The question of which is better – investing in real estate or investing in stocks – has no definite answer. It all depends on the personality, preferences, and lifestyle of the person doing the investing. In fact, it even comes down to the individual investment opportunities themselves, in many cases.
So, since there’s no real answer to this age-old question, let’s take a look at some of the pros and cons of each type of investing to help give you perspective.
Real Estate Investing – Pros and Cons
When you invest in real estate, you own physical property. Whether it’s a parcel of land, a residential property, or a commercial building, it’s something you can touch and use. This aspect is why real estate investment is more appealing than stocks for many investors.
- Investing in real estate is tangible. You can touch it, live in it, and drive by it with your friends
- It’s more difficult to fall victim to fraud when you invest in real estate because you can see your investment, conduct background checks on tenants, and ensure the building exists before purchasing.
- Using leverage in buying real estate is much safer than buying stocks on margin.
- Real estate investments make great inflation hedges.
- Real estate investing is a lot of work when it comes to maintaining and managing properties.
- If your investment property is unoccupied, you still have to pay monthly expenses like utilities, taxes, insurance, etc. without any rent coming in.
- Real estate doesn’t really increase in value very fast. What makes it attractive is the power of leverage and its potential to increase in value if inflation rises.
Investing in Stocks – the Pros and Cons
When you invest in stocks, you are buying a percentage of a company. It doesn’t matter what the company does, if the company makes a profit, you receive dividends based on the number of stocks you purchased.
- Despite the risk, history has repeatedly shown that investing in stocks is the fastest way to increase wealth. By reinvesting dividends over a long period of time, you increase your chances of amassing virtually unlimited wealth.
- Stock investing requires little work beyond researching the companies you invest in.
- Investing and reinvesting in high-quality stocks can create an impressive residual cashflow that requires no work on your part.
- Investing in stocks requires less money upfront than real estate investing.
- It’s much easier to sell stocks than it is to sell real estate. You can sell stocks over and over in a matter of minutes, whereas it could take weeks or even months to sell a property.
- You can borrow against your stocks a lot easier than you can borrow against your property. It’s called borrowing on margin and it’s almost as easy as writing a check against your bank account.
- Investing in the stock market is stressful. Most investors are too emotional and fickle to really be successful in playing the stock market.
- The cost of investing in stocks can fluctuate drastically.
- Sometimes it’s difficult to see a return on your investment when you invest in stocks. However, if you reinvest your dividends to buy more stocks in a company, you’ll own a bigger portion of the company and receive bigger returns over time.
As you can see, there are pros and cons to both real estate investing and stock investing. Which is better is anyone’s guess. If you’re thinking of investing in something, make sure you do your homework to find out which type of investing will suit your life and your goals best.