Stocks vs. Real Estate Investment: Similarities, Differences, and Tips for Success

Growing your wealth requires taking certain risks. The best way to realize this goal as quickly as possible is to invest your money in diversified assets that could potentially give you high returns in the future.

Assuming that you already have the basics of investing down, real estate and stocks are two investment options you can choose from to achieve your financial goals. How well you do on both will most likely depend on timing and your overall understanding of these investment choices.

Real Estate and Stock Investments: A Brief Comparison

Both stocks and real estate investments can provide you with cash flow and a steady passive income to help boost your savings and achieve financial stability. These are the most popular investment choices for good reason.

Any of these two can be a good investment since they can both potentially yield high profits. There is no sure answer as to which is more lucrative since the profit margins you reach will ultimately depend on variables like market risks, the overall size of your investment, time factors, your asset management style, and many more.

The main difference between these two options is that real estate investments are tangible assets, while stocks are not. Your money can be tied up for years in real estate until you get to rent or sell your property for profit. With stocks, you can buy and sell shares at any moment, which makes stocks a very liquid asset.

Each option will require different asset management strategies and analyses for you to get the most out of your investments.

Risk Factors: Stocks vs. Real Estate

Stocks are vulnerable to economic instabilities, crashing markets, and inflation. Company share prices are also subject to change depending on political or global climates, which means that stock prices can change daily.

Price fluctuations can happen in a matter of months or even years for real estate assets. There will always be a demand for real estate, but this does not mean that it is insusceptible to volatile risks. Aside from acts of nature and other circumstantial events like the volatile cost of living expenses—which might cause asset values to not grow as predicted—there may be certain unexpected costs that can make investors lose money like holding costs when flipping houses.

Cash Flow Basics: Stock vs. Real Estate Investments

Profit from stocks will come after some amount of time has passed. This could be in the long-term when you decide to sell your shares or by being paid dividends. These dividends paid out to you could be reinvested to buy more shares if they prove profitability.

Investing in real estate can go different ways. One is where you buy physical land or property. You then pay taxes and maintenance costs, holding on to the asset until you can flip it or sell it at a higher price that will give you profits.

There is also the type of investment where you can buy or build a home or property that could generate you steady, passive income every month. You can buy or build apartment buildings, rental houses, storage sheds, or even a small commercial complex. You can use your tenants’ rental fees to pay for certain tax and maintenance costs while keeping the difference as your passive income.

Things to Remember Before Investing in Stocks and Real Estate

Investing in stocks is generally a less time-consuming process compared to managing real estate investments. You won’t have to deal with property maintenance concerns that can take time out of your schedule.

A company with 2,000,000 shares where you own 20,000 shares means you own 1% of it. You don’t have to put in work other than doing thorough research on the business you choose to put your money in and when the best time is to hold onto valuable stocks, reinvest, or sell shares for bigger returns.

You can invest as little as $100 monthly in individual stocks or mutual funds. It is also now made more accessible thanks to stock trading mobile apps like Robinhood, eTrade, Webull, and more—this means you can buy and trade stocks right from your smartphone.

Stock investment may be more accessible now more than ever, but remember that if you are not well-versed in market trends and analysis, short-term volatilities with stocks can result in you making emotional decisions to buy or sell shares at inopportune periods.

This is why it is important to do research and continuously watch the market for changes, especially if you do decide to manage your stocks by yourself without the help of a broker or fund manager.

On the flip side, investing in real estate is easier to understand when compared to investing in the stock market. You may need higher initial capital to get started, but the concept of buying property, paying for taxes and maintenance costs, getting income from rent, or selling the property is much simpler to comprehend.

Real estate values tend to appreciate due to inflation, which gives it an edge over market volatility in stocks. However, it can take some time to get ROI especially if you pay for cash since there are many transaction fees involved like agent fees and property management costs.

Diversifying real estate investments is also more challenging compared to stock diversification, but thankfully, real estate investment trusts (REITs) and crowdfunding applications at present are making it more viable for investors.

Be Informed Before Making a Move

Both real estate and stocks offer benefits that can help you build your wealth for the long term.

The key to succeeding in either type of investment opportunity is to thoroughly evaluate your financial health and study investment strategies and market trends before taking the leap.

Doing so will enable you to make informed decisions before making any big moves—and most of all, to assess your financial goals in connection with your risk appetite.

Author Bio

James Sab Labrigas is a Marketing Officer for HTLand, Inc., developer of Mandani Bay. He remains inspired at work through remarkable green architecture and interior design projects. Outside of the property and real estate industry, you may find him painting, playing volleyball, or doing photography.