Stocks VS Real Estate
Investment is an important part of financial security and wealth building, and there are many avenues for doing it. For people new to investing, the first ideas that come to mind are probably stocks and bonds or retirement plans. Another might be real estate, as this is a ever-growing method for achieving financial success. But which is best?
Well, unfortunately, there’s no easy answer to that question. One method is not definitively better than another, and it really comes down to what is best for YOUR situation. Here we’ll go over the pros and cons of two of the most common investment methods: stocks and real estate.
Advantages of Stocks
Potential for big returns. With stocks, there’s greater potential for huge gains when compared to other forms of investment – if you make wise investments, that is.
Dividends. Depending on the type of stock, you may be paid dividends, which you can use as extra income or to buy more shares.
Liquidity. Compared to real estate, stocks are much more liquid. It’s pretty easy to unload shares if you need to, as there’s rarely a shortage of buyers. There are also no costs or stressful negotiations needed to do this.
Relatively passive. Stocks offer a relatively passive form of investment, aside from the initial research and decision-making involved with choosing which stocks to invest in.
Disadvantages of Stocks
Market fluctuations. The stock market can change at a moment’s notice, which can be either good or bad for you. If the market is down, it can send the value of your shares plummeting, resulting in potentially huge losses. Not everyone is interested in this rollercoaster ride.
No guaranteed return. Unlike real estate, which will always have some value, there’s no guarantee on the value of your stocks.
Research. While stocks may be considered a passive form of investment, you will need to spend some time researching your options. After this, you’ll need to monitor your investments and keep an eye on the market to make sure your portfolio is performing how you want it to.
Advantages of Real Estate
Cash flow. One of the biggest perks with real estate investment is the potential for a big income boost with monthly cash flow. Whatever you’re making in rent can go right into your pocket.
More control. Real estate offers direct control over your investment, as you can take steps to increase the value of your investment through property improvements, better management, or other adjustments depending on local market trends.
Tax benefits. Property ownership also comes with unique tax benefits that you can take advantage of each year, such as deducting repairs to the home or interest on the property’s mortgage.
It’s an asset. Homes are always going to be in demand, because people will always need places to live. Your investment is an asset both to you and to others.
Passivity. If you want, your investment can be handled with minimal effort on your part. Paying a property management group allows you to take a truly hands-off approach, saving you tons of time and stress.
Disadvantages of Real Estate
Financing. Real estate usually requires significant capital. If you don’t have the cash on hand, you’ll have to secure financing to handle the purchase and other upfront costs.
Research. Making a sound investment in real estate requires quite a bit of research. You’ll need to spend time studying the local housing market, the home itself, and all the expenses and income that will accompany the property.
Responsibility. Even with a property management group working for you, it’s your responsibility to oversee the property. You need to be available to approve repairs and expenses and make other decisions regarding the property.
Potential for disrupted cash flow. In the event of a vacancy or major repair, your monthly cash flow may take a hit. If you’re not prepared for this, it can seriously affect your personal income.