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Real Estate vs. Stocks: Where to Invest Your Money

When it’s time to invest your money, you’re probably standing at a fork in the road: do you invest in the stock market, or is it better to try your hand at real estate? Real estate and stocks are the two biggest investment fields, and each one has its own unique ups and downs. 

Though both work in roughly the same way, involving the purchase of an asset which can go up or down in value and potentially generate a profit upon sale, that’s where the similarities end. 

Whether you decide to put your money into property or try your luck on Wall Street depends on your investment goals, your financial ability and risk aversion, and the amount of time and effort you want to spend tending to your investment.

Real Estate vs. Stocks: Where to Invest Your Money


Where Real Estate Shines

Passive Income
Real estate investments trade ease of acquisition and liquidation for a variety of unique benefits. Real estate can be an immediate source of passive income. While shareholders may receive an award for their investment in the form of dividends, the principal investment in a typical real estate investment nets a better return; a $40,000 down payment and monthly loan payments, as well as other expenses associated with property ownership, can still leave you with a substantial rental income every month, but the equivalent investment in stocks will only produce meager dividends. 

Microsoft stock, for example, costs roughly $340.00 per share at the time of this writing, with the most recentquarterly dividend reported at $0.64 per share. What sounds better? Monthly rental income, or $70 per quarter?

Tax Benefits
Unlike stock investments, real estate investments won’t hurt you when tax season rolls around. Liquidating profitable stocks notoriously incurs a biting tax penalty, with many meme-stock enthusiasts finding out the hard way in recent years that, yes, selling your stocks nets highly taxable income

In addition to the various tax deductions available to property investors, selling your property via a 1031 exchange, wherein the money is invested directly into a similar asset, avoids capital gains taxes completely.

Lower Volatility
Perhaps the greatest advantage real estate has over the stock market is its comparably low volatility and low inherent risk. While both real estate and the stock market notoriously took a big hit during the 2008 financial crisis and the 2020 recession, real estate values are generally much more consistent, and steadily moving, than stock values. 

While stocks can dip in value at a moment’s notice, putting a huge dent in your portfolio, the real estate market moves much more slowly. Conversely, while stocks can sometimes stagnate for years with little increase in value, real estate generally increases in value over time. It’s rare to hear of anyone panic selling an investment property like they would a stock.

Something Real
And one more thing: when you own a piece of property, you really own it. It’s yours, a tangible asset that can be used not only to generate profit, but as a living space for yourself if so required. Real estate investment experts Utopia Management out of California say that long as you take care of your property, you’ll see its value grow over the years, and what you do with it is ultimately your prerogative.

Why Stocks May Be Better

Higher Liquidity 
The biggest reason someone may want to invest in the stock market rather than in real estate is the absolute ease of liquidating stocks compared to real estate. New homebuyers and property investors frequently lament the troublesome, multi-step process of purchasing a piece of real estate, with its paperwork, middle-men, fees, and disappointments. 

Selling real estate isn’t much easier than buying it. Buying and selling stocks, on the other hand, is almost painless; while stockbrokers still exist, mobile stockbroker apps now make it easier than ever to buy and sell stocks. With a little luck, a tiny initial investment can one day become a real prize to take home.

Ease and Affordability
Getting into the stock market is something anyone can do, another reason it may be more attractive than buying property. Whereas purchasing real estate requires not only monthly payments in the hundreds or thousands, but also a considerable down payment amounting to thousands of dollars, there’s no amount of money too small to invest in stocks, especially with the advent of fractional stock trading, which allows investors to purchase stock even in situations where they cannot afford an entire share.

Hands-off Investment
Stocks, unlike property, require no maintenance. Once you own shares in a company, your responsibilities for those shares are slim, save your debt to the tax man come selling time. Your only job is to sit back, avoid panic selling, and hopefully watch your portfolio swell in value. Your portfolio, including all buying and selling, can be fully managed from the convenience of your smartphone, and even automated.

Bottom Line
Before you make any investment, assess your budget and risk tolerance, and figure out how much time and thought you really want to devote to nurturing your investment. With some solid research, a high initial investment, and effortful management, a real estate investment can generate passive investment for years as it accrues value in a changing market. 

But if you have less you’re willing to put on the table, and a higher tolerance for potential loss, the stock market is your game. Keep in mind that many investors end up with both stock and real estate portfolios; just as those portfolios should individually be diversified, so too should your general investment strategy.