Settling The Real Estate Vs Stocks Debate


The real estate vs stocks debate asks some important questions: Which is better for my goal? How should I choose where to put my capital? Better yet, which vehicle is most deserving of my attention?

It is worth noting, however, that those pitting real estate vs stocks are missing the bigger picture: there’s no need to choose. Both stocks and real estate have proven that they don’t need to be the only investment vehicle in an investor’s portfolio, but rather that they are entirely capable of complimenting any and every investment strategy. In other words, the real estate vs stocks debate isn’t a debate at all, as both are viable options for today’s investors. I firmly believe both belong in a good portfolio. After all, what is a great investment strategy, if not for one that emphasizes diversification?

Investing In Stocks Vs Real Estate: How Should An Investor Decide?

I want to make it abundantly clear: a truly great investing strategy is nothing, if not diverse. It is no coincidence that today’s greatest investors have had their hands in everything from real estate to equities, and everything in between. There’s potential to make money whether you choose to invest in physical real estate assets or stocks, but I digress. Simply because there is potential to make money doesn’t mean you will. Historically, each platform has proven capable of generating encouraging returns, but as the result of a smart investment strategy. That’s an important distinction to make. Making money in real estate or stocks requires more than blind luck; it demands an acute attention to detail and a mind for due diligence. It stands to reason, however, that both are viable contenders for your investment capital, which begs the question: stocks or real estate?

The stocks vs real estate dilemma continues to this day, and for good reason: they are both sound choices. I maintain that there is absolutely no reason today’s investors couldn’t invest in both stocks and real estate. In fact, I am a huge proponent of each strategy. That said, if you are trying to choose one over the other, your own tendencies will play an integral role in the impending decision — that and the potential return on investment (ROI), of course.

Both stocks and real estate can serve their investors well; that is, if they account for several important factors: risk exposure, volatility, return on investment and the amount of control you hope to exercise. If for nothing else, the path you choose should take these factors into consideration.

[ Just starting out in real estate? Copy these 12 “brain hacks” from America’s wealthiest real estate investors ]

Stocks vs real estate

Investing In Real Estate: Pros & Cons

Investing in real estate has become synonymous with some rather impressive returns. Today’s best real estate investors, for that matter, have proven that real estate belongs in just about everyone’s investment portfolio. Few investment vehicles can match the earnings potential of tangible real estate assets while simultaneously mitigating risk. That said, investing in real estate is not without its own caveats; there are risks to take into consideration. If you are trying to decide whether or not you should invest in real estate, I recommend weighing the following pros and cons, and how you expect them to impact your personal situation:

The Argument For Real Estate

  • Inherent Control: One of the greatest benefits of investing in real estate is the amount of control one has over their exit strategy. As a real estate investor, your returns are directly correlated to your involvement. What you do has ramifications — good or bad. That said, a lot of investors like the control they can exercise in a real estate deal, and I agree with them. There’s a lot to be said for deciding your own fate and putting in hard work that translates to tangible success.
  • Tangible Assets: Investing in real estate awards entrepreneurs with a tangible asset. In other words, investments are secured by a physical asset: the house. Stocks, on the other hand, lack any resemblance of a tangible asset.
  • Cash Flow: Passive income investors can generate cash flow from rental properties, which can translate into encouraging profits in today’s environment. What’s more, cash flow from a properly established rental property can become entirely passive in the event the appropriate steps are taken.
  • Leverage: Real estate investors do not have to use their own money to fund deals; they can leverage capital from other sources, which allows them to remain liquid. Leverage also allows real estate investors to invest in multiple properties at a time, as opposed to a single property.
  • Appreciation: Though it’s not always guaranteed, history has taught us that homes appreciate more often than not. Real estate assets tend to go up in value more often than they go down, which builds equity and adds to one’s net worth.
  • Tax Shelter: In addition to encouraging profit margins, real estate coincides with some impressive tax benefits. Homeowners, for example, can reduce their taxable obligations each year by deducting the interest they pay on their mortgage. On top of that, rental property owners can capitalize on depreciation and several other tax breaks if they are using their home to collect rent. There are actually quite a few tax breaks that can contribute to making real estate an even more attractive investment.

