≡ Menu

Real Estate vs. Stocks: Which Is the Better Investment?

Are you investing your money in the best way possible?

If you’re not, you could be missing out on huge gains for your retirement savings.

Choosing the right investment will come down to your personal preference. Why? Because investments have different risk factors, learning curves, and costs. 

We’ve taken a look at two awesome opportunities to grow your cash and weighed the options for you. Take a look at what we discovered about real estate vs stocks. Then make the right decision for your future!

Types of Real Estate Investments

Real estate might seem like the best route if you’d rather invest in something you can actually see. But there are still pros and cons in this type of investment. 

Plus, in recent years, real estate investments have not been as profitable as years past. Getting high gains in real estate can greatly depend on the region and state of the market value.

If you’re thinking of going the real estate route, you first need to decide between investing in a residential property versus a commercial property. 

Residential Real Estate

Some enjoy the hunt for inexpensive residential homes. They then flip the houses and sell for a higher price. Flipping a house is when investors purchase a house that is less expensive because it is in disrepair.

Then, they renovate and update the home to make it more valuable and appealing to buyers. A lot of work goes into repairing homes. It’s important for investors to not exceed their budget or time. There’s always a risk that a home won’t sell for more than its original price.

In some areas, house flipping is very profitable, which is why for some people it is worth the risk.

Another opportunity for real estate investors would be to purchase property and then rent it. This will generate a fairly consistent income but requires upkeep and managing tenants.

Commercial Real Estate

Buying commercial property would require more money upfront. This type of property would contain office spaces, retail stores, or restaurants. They require additional building maintenance, security, and repair to meet all the commercial needs.

There’s another way to invest in real estate that doesn’t involve buying and owning the space itself.

One of the challenges to investing in real estate is not having the diversification that stocks provide.

If you want to invest in real estate without the hassle of buying homes and benefit from better markets in other states, you can buy into real estate investment trusts (REITs). This allows you to be a shareholder in a trust that is not only diversified but will provide you with a dividend. 

Benefits of Real Estate Investments

There are definitely positives to investing in real estate. For one thing, there are some great tax breaks.

Depreciation can save commercial owners money when filing for taxes. This is a way of filing the cost of the building’s depreciation as a business expense. Be sure to get the guidance of a tax professional to help you.

Several other repairs are considered business-related expenses and are tax deductible. Interest paid on first and second mortgages up to $1 million in debt is also tax deductible. The property tax is also tax deductible.

This only counts toward necessary repairs to the function of the building and not improvements.

Disadvantages to Real Estate Investments

The greatest disadvantage is that real estate isn’t easy to sell quickly. Typically you need to wait many years for the market to raise enough to sell your real estate for a profit.

It’s probably best for new real estate owners to trust in professionals who know the region and can help you make the best purchase.

JP Real Estate Experts serve the Myrtle Beach area and can provide professional advice to new homeowners.

Mostly, the market is on the rise, but there are times when it falls. If you are unable to continue to make payments during a drop in the market, then there’s a chance you could lose money on your real estate investment.

Having bad tenants is another possible risk. Even the best tenants on paper can turn out to be a nightmare. It could take legal action to remove a tenant who has stopped paying their rent or who is disturbing other tenants.

Let’s Talk Stocks

If you are just getting started in the stock market, try purchasing stocks through an index fund. This allows you to instantly diversify your stock portfolio. Owning stocks means you own a piece of the company.

That means when the company does well, you gain money, but when it doesn’t, you could lose it. That’s why it’s important to diversify and own a variety of stocks across the market. 

The idea is when one stock is down, other stocks will be up. It levels out your return so you can grow your money slowly across the entire stock market. To put it simply, it’s less risky.

Benefits of Stock Market Investments

Stocks are easy to sell and buy quickly, so they are considered more liquid than physical real estate investments. With high risk also comes high returns, meaning there’s a chance you could earn a lot in a short amount of time.

It is easy to diversify your stock investments, which will help reduce the risk. ETFs are Exchange Traded Funds that are like buying a bundle of stocks. You can also invest in an Index Fund. This is similar to an ETF but can be more difficult to get into because there’s usually a minimum investment requirement.

If you’d like a human managing your stocks, you can invest in a mutual fund, rather than an algorithm. But keep in mind human error is also a factor.

Disadvantages to Stock Market Investments

Owning stocks is risky since they are so volatile. There’s a chance of losing a lot of money quickly!

This is especially true for emotional investors who buy and sell too often or drop out too soon because they are afraid of losing everything. If you are going to invest in stocks, you have to be prepared to weather the market dips.

This can be stressful!

Lastly, if you are reaching your retirement years, then you don’t want to invest the majority of your savings in stocks. This is because if the market drops, it will be difficult to recoup your losses. 

Final Outcome? Real Estate vs Stocks

When it comes to investing, it’s probably best not to put all of your money into any single investment. Diversification is key to success. So there’s no clear winner when picking real estate vs stocks.

The right choice for you may be a combination of both! Either option is worth trying. It all comes down to your preference. 

Want to share Your investment advice? Comment below to tell us what investments you find to be the best.

Looking for more helpful business info? Visit our blog for valuable insights. Or check out our FREE Forms & Templates for your small business.