Real Estate vs Stocks

It is the age old question. Where should I put my money? How do I invest? Where do I get the best return? Where will I be better off in the future? For most of us, we have one goal and one goal only when it comes to money. How can I make the most of it, while mitigating my losses? Whether you put money in the stock market or real estate, there are pros and cons to both. Let’s examine briefly some of those.

Stock Pros:

-Between 1978 and 2006 the average return of 13.4%

-You can finance stocks with margin allowing you to leverage and potentially increase your overall return.

-Stocks, for the most part are liquid, quick and easy to sell.

-They can be reallocated into retirement accounts that are tax free until you withdraw the money.

Stock Cons:

-You can finance stocks with margin allowing you to leverage and potentially increase your overall return. I put this in the con section as well just because it can be scary in a shaky market to leverage yourself with stocks. Stocks can do great when the market is good, but can do horrible when the market is bad.

-Stocks are volatile. Typically with higher potential of returns, comes a higher potential of losses. No one has a crystal ball and regardless of what anyone tells you, you cannot predict what a company will do with 100% assurance.

Real Estate Pros:

-From 1978-2004 average return has been 8.6%. This percentage can of course increase with placing a tenant in the property, assuming it is a structure, and with the inclusion of the tax benefits, tied with real estate.

-There are some great tax advantages to owning real estate. Depreciation, 1031 exchanges to name a couple

-Real Estate is tangible. When you own a deed on a parcel, it is something you can have and hold. Your money is secured with brick and mortar as they say.

-You are your own CEO. Every time you purchase a real estate asset, from then on out, how that “business” is run is entirely up to you. What upgrades you put in the home, who you rent to, and what and how you treat that asset is 100% at your discretion.

Real Estate Cons:

-Illiquid. Real Estate is not nearly as liquid as stocks. If you cannot sell, you may have no choice but to wait it out, and could be several years before your investment comes back.

-Turnover. If you are using your investment home as a rental, when tenants turn over and leave, there can be damage to the property that you will have to pay for in order to get another renter in the property.

In the end, the decision is yours. I own stocks and I own real estate, but in the end, why I’ve decided to put more of my eggs in the real estate basket is simple. It will always go up. I don’t need to worry about the CEO of my stock committing fraud or the company plain going under. With real estate, at least I know that if I buy something that turns out to not quite be what I thought it was, I can stick a tenant in there and what was a bad investment will eventually give me back my principle plus, what I hope will be a hefty increase.