The Argument Against Real Estate

  • Time Intensive: In order to invest with some level of success while mitigating as much risk as possible, real estate investors need to put in the time. Investing in real estate is time intensive, at least if you want to give yourself the best odds at realizing success. A typical flip could take anywhere from one month to six months, so make sure you have the time to do things correctly.
  • Exposure To Risk: There isn’t an investment strategy immune to risk, and real estate is no exception. Real estate does come with an inherent level of risk, but fortunately a great deal of it can be mitigated with due diligence and an acute attention to detail.
  • Subject To Emotional Decision Making: It is entirely possible to make decisions as a real estate investor that are based purely on emotion. Sometimes investors simply fall in love with a property for the wrong reasons, which can be potentially hazardous to an investment. Not unlike every other investment vehicle, decisions need to be made based on data, not emotion.
  • Barrier To Entry: While not as difficult to get into as many make it out to be, there is still more of a barrier to entry in real estate than there is in other industries. Whether it’s money or mindset, far too many people don’t assume they can invest in real estate, but I digress. The barriers are self-imposed and a lot easier to overcome than most realize. Nonetheless, these small barriers prevent many people from realizing their dreams.

Investing In Stocks: Pros & Cons

Wall Street has become famous for its ability to make or break the bank of anyone who partakes in it. That said, there are obvious positives and negatives that come with investing in stocks. Let’s take a look at what they are, and perhaps the most important ones for you to consider.

The Argument For Stocks

  • Historical Track Record: Stocks have proven that they can withstand the test of time and produce returns over the course of recent history. In fact, equities have proven that positive gains far outweigh the negatives.
  • Dividends: Some stocks offer annual dividends, and even monthly dividends, each of which contribute to an investors bottomline.
  • Diversification: Stocks make it easier to diversify your capital amongst different industries. It is entirely to invest in real estate and technology, and everything in between, simply by participating on the S/P 500. After all, what’s a good investing strategy if not for diversification?
  • Liquidity: Stocks remain much easier to move, buy and sell than real estate, which means stock investors are often more liquid than their real estate counterparts. That means stock investors are usually able to move on to the next best thing with more ease than real estate investors.
  • Low Barrier To Entry: There is very little getting in the way of anyone that wants to invest in the stock market. There are even apps that will make the transition a lot easier than most people realize. What’s more, you can invest in stocks with as little as a few bucks and a couple of minutes.

The Argument Against Stocks

  • Distinct Lack Of Control: Unlike real estate, stock investors are at the mercy of the market; they don’t have control over how their asset will perform. While some may argue that’s a good thing, I don’t like the idea of not having any control over how my money performs.
  • Void Of Tangible Assets: Stocks do not come with tangible assets; the equities are not backed by a physical properties like real estate investing. And while that’s not a big deal to many, there are those that value the idea of a tangible investment.
  • Subject To Emotional Decision Making: Again, just about every investment strategy is subject to emotional decision making, and stocks are no different. It’s easy to invest in the stocks you want to believe in, but that’s not always the smart choice, so investors need to make wise decisions based on data, and not how they feel.
  • Volatility: The stock market has become synonymous with severe ups and downs, as it is at the mercy of a balanced U.S. economy. As a result, most stocks will go through several ups and down over the course of trading, which can grow frustrating over time.

Those intent on pitting real estate vs stocks are no doubt trying to weigh their best options, but they may be missing the bigger picture. A truly great investment strategy requires diversification, not the least of which may result from investing in both real estate and stocks. I maintain that both stocks and real estate are a great option for those willing to mind due diligence and put in the work. That said, if you are set on investing in a single strategy, I wholeheartedly believe real estate is the way to go. If for nothing else, real estate and stocks have demonstrated a similar propensity for returns, but real estate has proven less volatile. Perhaps even more importantly, a sound strategy can mitigate risk to a greater extent in the real estate industry. Therein lies the single greatest advantage: savvy real estate investors can proactively mitigate their exposure to risk, whereas stock investors are at the mercy of the market.

Key Takeaways

  • The real estate vs stocks dilemma shouldn’t be a dilemma at all, as both are viable options for today’s investors.
  • Choosing between real estate or stocks can be a win-win scenario, but only if you mind due diligence.
  • If you already know how to invest in stocks, you may want to think about adding real estate to your portfolio.