Real Estate Investing vs. Stocks, Which One is Better for You?
It’s an age old question– which is better: real estate investing or stocks?
Each option provides a unique opportunity to gain immense wealth and financial freedom, and there isn’t a simple answer because both have their advantages and disadvantages. Trying to figure out if real estate investing or stocks is better is like asking someone which ice cream flavor is better, chocolate or vanilla? It all comes down to your own unique personal preferences. We truly hope this article provides you with all of the information you need to decide which investment option is best for you.
Investing in Stocks – The Benefits
Buying a share of stock is buying a stake in a company. You are purchasing the opportunity to own a portion of a business or corporation and experience all of the ups and downs that it goes through. The stock market offers seemingly unlimited options in terms of the types of companies you can purchase. You can easily diversify your investment portfolio by purchasing a mutual fund or shares in different industries and companies. This is a big advantage.
Another plus with investing in stocks is the ease in which you can make stock transactions. All you need to buy and sell stocks is a connection to the internet and a brokerage account. The transaction costs for buying and selling stocks are typically minimal, particularly when compared to the costs of real estate investing. Another advantage is the liquidity that stocks provide. When the market is open, you can sell the entirety of your holdings with the simple click of a mouse.
Finally, perhaps the most intriguing benefit of investing in stocks is that successful companies will provide shareholders with share price increases as well as increases in cash dividends. That means you are earning money on your shares as well is through the increases in residual dividend income that your shares provide.
Stock Investments – Some Disadvantages
As you can see, investing in stocks provides quite a few benefits. However, this investment option is not without it’s faults. It’s time to take a look at some of the disadvantages that come with investing in stocks.
Perhaps the biggest disadvantage to stocks and a major deterrent for those who fall on the more risk averse side when it comes to investing is the fact that the price of stocks can experience dramatic fluctuations both in the short-term and over the long-term. You can own stock in a company that doubles in value one month and is worthless the next. Anything is possible with stocks. That’s why it’s absolutely crucial to invest in companies that you truly believe in and have thoroughly researched.
Another downside to stocks is the emotional aspect. To be successful with stock investing, you have to have an iron will and be devoted to your investment strategy, even if the world appears to be crashing down on you. Lots of people end up losing a ton of money in the stock market because they let their emotions get the best of them.
Finally, another disadvantage in stock investing is the capital gains taxes you will have to pay if the sale of your stock is considered a short-term. You can wind up with a very large tax bill at the end of the year if you are making significant gains on short term holdings.
Real Estate Investing – The Benefits
When you are investing in real estate, you are buying physical land or property. It’s a tangible investment, versus stocks, which are intangible investments. Lots of people would consider that to be a big advantage. Real estate investments can also provide consistent monthly income if you are renting it out.
Perhaps one of the main benefits from real estate investing is that it allows you to easily leverage other people’s money. Whenever you purchase real estate, an investor is typically required to put down 10%-30% of the total value of the real estate as a down payment. The rest of the money is provided by a lending institution like a bank. There aren’t many investment opportunities that allow you to buy something for a fraction of its total cost. In general, it’s typically much safer to make leveraged real estate purchases rather than buying stocks on margin.
Additionally, when you purchase a property and it increases in value over time, you get to reap the rewards. Any property has the potential to appreciate in value. Real estate investing also provides lots of tax related advantages. This is particularly advantageous if you have a knowledgeable accountant.
Real Estate Investing – Some Disadvantages
One of the main downsides to real estate investing is it’s lack of liquidity. Your money will be tied up in a real estate investment, and if you ever need the cash quickly, it might present a real challenge. You can’t buy and sell real estate as easily as you can with stocks.
Additionally, investing in real estate will require a lot of your time. The process of purchasing real estate can be complicated and lengthy. Another con of real estate investing is that if you aren’t careful, your investment can end up costing money on a monthly basis. For example, if you purchased office space real estate and do not have any tenants, you will lose money on the monthly property fees, maintenance, utilities, and taxes on the property.
Finally, another big con related to real estate is that success can be difficult to achieve. Being successful in the real estate game means hard work, doing your research, and being willing to deal with emergencies at any time. For some people, the responsibility is too big of a burden to bear.
But in recent years, an alternative has emerged in the form of crowdfunding which takes away many of the disadvantages of traditional real estate investing.
Real Estate Investing of the Future
We’ve gone over a lot of the disadvantages that come with real estate investing, but what if there was a way to invest in real estate while avoiding the disadvantages? Enter real estate crowdfunding.
This is a dynamic and revolutionary form of investing that allows people to diversify their portfolio with real estate without having to be a millionaire or an expert. This option allows you to invest in different types of real estate with much smaller amounts of money than usual. Low entry fees, or in the case of DiversyFund, zero-fee investments for investors make creating a diversified real estate portfolio without the normal private equity requirements a reality.
When considering real estate crowdfunding, look for a company with an experienced team that understands the markets they operate in. As with any investment, it pays to take the time to choose the right crowdfunding site for you. For today’s investor, crowdfunding can be a great way to invest in real estate and generate income.