myEmpirePROMany people will debate the merits of real estate vs stocks.
For example, some say that real estate will always outperform stocks because
it’s an asset that generates income for its owner.
Others argue that stocks are a safer bet than real estate because they’re not guaranteed
to be profitable and you can’t lose money on them like you can with real estate investments.
However, there is one thing everyone agrees on.
Stocks are risky investments while real estate is not.
So if you ever find yourself debating between which investment to make,
consider what has been said about the two in this lesson before making your decision.
Here is some important information we will cover in this lesson:
- Overviews of Real Estate & The Stock Market.
- The benefits of investing in real estate vs stocks.
- The best age to engage in real estate investments.
- How long for Real Estate investment returns vs Stocks
- Does the Stock Market have any tax advantages?
- Stock Market vs Real Estate; Which Makes Sense To You?
Awesome!
Let’s get into the lesson and see if we can help get you closer to a decision of which one is better.
But before we get into all of these, let’s get a grasp of an overview of these two phenomenons; real estate and stocks.
Overview of Real Estate; What is Real Estate?
Real estate is the legal system that deals with rights to property, especially land.
The word “real” means, in law, connected with or belonging to the objective world; as against personal, which is connected with persons.
If you own real estate (land, business buildings), it can’t be taken away from you by anyone without your consent.
It is tangible and beneficial for any society because it’s a place for business and residence.
Real estate is also known as realty.
It can be used as a shelter for personal use (basic survival need) and as an investment vehicle in exchange for capital gains and returns.
Overview of the Stock Market; What is a Stock?
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A stock is an investment instrument that represents partial ownership in a company.
When you buy stocks, you are purchasing a portion of that company’s assets for a set price per share or partial share.
The greater the number of shares you purchase, the more money you will see on your return.
The purpose of buying stocks is to either put them up for sale at a later date for profit or to sell them back to the company in exchange for cash at a later date.
The Benefits Of Investing In Real Estate Vs Stocks.
Investing is a term used to describe the process of putting your money into a venture
…in order to make a potential return, yet there are two distinct categories of investments: real estate and stocks.
There are many factors that go into making this decision, but will real estate or stocks make you richer?
Real Estate is a good place to start with investing.
It’s a simple concept.
You take a look at the value of a person’s home, which tends to increase steadily over time.
In addition to that, rental income from properties can provide a constant stream of income for the owner.
However, investing in stocks can give you a slower rate of return but it is much more stable than real estate.
The reason it’s not likely for stocks to jump in value as real estate does is that there are always people coming and going and the market is constantly being updated.
Stocks may not appreciate as much on a month-to-month basis,
but they’re more stable and less likely to suddenly drop overnight like real estate prices can do.
With the ability to purchase real estate with less capital due to the bank’s willingness to lend money long term for purchase…
Certainly, An Advantage Over Stock Investing.
This means that even if you only have $1000 left in the bank,
you can purchase a property and start earning rental income and building your equity.
In terms of capital needed to get started with stocks, it is easier to invest in stocks.
The amount of money required to enter the market is minimal compared to investing in real estate.
Real estate also requires a good deal of time and effort for upkeep and maintenance,
whereas stocks can be left to work on their own.
When it comes to investing in the stock market, you can enter right at the beginning and start investing in some big companies.
You can join the crowd of individuals who are helping to push the prices of stocks up,
making it easier for you to reap the rewards.
Investing in Real Estate Can Be Very Profitable.
But it may not be easy for beginners unless we are talking about real estate wholesaling which is all about finding deals for investors with cash.
While the idea behind buying a home is that you’ll eventually earn back all of your investment
…through rental income and increased equity value, executing this idea perfectly takes time and effort to learn how to do well.
The stock market can be a very profitable place to invest,
but it also carries the risk of losing all of your money quickly with an impulsive or hasty decision.
You’ll want to spend some time learning about how the stock market works
before you start investing so that you have a better chance of success.
