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What’s better? - Investing in real estate vs stock market

As stocks are an easy and rapid investment option, people looking to grow their wealth often opt for them. If you're among the stock investors, you must be feeling the heat these days because the Sensex has slipped over 8000 points since January 1, 2020.

stock market

A few do believe that investing is a journey, the risk is uncertain, and risk comes unannounced. But it's a just a matter of time since these beliefs slip under fear. 

 

As of March 12, India is facing 75 confirmed cases of Corona Virus (Covid-19). Moreover, unsystematic risk such as what happened with Yes Bank is also fueling fear in investors' minds. It would be right to say that the recent events have shown the mirror of risk.

 

But what's real and firm is - To create wealth, you need to have a process, a method and most importantly, patience. So if you are keen on investing and confused about what to choose between Real Estate and Stock Market, it's wise to know the advantages and disadvantages of each strategy.

 

Even amidst tough times like these, the following advice will save your hard-earned money. Common questions like Does real estate beat the stock markets? Does realty appreciate in a much stable way than stocks? And which is the better strategy: Investing in real estate or building a portfolio of the stock market? Are answered comprehensively. So let's have a look. 

 

Real Estate and Stock Market carry some pros and some cons. Such as: 

Advantages of Real Estate Investment

realtor

  • Investing in real estate, whether commercial or residential requires you to hold the space until the market price rises to its potential.

  • It's time-consuming as it requires thorough research for making the purchase decision, followed by legal paperwork to complete the process.

  • It's exposed to market risks and location uncertainty.

  • Finding the best buyer and sealing a deal to liquidate your investment is itself a cumbersome task. 

  

Disadvantages of Real Estate Investment

Two businessmen hands and the key, paper agreement

  • Real estate investments can be more work than stocks. Where buying is considerably easy, maintaining properties is hard, primarily rental. 

  • Real estate investment is more expensive than stocks since it requires a huge sum at the time of payment. 

  • Real estate has high transaction costs. A seller can expect to pay high closing costs, which can take as much as 6% to 10% off the top of the sale price. That's a hefty cut compared with stocks, especially now that most brokers charge no fees for stock trades.

  • The return of your investment isn't a sure thing. While property prices tend to rise over time, there's always a risk of selling a property at a loss. 

  • No option for diversification. 

  • Returns from real estate are primarily decided based on its location & neighbourhood. Prices fluctuate depending on neighbourhood development. 

Here is some more reading material to help you make a better decision:

1. Investments: Real Estate vs Stocks - https://amzn.to/33Z6Z3o

2. I Do. Now What? The Stock Market vs The Real Estate Market - https://amzn.to/2Gew3eA

3. Joe's Dynamic Investments: 5 Principles to Creating and Maintaining Wealth - https://amzn.to/2RY3zYP

4. Property vs Shares: Discover Your Knockout Investment Strategy - https://amzn.to/369qYik

Advantages of stock investments 

Stock market data on LED display

  • It is a long term investment though it may not be as long as real estate investment. Options like Intraday trading, ELSS, Mutual Funds vary on investment, maturity and returns. 

  • It's easy to start and maintain. Just find a reliable stockbroker, open Demat & trading account, link it to your bank account - all of which can be done online or do the trading by yourself. 

  • Exposed to market volatility, but usually generates higher returns over the long term than real estate. 

  • You can liquidate your stock investments partially or completely whenever you want. 

  • You can diversify your investments with a nominal amount and also invest in equities and stocks of various companies.

 

Disadvantages of Stock Market Investment

stock market

  • Stock prices are much more volatile than real estate. The prices of stocks can move up and down much faster than real estate prices. 

  • Selling stocks may result in a capital gains tax. 

  • While buying & selling a stock is easy, it may also result in huge losses if not invested rightly. 

Conclusion

It's hard to make an apples-to-apples comparison of the two. But it's fair to say that real estate investments have just a bit of an added advantage on stock investments in times of such as these and in the long term. When you combine price appreciation, rental income potential, and the inherent tax benefits of real estate investing, there's potential for impressive long-term returns even when the markets are crashing. 


 

Related Post - 11 Mistakes First-time Homebuyers Should Avoid

 

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