It’s a common question for those looking to invest their money in a safe bet, and the conundrum of picking between stocks and real estate is no easy decision. The short answer is: it depends. Choosing between stocks and real estate is a highly individualized decision; it depends on your personality, time commitments, and the specific investments you make. We’ll split the two options apart and break them down to help you decide.
Table of Contents
Real Estate
The Pros
The Tangible Evidence
There are psychological advantages to investing in real estate, as it’s a more tangible use of your money. You can look at a piece of property and have the evidence of your purchase right in front of your face, while stocks are a more abstract concept and only seen when withdrawing.
More Knowledge
For many investors, a real estate investment is less daunting as they may have more in-depth and firsthand knowledge of the venture than they would with the abstract concept of stocks and bonds. Familiarity with the subject makes investing easier, and knowledge of resources will make it seem a more viable option for middle class investors.
The Cons
The Work and Time Commitment
A real estate investment can be the furthest thing from a hands-off venture. If you’re looking to rent out property, you’ll deal with maintaining the property, finding quality renters—my best piece of advice is to use a screening service like MySmartMove.com to make sure you don’t rent to a nightmare tenant—and making sure you’re following local, state, and federal regulations. The upside however, is that you can hire a property manager to take care of the bulk of these issues, but you’ll still be saddled with all the liability that comes along with renting out property.Continuing Costs
Continuing Costs
Rentals come along with costs, and you might be shelling out money each month instead of raking it in. Anytime you have a vacancy, you’ll be losing money and have no income to rely on, plus you’ll have keep up maintenance to ensure you can place a new tenant. With each turnover of tenancy, you’ll have to spend quite a bit of money to get the house up to code and in “livable” conditions.
Legal Issues
If you’re renting out property, get ready to take on quite a bit of liability. Unfortunately, cases that go to court involving landlord and tenant disputes usually fall on the side of the tenant, and this could leave you in the lurch for expensive legal fees.
If you’re planning to sell your property, make sure that legal documents are in order. Preparing a grant deed for example, can help limit your responsibility in case there is a defect in title before you acquired the land.
Stocks
The Pros
A Quick Investment
Time is money, and less time goes into making a traditional equity investment. While investing in real estate takes time both before and during, you can make a traditional investment in stocks in just a few minutes.Flexibility
Flexibility
Stocks are more flexible than a real estate investment. As liquid assets, you can easily sell and buy, withdraw your money, or reallocate your investment into another area such as a retirement account.
Larger Returns
Smart stock investments can see you gaining much more in a single buy than you ever would with real estate investments. Some stocks are so volatile, that when positive changes happen investors can expect to see upwards of 40 percent growth on their money.
The Cons
Capital Gains Taxes
You won’t get any tax breaks from your investment in stocks, and you’ll have to shell out money when you see any real gains. Capital gains taxes come about whenever you have to pay taxes on stocks you have sold for a profit, and they can definitely add up. Even if you don’t sell your stocks, you will still be required to pay dividends during this time.
Limited Inflation Protection
While real estate investments can protect investors from inflation issues because of rising rental rates and housing prices, traditional equity stocks are not as protected.
Opportunity for Fraud
While investors have more control within their real estate ventures, those who place trust in stocks are placing their future on the shoulders of company management. If the company goes down, you go down with it.
If you’re attempting to decide between investing in the real estate industry and going with the equity market investments, take all of these facets into consideration before taking the plunge.
About Carson Derrow