While Real Estate is Profitable for Many People…
It can be challenging to get started and you may want to consider teaming up with an experienced realtor to help guide you through the process.
However, even though you need to dedicate some time to learning about how the stock market works before diving in,
there are plenty of resources available to help you make the transition.
On the other hand, choosing real estate can be a great way to build equity very quickly-especially if you take on rehabs and renovations yourself to save money.
With a good location, a realtor can help sell the property faster and for a better price than if you try to go at it alone.
By learning about stock trading, how the market works, and what factors influence increased profits,
you can increase your chances of making a profit.
However, the difference is that real estate investments will make you money through rental income
and increasing equity value while stocks will make money through capital appreciation (increases in value).
The amount of money required to enter the stock market is minimal compared to investing in real estate.
Real estate also requires a good deal of time and effort for upkeep and maintenance,
whereas stocks can be left to work on their own.
With both real estate investments and stock market investments, you will need some money to make it worthwhile.
But if you are seeking a potentially very profitable investment vehicle with minimal risk,
the stock market might be the way.
There are some creative real estate investment strategies that can change that story quickly.
It’s a myth that real estate is always more expensive than stocks
when you consider that the bank is also giving billions to leverage.
Stocks Is More liquid
If you sell your stocks today, you can get your money in 24 hours.
That means you’re able to take advantage of opportunities faster than if you had invested in real estate.
Real Estate is Less flexible
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It’s difficult to find a tenant that will move into an apartment
just because you changed your mind about selling it.
You can sell stocks quickly if need be, but only with enough warning for buyers to prepare themselves
Another reason for people to go with Real Estate is the inheritance factor.
Many of us believe that Real Estate is an investment because it can’t be eaten, digested, or disappear.
So, you can sell your property and pass it on to your heirs.
There aren’t any current examples of the stock market remaining the same upon your death.
If you want to earn a lot of money, stocks might be the way
(you should consider that the moment you get into this, there’s no telling how much time will pass before you see results).
But if you’re willing to wait and don’t mind the risk, then real estate might be more up your alley.
Although investing in stocks is one of the most common ways to make money fast ,
some other creative investment strategies can help you gain even more profit with less time and effort.
Real Estate: More Benefits Than Just Increased Equity.
There are actually plenty of ways that real estate can be a better investment than stocks.
- Investing in real estate won’t require as much work, time, or money as investing in the stock market.
- With both investments, you will need to familiarize yourself with the concept first.
- Once you start learning about how the markets work and what factors influence profits, you can increase your chances of making money.
- Another difference is that real estate produces passive income (rental income) while stocks give you capital appreciation.
The Best Age To Engage In Real Estate Investments.
The real estate industry has become increasingly competitive.
As real estate prices skyrocket, it’s not surprising that many investors are looking for other real estate ideas.
If you’re wondering what the best age to engage in real estate investments is, there are several factors to consider.
Is Real Estate Investments Better When You Are Younger?
Real estate investments are generally thought to be better when you are younger.
However, real estate is one of the best ways to diversify your portfolio, regardless of how old you are.
If you have a real estate investment that is performing well, it can be a great addition to your portfolio.
On the other hand, real estate investments that are not doing so well may create an opportunity for some good future returns if you sell the asset.
Real Estate Will Make You Richer In The Long Run
In real estate investing, there is always risk involved in terms of time horizon.
If real estate prices go up or down too fast, real estate investors suffer from losses or gains
they did not anticipate when they made their investment decisions.
However, real estate investing is still a solid way to make some money over a long-term period of time
…because real state prices tend to do better than inflation over the long run.
On the other hand, real estate has a fairly long payback period
and real estate investors tend to give up liquidity for this reason.
Real Estate Has A Longer Payback Period Than Stocks
Real estate investments have a longer payback period than stocks do
because real estate does not produce dividends or interest like stocks do.
In addition, real estate is illiquid whereas stocks are liquid so you can reinvest your money elsewhere
if need be because you can sell stocks quickly and easily at market prices.
