easy to add to tax-advantaged retirement accounts
- More volatile than real estate
- Selling stocks can trigger big taxes
- Some stocks move sideways for years
- Potential for emotion-driven investing
Frequently asked questions
Stocks basically, is a security that represents the owner of a fraction of a corporation and entitles this owner to portions of the corporation’s assets and profits equal or equivalent to how much stock they own.
Real estate investing involves the purchase, ownership, management, rental and/sale of real estate for profit.
There are a number of ways to invest in real estate but the most popular is the real estate investment trusts
With all we have seen so far, I can’t actively pick which of both investments is better. I would rather leave the choice to you cause it’s more of a personal venture.
If you look at the specifications, pros, and cons of each investment, you can choose which best works for you and go after it as best you can and all I can wish you is the best of luck, and thanks for reading.