Real Estate vs. the Stock Market Investment: 12 Points to Consider

For those looking to generate wealth through investing, there are a few methods to consider. Investing in stocks is popular and quick for those looking to make some money on the side, and with the right skillset, can be an effective way to build financial wealth.

Property investing has also been a popular way to own tangible assets that generate passive income. Through property investing, many everyday people have been able to retire that little bit sooner or quit their 9-5 completely and pursue a more rewarding lifestyle.

But what’s a more effective strategy? Is stock investing better than real estate? Or does investing in property have the edge over investing in stocks?

Like so many of the decisions to be made when it comes to investing, the right answer will depend on the circumstances of the individual. A person’s resources, time, and experience will determine what is the best method of investment to pursue. Many people invest in both, diversifying their assets and improving their chances of success.

But maybe you want to know which method to direct more of your attention? Or perhaps you just want to know which method would be right for your circumstances. Either way, we’ll go through some of the pros and cons of both investing in real estate and stocks.

What are the advantages of real estate investing?

Anyone can be a property investor

The great thing about investing in property is that it can be kept relatively simple. It essentially comes down to buying a property at the right price, managing upkeep, maintaining a tenancy to generate cash flow, and sell that property for a high price (or hold on to it and continue generating cash flow!). Property also pays for itself, with rent from tenants paying off the mortgage.

But for those unsure on the ins and outs of property investing, gaining knowledge on the subject can be done entirely in your own time. This process can also be fast-tracked through investment courses, for those with limited time.

Investing in property can bring tax advantages

There are a range of tax benefits to investing in real estate. The most notable is through negatively gearing property so that you’re able to claim the property as a loss which can be offset against your income and reduce the tax you end up paying.

Investing in property is safer when you have debt

When it comes to investing in property, you’re able to invest with debt —also known as having a mortgage. Putting down 20% deposit and financing the rest of the property’s cost is common practice for most people buying a house. Margin trading, or investing in stocks with debt, is extremely risky and a practice often only carried out by expert traders.

What are the disadvantages of real estate investing?

Real estate requires saving

Starting out in property investment can be difficult without savings for a deposit. Getting 20% or less for a deposit can be a long process in itself, especially for those with limited financial resources and time.

On the other hand, a minimum amount isn’t required to start investing in stocks and can be done with whatever savings you might have. But there are methods to get the money for a deposit quickly or even avoid having to save for one at all.

The workload

It’s often perceived that owning a property can be a lot of work. You have to maintain upkeep of the property, whether it be major renovations or small jobs that keep the property in top shape to maintain value and keep the tenants happy.

Speaking of tenants, you’ll have to ensure the house is full of renters and that they are paying rent every week or month. Sound like more work than what you really want to be doing? Don’t let this deter you — most of the hands-on work can be organised through a property manager.

Transaction costs are high in property investing

It’s no secret that there are significant closing costs involved in purchasing property. These costs won’t take as much out of your pocket as investing in stocks. But the return on property investing can also be great, with the benefits outweighing what you might pay initially.

So now that we’ve gone over a few of the pros and cons of real estate investing, let’s compare it to investing in stocks.

What are the advantages of stock investing?

Diversifying stock is easier than diversifying property

It’s relatively simple to buy stock across a broad range of companies or industries, allowing easy access to a diverse portfolio. Diversifying your portfolio will lower the risk involved with stock investing, as stocks perform differently in different periods.

This protects you against losing too much money, as one company doing poorly will be balanced out by other investment choices. You can diversify a property portfolio as well, buying across a range of locations. However, diversifying in stocks can be done a lot quicker than buying property across a diverse range of locations.

Investing in stocks is relatively hands off

While property can be a fair bit of work, investing in stocks is relatively hands-off. To start you simply need to decide on the best investing approach, set up a brokerage account, and start researching particular companies.

Any ongoing work can be achieved through minimal monitoring of company reports and performance, as well as timing the market when buying and selling.

Stocks are highly liquid

While getting the money to invest in property can be difficult, getting money out of property can also be rigid, as resale of a house is not always easy and largely depends on a lot of external factors (i.e., the right market). This is not the case for investing in stocks, which are highly liquid. Stocks can be sold at any time, often with the click of a button.

What are the disadvantages of stock investing?

Stock prices are volatile

This is probably the biggest reason why someone might choose property investing over stock investing. Stock prices move up and down much faster than property prices. While there is always an element of risk in investing your hard-earned cash, stock markets are known to fluctuate based on a range of external factors that can often be difficult to predict.

The potential for emotion-driven investing

The ease of buying stocks can also be a major disadvantage as well. Fluctuating markets often trigger a knee-jerk reaction, resulting in investors selling when a buy-and-hold strategy is the better option. It’s important that investors focus on portfolio building and look beyond the current climate as well as their own emotions.

Stock investing can result in more tax

Investing in stocks can expose investors to greater tax burdens. You may have to pay a capital gains tax when it comes time to sell your stock. While the amount of capital gains tax will depend on the stock’s growth and the strategies used to help reduce this amount, you’ll most likely pay some capital gains tax after selling stocks.

There are a range of benefits and risks to investing in both real estate and the stock market. There is no right choice, instead depending on your circumstances and preferences. Do you want a less involved role, as well as the ability to quickly and easily sell-off the investment?

Or do you want a safer, less complicated, less volatile type of investment? These are just a few of the questions that need to be asked when it comes to choosing between stock and property.

Of course, we ‘ve seen first-hand the numerous benefits that property investing has had. All types of people, with varying levels of skill, experience, and knowledge in this area have learnt the ins and outs of the industry and benefited as a result. Property investing has allowed people to quit the rat race, worry less about finances, and focus on the things that matter most.