However, real estate investments should outperform inflation over the long term and real estate comes with less risk than other volatile economic sectors
such as oil and gas which may experience dramatic collapses in their asset prices over time.
Real Estate Investments Are Better When You Are Younger
Real Estate Is A Good Investment For Everyone.
However, real estate is a good investment for everyone regardless of your age.
Even young people can get involved in real estate investing because there are many ways to invest in real estate without having to put down a lot of cash upfront.
For example, you can get started with real estate investing by buying shares in fractional realty companies
such as Fundrise which allows you to start with $500 and then buy fractions of real-estate deals.
You can also get started with real estate wholesaling which is
the art and science of finding deeply discounted properties by marketing to potentially distressed properties and owners.
Another real estate investment option is real estate crowdfunding which makes real estate investments possible for everyone to invest in.
How Long Do Real Estate Investment Returns Take vs Stocks?
Investing in real estate will make your money grow over time while investing in stocks might not produce any results at all.
Investing in real estate will take time for your money to grow.
Investing in real estate will produce returns over time while investing in stocks might not produce any results at all.
Not only will real estate investments take time, but real estate is also safer than stocks to invest in.
Stocks Are at the Mercy of Market Changes: Risky
There is no guarantee that stock investments will return your money.
Investing in real estate, however, is much more stable since real estate prices constantly go up over time if managed wisely.
Investing in real estate does not have a set time frame, unlike stock investments.
You won’t know how much money you will get back from your real estate investment unless it’s sold,
but real estate will always make you more than what you invest.
So, real estate takes time and helps build wealth, while stocks are risky and do not necessarily bring wealth.
Does the Stock Market Have Any Tax Advantages?
The stock market does not offer any real tax benefits.
If you sell stocks, you will need to pay the capital gains tax on the earnings.
What is Capital Gains Tax?
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A tax that is assessed on real estate and investment property in a given year
in which the property has increased in value from when it was acquired.
Capital gains taxes are levied when a real estate or investment property is sold
for a higher price than what was originally paid.
The tax rate for real estate and investment property is much lower than for earned income.
Some Real Estate Investments May Permit an Owner to Defer Capital Gains Taxes.
For example, some real estate investment trusts are designed to allow you to invest in real estate
without worrying about any of the maintenance tasks that would otherwise be required of you.
Instead, you receive a portion of the profits as cash flow on a regular basis
…for as long as your investment remains with the real estate trust even if the real estate is not sold.
Stock Market vs Real Estate; Which Makes Sense To You?
There are many ways to invest in both stocks and properties…
– it’s up to you which one makes the most sense for your situation.
According to The New York Times, real estate is a reliable investment that outperforms stocks.
This is because real estate investments are consistently generating income for their owners,
and these investments are also less risky than stock market investments.
This means that any money that you invest in the stock market has no guarantee that it will be successful.
You could end up losing all your money.
Investors in real estate make money when the real estate goes up.
It is not possible to lose money when real estate investments are made with a long-term mindset.
Investors can also make money off real estate by renting out space to generate rental income.
There are expenses associated with real estate ownership like taxes,
property management, and repairs that can affect the return on investment in real estate.
The Stock Market Has High Returns.
However, there is always the risk of losing all of the investment.
Investors do not recover their investment in the event that the stock price declines over time.
In real estate, the value of a property can increase or decrease based on location.
Real estate is a cyclical investment and real estate prices fluctuate with the condition of the economy.
The real estate market can be risky for investors who leverage themselves to buy real estate at its peak.
Real estate tycoons like Donald Trump have lost fortunes as real-estate markets crashed during their tenure owning multiple real estate properties.
Investors can recover their losses by selling off assets at a loss because they only lose the money that they invested in those assets.
Owning stocks provides access to high returns that may not otherwise be possible through other types of investment,
but it comes with a higher degree of risk.
The value of a stock can decline over time if the company does not perform well financially.
