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Which is the Better Investment – Stocks vs. Real Estate?

June 11, 2019

When comparing real estate versus stocks, there truly isn’t a clear winner. This comparison is like asking whether chocolate is better than vanilla, or if a rolls Royce is better than a Bentley. Real estate has often been the more familiar and comfortable investment, while stocks have been known to be a consistently-good wealth creator. Purchasing stocks allow you to own parts of a business that does not require an immense of work on your part, when in contrast, a real estate investment is tangible – you are buying a physical land or property. There are many advantages and disadvantages within each investment, but most of the benefits outweigh the drawbacks. Historically, investing in real estate has been a better investment than investing in stocks. Take a look at the graph shown, real estate has outperformed the stock market 2:1 since 2000. 

Within each investment, there are many unique aspects that come into play when deciding on which investment is the better fit for yourself. When it comes to continuing your growth and income, rental properties and dividends become relevant factors. Purchasing stocks permit you to own shares in a company that may pay dividends. A dividend is money that is paid by a company to its shareholders out of its profits, typically every quarter. Reinvesting the dividends will results in an increased annual return – allowing your earnings to grow. In real estate, you have the choice to invest in a property that may be cash generating, known as rental properties. Tenants will rent the space from you, which may pay for other expenses or the amount you owe to a third party for purchasing the property. 

Legal fees are both present within each investment. Real estate may cost you money every month to own the property, which may include taxes and maintenance. When it comes to purchasing the property, you have to keep in mind financing costs, sales and closing costs, utilities, and property taxes. When investing in stocks, many brokerage accounts charge transaction fees each time you buy or sell and potentially an annual account fee. All fees may vary for each investment, dependent on your unique situation. 

When it comes to liquifying your investments, you may have to list real estate for days, weeks, or months in order to find a buyer. Although, you are able to sell or buy at any time during the day, any day of the week. You can sell your stocks during regular market hours, 9:30am – 4:00pm Monday to Friday, and you are able to sell your entire position within seconds. In regard to time and amount, stocks are far more liquid than real estate investments. Investing in stocks allows you the ability to borrow against the value of your stocks more easily, which is called trading on margin. In reality, you have easier access to leverage to start your investment if you invest in real estate.­ Real estate investing uses leverage (debt), which can be structured far more safely than trading on margin. For example, if you have a $400,000 property you would like to purchase as an investment, you will need a down payment of 20%. You will only need the beginning amount of $80,000 to have a $400,000 investment.

The question, “Which is the Better Investment – Stocks vs. Real Estate?” truly does not have an answer. The investment you choose comes down to your own personality and preference.  Each investment type has its pros and cons, but in the end, it is up to the individual to decide what is right for them.

Questions? I would love to chat further about which investment vehicle is right for you!

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