Stocks are Popular. But Real Estate Investing has a Proven Track Record. Here’s a Comparison.
What do you do with your money? Aside from spending it on essential expenses like food and housing, do you use your spare cash to eat out at a fancy restaurant or cover the down payment for a new truck? Perhaps you use it to spoil yourself after a hard day’s work?
We deserve nice things; it’s true. But saving your money is worth more than temporary happiness, so you’ll have the funds to handle emergencies, accidents, and more. It doesn’t stop there either, as you can go the extra mile and use your money to quadruple your savings.
Investing is the surefire way to make the most out of your money, so it’s not sitting in the bank collecting dust and chasing inflation. But not all investments offer the same rewards. So what’s the best way to invest it? Should you invest in real estate or stocks?
Let’s answer that age-old question below.
Investment Returns of Real Estate vs. Stocks
The returns you can earn on your investments will depend on several factors, including the type of investment, the amount of risk you’re willing to take, and the current market conditions.
But, in general, real estate tends to be a more stable investment than stocks, as property values are less affected by economic downturns than stock prices. Although real estate sees an average return of 8.6% compared to the US stock market’s 10%, consider the following advantages of real estate:
- Long-term Returns: Stocks give you a one-time cash payout. Real estate, in contrast, gives you a steady stream of positive cash flow with minimal downtime.
- Immediate Income: Stocks pay dividends, but only a couple of them provide over 4%—barely above inflation. Plus, your money won’t be realized until you sell the stock. With real estate, you can get 15 to 20% in cash-on-cash returns.
- Easy to Become an Expert: Every piece of information you need is at your fingertips—like this blog post. You can use public information for home values, average rents, economic conditions, and market health in a few seconds, making it easy to spot good investment opportunities.
- Easy to Value: Unlike stocks that have arbitrary valuations, properties are easy to value since they’re comparable. The process is easy and there are many online calculators and professionals (like us) to get an accurate property value.
- Easy to Inspect: You can check out a property before you dip your toes in a real estate investment. In contrast, you can’t possibly evaluate all the pieces of a company to confirm its stock valuation. You’ll have to trust that others have done a good job and that nothing will impact the valuation—a huge risk if you ask us.
- Ability to Add Value: You can’t influence stock value unless you have a corporate role in a public company. In real estate, however, you have tons of opportunities to add more value to your investment assets. Flippers do it constantly with repairs and rehabilitations.
Stocks have the potential to earn you a higher return. But they’re also extremely volatile. In contrast, US real estate has been and will always be an excellent investment route—regardless of your situation.
Pros and Cons of Real Estate vs. Stocks as an Investment
All investments come with some risk, and real estate and stocks are no exception.
Real estate investment risks include vacancy rates, tenant turnover, repairs and maintenance, and changes in the local market. Say, if your rental property is located somewhere experiencing a sudden decrease in population, you may have trouble finding tenants to occupy your rentals.
In contrast, stock market risks include economic recession, inflation, and interest rates. For example, if there’s a recession and companies lay off workers, their stock value will likely go down. No investment is risk-free. But some investments are riskier than others–like how stocks are compared to real estate.
Take a look at the chart below for an overview of the pros and cons of real estate vs. stock investing:
Questions to Decide Between Real Estate vs. Stocks
There are a number of factors you need to consider before making a decision, including your financial situation, risk tolerance, goals, and investment style. To simplify things for you, here are four questions to ask yourself to determine which investment is better for you:
- How much money do you have to invest? If you’re looking to invest a large sum of money, real estate is a good option, because you’ll need a down payment to buy a property, and properties are generally more expensive than stocks.
- What are your investment goals? If you’re looking to generate income, real estate can provide you with passive income through rental payments. If you’re looking to build wealth over time, stocks may be a better choice for appreciation.
- How much risk are you willing to take? Stocks are much more volatile than real estate, which means they can go up and down in value rapidly. If you’re not comfortable with that level of risk, real estate may be a better investment for you.
- What’s your investment style? If you’re looking for an active role, real estate allows you to be involved in the property’s management. But if you prefer a hands-off approach, stocks can be easily bought and sold without your involvement.
If you’re still unsure of whether real estate or stocks is right for you, consider speaking with a financial advisor. They can help you assess your specific situation and make an informed decision about how to best invest your money.
So, Which One’s the Winner?
Ultimately, the decision of whether to invest in real estate or stocks is a personal one that depends on your unique financial situation.
If you ask me, however, my money’s on real estate. I have a growing portfolio of several rental properties scattered around the Metro Detroit area, and I’m seeing great returns so far. Not only that, but I enjoy the process of finding and managing tenants. It’s a lot of work, but I get help from my property management company for dealing with complexities anyway.
Do you want to know more about investing in Metro Detroit real estate? Get in touch with my team today. We’ve been operating in the area for over two decades now, and have everything you need to start generating wealth via rental property investing.