Stock prices vary based on how investors feel about the real estate market,
which means they may rise or fall due to real estate conditions even if the real estate owner has nothing to do with real estate investment at all.
Real Estate Investments Have More Stability And Lower Risk.
Real estate is more stable compared to stock investments because real estate values are invariant of local and national economic conditions.
…Unlike stocks that follow an upward trend if the economy performs well
and follow a downward trend in case there is a recession slowing down the economy.
When real estate and stocks are compared, real estate has a slight edge in terms of net returns.
However, if you want to take more risk and potentially see higher returns, then you should invest in stocks.
Lastly, it’s important to remember that real estate and stocks are not mutually exclusive investments.
Real Estate and the Stock Market Both Offer Unique Ways To Make Money.
There is no one type of investment that beats out another in terms of returns; they all depend on the investor.
Investors do have a significant amount of control over their investments in real estate ventures
because real-estate investments can also be made passively by purchasing property and renting it out for passive income.
In stocks, however, investors do not have as much control over their return
because stock prices fluctuate on how investors feel about the real estate market.
While stock prices may rise for a particular company,
a recession can also cause a corresponding decline in share price
…if investors feel the stock market can be quite volatile and risky,
even though it does offer higher returns than real estate investments.
Investors in stocks will have greater confidence in their investing decisions if they maintain a diversified portfolio.
Real Estate may offer better returns over the long term and real estate investments
can also be made passively to earn a steady income stream.
Both real estate and stocks require knowledge about how markets work, which fluctuate from time to time.
Investors should consider the different real estate and stock investments that are available, to diversify their portfolios.
If real estate investments are more appealing, then consider real-estate investment trusts
…or real estate development company stocks in order to diversify into real-estate-based companies.
If the stock market is a preferred investment avenue, then consider investing in a mix of large-cap stocks,
mid-cap stocks and small-cap stocks in order to diversify out of only one type of stock from one particular industry.
In addition, fixed income securities such as corporate bonds or government-issued Treasury bills
should be considered for added stability when aiming for long-term investment returns.
Stocks may offer greater returns but can be quite risky if an investor does not maintain a diversified portfolio.
And stocks may also provide less passive income potential compared to real estate investment
due to managing tenants or reworking rent prices if real estate is being rented out for a profit.
Rental Properties vs Mutual Funds
Rental properties and mutual funds are both good investments,
but rental properties offer the potential to make a much higher return on your investment.
If you purchase a rental property at a low price and it appreciates in value by 10% per year,
you will earn much more than if you had invested in stocks with only a 7% annual rate of return.
This is because rental properties have an annual rental yield that can be around 10%,
while stocks have an average dividend yield of less than 2%.
Therefore, rental property investments are the better choice for returns than mutual funds.
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The lower purchase price of rental properties makes them a good choice for rental income.
But mutual funds provide diversification in your portfolio, which protects you from downturns in the stock market.
Properties can also produce rental income from tenants as well as an increase in the value of the property as time goes on.
In contrast, if stocks do not perform as expected, an investor could lose all of their investment
…due to poor stock markets or changes in company performance.
Mutual fund companies often require that investors invest money for five years or more before they’ll start earning a return,
while rental properties return rental income in a shorter amount of time.
For this reason, rental property investments are generally the better choice,
but mutual fund investments can be a good secondary investment for diversification.
Either type of investment is likely to provide a higher rate of return than other conventional investments such as bonds or certificates of deposit (CDs).
Conclusion
The real estate vs stocks debate has been going on for years.
Deciding which one to invest in is a personal decision that depends on your goals and timeline.
But you must know the pros and cons of each before making up your mind.
The real estate market can fluctuate significantly depending on economic conditions or who becomes president.
While stocks are more stable because they represent shares of publicly-owned companies whose values depend less heavily upon political forces than real estate does.
That said, real stock prices do rise and fall over time.
So investing in them carries risk, even though there may be higher returns available with this type of investment strategy.
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