Should You Invest in Real Estate or Stocks?

If you ask, “which makes for a better investment – real estate or stocks?” it is almost like asking somebody whether Nestle chocolate or Cadbury chocolate is better, or whether a Bentley is superior to an Aston Martin. This is because there isn’t really a direct answer as most of it does involve the individual’s personal preferences.

However, the main idea is that both stocks and real estate can make fantastic investments and the great thing about the two is that absolutely anyone can make an investment – even without a prior educational background. After all, the beauty of it is that the two most well known pathways to gaining financial independence don’t even need a college degree!

Pros of Investing in Real Estate

#1 Real estate tends to be a comfy investment for those in the lower and middle classes due to the fact they had more exposure to it growing up, in comparison to the upper classes who tend to have learned about stocks, bonds and other securities throughout their years. After all, it is well known for young children and teens to grow up hearing the importance of owning their own homes.

#2 When you are investing in real estate, you have the luxury of investing in something that is physically there and that is a major driving factor which allows for people to prefer real estate over stocks.

#3 It is a lot harder to be defrauded when it comes to real estate in comparison to the stock market, because as long as you do your research, inspect the property, keep up with the repairs and run a background check on potential tenants, you have general control over it. However, when it comes to stocks, you have a lot less control and need to have faith in the management and the auditors.

#4 There are many other positive benefits when it comes to investing in real estate, such as depreciation and selling your property via the 1031 exchange, so that you won’t have to pay any capital gain taxes (bearing in mind that you have to invest the money that you get into a similar type of property).  Real estate investments allow owners to write off expenses, which give them tax savings, and historically, property values increase, allowing the equity to grow.

 

Cons of Investing in Real Estate

#1 In comparison to stocks, real estate requires a lot more hands-on work. For example, if you choose to manage your rental property by yourself, you may find yourself having to deal with midnight phone calls about gas leaks or face the possibility of getting sued over a wide range of things that might never have even crossed your mind.

#2 There is an ongoing cost that is associated with real estate. Even if the house is unoccupied, you will still have to dish out money to pay off your property taxes, insurance, utilities and maintenance. Whereas, stocks generally don’t require money for upkeeping.

#3 Another drawback to real estate is its illiquid state. Unlike stocks, when you invest in a property, it takes time to sell it. In most situations, you will have to hold onto the property for a few years before you can realize its true profit potential.