Should You Put Your Money into Stocks or Real Estate?

by | BiggerPockets.com

The “real estate versus stocks” discussion is a longstanding argument that will never die down. It is an apples-to-oranges comparison, and the answer will always depend on whom you ask, often depending upon a myriad of variables: age, location, investment background, investor preferences (control, passivity, predilection etc.), and many more.

There are those who don’t want anything to do with equities, while others won’t get within a mile of real estate—and each side of the divide will argue that theirs is the most ideal way to invest.

But the bottom line is that both stocks and real estate are fantastic investments, and anyone can invest in them—even without a college degree. The irony of it all is that two of the most established routes to financial independence don’t even require academic qualifications!

Of course, an education goes some way, but you don’t need to go to a stock or real estate investment school to enjoy success in either.

But that’s beside the point.

The Big Question

The burning question seems to be, “Should I invest in real estate or put my money in market-traded financial assets?”

If I am to eliminate bias from the equation and serve you a straight answer, it would go something like this:

The theoretical principles of both forms of investments are eerily similar. However, each seems to attract fundamentally different investors. The pragmatic and entrepreneurial investor will take to tangible real estate like a moth to flame. The theoretical and managerial type, on the other hand, will always have a soft spot for the stock market.

But let’s dig a bit deeper to help you make a more open-minded decision.

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Related: The Irrefutable Advantage Real Estate Investors Have Over Stock Investors

Liquidity

The issue of liquidity is one to definitely consider when juxtaposing real estate and stocks. Because money is almost always the underlying cause for most decisions, you need to know how it will be tied up in each respective investment. Life can be a rollercoaster sometimes, and you may need to access these funds in the unfortunate event of an emergency.

Generally speaking, stocks tend to be more liquid than real estate and can be liquidated within days. This is not the case for real estate, which can potentially require a longer amount of time for you to get your capital back.

However, there are some real estate investments that allow you to get your money back as quickly as you would with stocks—REITs (real estate investment trusts), for instance, as well as some crowdfunding investments.

Risk

“Investing” and “risk” are often mentioned in the same breath. This is one of the biggest investment factors because were it not for risk, everyone would be an investor.

Real estate and stocks both come with their fair share. What’s most notable, though, is that real estate affords you more control over your investment compared to stocks. Its very tangible nature means you can add value to your property through remodeling, efficient management, and so on.

Conversely, stockholders don’t enjoy this level of control and are at the mercy of the company management. Of course, competent professionals are ideally at the helm, so this often boils down to personal opinion.

Returns

Here’s the clincher for many.

Comparing real estate and stock returns is difficult, as both vary greatly due to a number of factors. You could ask two people who have invested in either real estate or the stock market between 2005 and 2017 which makes for a better investment, and you’ll likely get two different, lengthy answers.

Put simply, both can generate significant returns. That’s why you often hear of people who have built fortunes through either investment vehicle.

Some real estate investors have minted millions flipping houses; others have enjoyed so much passive income through rental properties that they don’t need to work anymore. The same thing goes with stock market investors.

The only surefire way to reap good returns is to understand each market clearly. The more intel you have, the stronger you will be able to build your arsenal. When it comes down to it, you can always revel in the knowledge that both can be relied upon to produce strong returns, as history has showed.

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Time Commitment

There are two kinds of investors: those looking to quit their jobs and become full-time investors and those who have other responsibilities and don’t want to spend all their free time managing their investments.

Stocks tend be very passive investments. You might spend hours researching them and choosing where to put your money, but the actual investment itself is very passive, only requiring you to track how your investment performs. Of course, this is not in reference to the day trader.

Related: Are You Still Picking Stocks? You Are Ridiculous. Here’s Why.

As for real estate, this can be either passive or active depending on your choice of investment. Rental property, for instance, can be quite intensive if you manage it by yourself. But those two investment types we alluded to earlier—REITs and crowdfunding—can be as passive as stocks. Ditto for syndications or turnkey properties.

Tax Benefits

Lastly, there is the tax issue.

Real estate seems to clearly have one over the stock market here in the sense that it benefits from a slew of tax deductions, including mortgage interest, depreciation, and a host of other write-offs. Plus, real estate investors can take advantage of the 1031 exchange, which is basically a tax code to defer paying tax on profits from real estate investments.

On the contrary, owning stocks doesn’t offer any tax benefits. In fact, you may be required to pay tax on your investment even in cases where you didn’t sell or earn any dividends from it.

And there you have it, folks. People are different and boast various skill sets. So go on and invest in what suits your fancy.

What’s your preference? (We’re guessing real estate, but we could be wrong.) Or do you prefer to mix and match?

Comment below!

About Author

Nasar Elarabi

Nasar is a corporate failure who was saved by Real Estate. Nasar is now a Wholesaler, Rehabber and Landlord in the Charlotte area. Nasar may have just barely graduated college but can flip a house like an acrobat. Nasar's work can also be found at RealEstateDoru.com.

7 Comments

    • Bryan Mitchell

      Gino,
      Also there’s the possibility to invest in retirement account with a before tax contribution out of your paycheck. You can borrow from this if you find a great deal at possibly very low rates. Mine is slightly above 2% for 5 years. They take out of your proceeding monthly paychecks over the five years. Goes back into the fund.

  1. Jonathan Wheeland

    “On the contrary, owning stocks doesn’t offer any tax benefits. In fact, you may be required to pay tax on your investment even in cases where you didn’t sell or earn any dividends from it.”

    What about investing in stock through your tax advantaged accounts like a 401k, 403b or 457? Not mention IRAs?

  2. Susan Maneck

    Generally speaking retirement funds should probably be invested in mutual funds whereas real estate investment is best done outside of retirement accounts because of the tax advantages. Having said that two of my houses are held withing a solo401K because that was the only way I could afford them.

  3. Rory Compton

    I was playing with my financial calculator a bit and I used the 50% rule to estimate cashflows, 5% appreciation, 1% rule with rents raising $25/mo/yr, and a 100k property with 1% property taxes and 500/year insurance. The IRR spit out was 0.64%

    How does the math workout that rentals workout so well?

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