Real Estate Investment vs Stock Trading: Pros and Cons

Real Estate Investment vs Stock Trading: Pros and Cons

Achieving financial freedom requires making sound investments. Among others, investing in real estate and stocks are two of the most popular. But which one is better?

Whether you want to save up for a family home, plan your retirement, set up a college fund, or build an additional income stream, you need the right investment strategy. It starts with picking where to put your money. Both real estate investments and stocks can be good, each with their respective pros and cons.

Should you invest your money in real estate? Or is it better to start stock trading? Read on and learn from the insights we’ll share.

Investing in Real Estate

Investing in Real Estate

Real estate is a tangible investment. It is something that you can see and touch. Hence, a lot of investors feel that it is real, especially when compared to stocks. For decades, people were selling houses or renting out properties to generate wealth. It can deliver long-term appreciation and significant income, especially if it is in a strategic location.

The Good

Are you having doubts if real estate is a sound investment? Below are some of the compelling reasons that might make you change your mind.

1. It is Easy to Understand

The simplicity of real estate investments is one of its biggest benefits. The concept is straightforward – you buy a property, manage its upkeep, and sell it at a profit. Alternatively, you can also earn passive income by making it available for rental or using it as an Airbnb.

2. It Has Tax Advantages

With various tax deductions available for real estate investors, you can grow your wealth over time. Income from real estate is not subject to self-employment tax. You might also be eligible for a tax deduction on mortgage interest.

3. It is Safer to Invest with Debt

Investing in real estate is possible even with a low down payment because of the mortgage. You can finance the cost of the rest of the property. In contrast, investing in stock using debt, also called margin trading, is riskier. It is a strategy best reserved for the experts.

4. It Is Not as Volatile

While real estate prices can increase or decrease over time, the movement is not as volatile as you may experience in the stock market. 

5. It Provides a Steady Cash Flow

If you are looking for a steady stream of passive income, then it is hard to go wrong with real estate. You can receive monthly rental income from your property.

The Bad

Nonetheless, despite the benefits, there are also drawbacks to investing in real estate, including the following:

1. It Requires a Lot of Work

We have earlier noted that real estate is easy to understand. Even so, it requires a lot of time and effort. From searching for the right property in a strategic location to renovating it to make it more marketable, a lot of things require your attention. If you feel that you have no time for it, then you can contact a real estate agent to do the job.

2. It is Expensive

Compared to trading stocks, the capital requirement of real estate is higher. It requires a huge upfront investment. Even if you can borrow money from lenders, it might not be easy for those who have financial constraints.

3. It is Difficult to Diversify

Diversifying your investment portfolio is important if you want to generate wealth. However, such won’t be easy with real estate. Among others, one reason is that investing in new properties can be capital-intensive.

Stock Trading

Stock Trading

By investing or trading stocks, you are owning a fraction of a company. Meaning, you share their profits and losses. In a report by Statista, it has been noted that more than 50% of Americans invested in stocks from 2010 to 2020. Capital appreciation, dividend payments, and the ability to vote shares are some of the driving forces behind this investment. 

If you want to get into stocks while taking advantage of the good performance of the real estate market, consider equities related to both industries. For instance, investments like AirBnB stocks can be a good option. Not to mention, with many people getting back to traveling, the latter might be a profitable choice.

The Good

Are you having second thoughts about trying stock trading? Below are some of the benefits worth noting.

1. It Is Affordable

Compared to real estate, stock trading has a lower barrier of entry because of its price. You will find lots of affordable equities with promising returns. With the help of stock research sites, you can find stocks within your budget while also analyzing their potential performance over the short or long term.

2. It is Liquid

Liquidity is another good reason to get into stock trading. It is easy to get in and out of the market. You can get your money out quickly when needed.

3. It has Fewer Transaction Costs

Another benefit of stock trading over real estate investments is that the transaction costs are less. Brokerage firms are offering many discounts, so you can even reduce the transaction costs to zero.

4. It is Easy to Diversify

Not a lot of people have the time and money to invest in multiple real estate properties to grow their portfolios. With stocks, however, it is easier to broaden your portfolio at the fraction of the cost.

The Bad

Stock trading also has its drawbacks, including the following:

1. It Triggers Impulsive Decisions

Emotional decision-making is common amongst stock traders, especially buyers. A lot may fail to think of the long-term and impulse buy based on current conditions. 

2. It is Prone to Short-Term Fluctuations

In the short-term, stock trading is more prone to fluctuations, unlike real estate investments. The prices can change by the hour or day. It requires a solid strategy to minimize the impacts of volatility.

So, Which is Better – Real Estate Investment or Stock Trading?

In sum, both real estate and stocks have their respective pros and cons. They have inherent risks and rewards, so it may be difficult to pick one. If your finances allow, why not invest in both?

*Disclaimer: This material is third-party provided content and for informational purposes only. It is not to be construed as investment or tax advice. Readers are strongly advised to consult with their professional advisors regarding the information herein.

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