Whether you are seeking to earn residual income, saving for a college education or planning for retirement, you require investment options that fit your needs and your budget. When thinking about investing for income, many people consider real estate vs stocks. But which makes for the best investments?a
The debate about investing in real estate vs stocks has raged for many decades. However, investing in real estate vs stocks is a personal choice that is determined by the investor’s goals, risk tolerance, budget, and investment style. Both real estate investing vs stocks come with their own opportunities as well as risks.
Real estate investing involves purchasing physical land or investment property. This property could be a condo, single family home, multi family home, apartment or commercial buildings. Some real estate investors decide to sell their property immediately for a profit, while others rent them out to tenants. On the other hand, stock investing means buying a piece of a company. Whatever industry the company is involved in, you are entitled to a share of the profit.
Related: Real Estate Property Investment vs. Stock Investment
So which is right for you? The only way to make a smart decision is to have all of the facts. So, let’s compare real estate vs stock investments:
The Benefits of Investing in the Real Estate Market
1. Investment Property Is a Tangible Asset
Residential income properties are assets that you can feel, see, and make use of. On the other hand, stocks are merely numbers or ticker symbols. With stocks, all can be lost in a moment. However, unless an unfortunate natural disaster hits, investment property is difficult to lose overnight. This means that owning cash flow rental property will allow you to always have something to fall back on.
2. Real Estate Comes with Tax Advantages
Owning a rental property comes with several tax benefits. You can sell your investment rental property for tax-free profits if you lived in it for at least two years. If you choose to rent out the property, you can also deduct the costs involved in running your rental.
Learn More: The Tax Benefits of Real Estate Investments
3. Investment Property Is Easier to Quantify and Analyze
If you want to understand if a property makes for a good real estate investment, all you need to do is calculate rental income and realistically estimate the expenses. This means that you can find and analyze investment property on your own quickly and easily and start making profits in no time. (It’s even easier when done with an investment property calculator!) However, the value of stocks depends on what the company reports. Some companies have even been known to manipulate their numbers to make things look better than they actually are. Overall, stock analysis is much more difficult than investment property analysis.
Related: How to Do Investment Property Analysis
4. The Real Estate Market Is Less Volatile
Though the value of real estate fluctuates, investing in real estate is still a low-risk investment compared to stocks. During economic downturns, you can still continue making money with rental properties, even if property value drops.
5. Rental Property Can Be a Source of Pride
Every time you drive or walk past your rental properties, you will feel a sense of pride because of the investment decision you made. It is a constant and physical reminder that your labor was not in vain.
6. Real Estate Gives You More Control
Buying a rental property means that you are the CEO of your property. You can cut costs, make improvements, find better tenants, and raise rents. Though you are still subject to economic factors, you are generally in control of your empire.
7. The US Housing Market Forecast 2020 Is Positive
The overall forecast for the US housing market 2020 is looking positive. Mortgage interest rates will remain low and things are starting to shift in favor of property buyers. You can learn more by reading: US Housing Market Predictions: What’s to Come in 2020. Based on these real estate market trends, buying an investment property in 2020 is a wise decision.
The Drawbacks of Investing in the Real Estate Market
1. Real Estate Property Has High Running Costs
Investment property for sale comes with expenses such as maintenance, taxes, insurance, utilities, and many others. The situation is made worse if the rental property remains unoccupied for some time. High vacancy rates will mean that you will have to pay these costs from your pocket.
2. Real Estate Is Labor-Intensive
Unlike stocks, investing in rental properties involves a lot of hands-on work. You have to be available 24/7 to deal with emergencies and issues that you never even anticipated. Even if you choose to hire a property manager, you will still need to make time for oversight and meetings.
3. Although Real Estate Appreciates, It Does So at a Relatively Slow Rate
When inflation is factored in, the value of real estate investments can grow very slowly.
The Benefits of Investing in Stocks
1. Stocks Offer More Liquidity
If you have an emergency and need some cash immediately, you can easily liquidate your stock within days. Is real estate a liquid investment? Unfortunately, no. When it comes to real estate, it could take weeks or even months before you find a buyer and complete the sales process.
2. The Transaction Costs Are Lower
The cost of trading in the stock market could be as little as $5 for any amount of shares you want to sell or buy. This is much lower than property prices, closing costs, and real estate commissions which are usually up to 6% of the total sales price.
3. Investing in Stocks Requires Less Work
Unlike real estate which is very hands-on, stocks can be left alone for a long time and still generate dividends for investors. Alternatively, investors could choose to hire a mutual fund manager to manage and track their portfolio.
4. Stocks Allow You to Invest in What You Use
One of the cool things about stocks is that you can invest in what you use. It is a great feeling to know that you are making money from the products that you use on a daily basis.
The Downsides of Investing in Stocks
1. The Stock Market Experiences Extreme Fluctuation
Prices of stock have been known to be very volatile in the short-term. For example, your $100 stock could go to $300 or $30 in a matter of days. This makes it a very risky investment
2. Many Stock Investors Get Emotionally Involved
Most stock investors get too emotionally involved, constantly looking at the numbers, and end up losing money due to indiscipline. For example, when prices drop drastically, many people sell their stocks instead of buying more. With real estate, the lack of rapid fluctuations makes it easier to manage emotions and make business decisions.
Real Estate vs Stocks: Which Is Better for 2020?
So, what is the conclusion when it comes to investing in stocks vs real estate? What choice should an investor make between stocks vs real estate?
It is true that stocks and real estate both present rewards and risks. However, recent research findings on real estate vs stock returns by statista.com show that most people in the US consider real estate to be a better long-term investment compared to stocks. With that in mind as well as the comparison outlined above, if you are considering real estate vs stocks 2020, the best bet for great returns would be real estate.