Loan Officer | NMLS #194146
Branch NMLS #1194581
Posted On October 17, 2019
Real estate is often considered a more stable investment than stocks, but why? While all investments come with varying degrees of risk and reward, the advantage of investing in real estate is that it tends to appreciate over time, and it is a useable, tangible asset. Before moving forward with any investment, you should consult a financial advisor. Investing in real estate is a good option for some and investing in stocks is a better option, although it depends on your how much you are investing and your short-term and long-term goals.
Here’s a quick overview of the difference between investing in real estate compared to stocks.
Pros and Cons of Investing in Real Estate
There are typically two direct paths to making money through a residential real estate investment; buying to rent or buying to sell. When you buy to rent, you buy and maintain a property and then rent out to tenants. When you buy to sell, you buy a property to sell for a profit.
Real estate is generally a more stable asset than the stock market, because it tends to appreciate in value. When it does depreciate in value there are warning signs the general market, or a specific neighborhood is going to turn. Both residential and commercial real estate investments are eligible for tax deductions. You can always use your real estate investment. Whether it’s your first one-bedroom condo purchase or a beachfront vacation house, you can live in your investment or a tenant can live in your investment if needed.
Although real estate is a generally more stable investment, the real estate market is not immune to volatility. When a region is experiencing a drop in real estate value, this depreciation can have a cascading impact on neighboring properties. Real estate takes more time to sell and comes with higher transaction costs. Most real estate investors take on debt in the form of a mortgage to buy their investment. Real estate also comes with maintenance costs, whether you’re buying to rent or buying to sell, you or a property management company will have to maintain the property while it’s yours.
Pros and Cons of Investing in the Stock Market
When you invest in stocks, each share you purchase equates to a percentage of ownership in the company including every asset, financial, or otherwise. You can invest in individual shares of a single company or funds that include a group of stocks.
Typically, stocks are very easy to sell and do not have a high transaction cost. Stocks can be a source of passive income, big profits, or even unexpected losses depending on the health of the company. Stocks also have tax advantages if they are used for retirement and higher education savings accounts.
Stocks are usually more volatile than real estate and can be influenced by numerous uncontrollable external economic forces. Stocks are intangible assets and have no utility. If a stock loses its value you cannot use it in any other way.
The best investment plan for you depends on how much you’re investing, what your growth goals are, and how long you’re willing to invest. Talking with a financial advisor is the best way to compare investing in real estate and investing in stocks. If you’re ready to move into real estate investing, we can help you finance your investment.
Sources: The Street