As an investor, it’s important to understand the differences between stocks vs. real estate. While each investment has its perks, there are some things you should know about before spending your money. Learn more about what’s right for you in our latest post!
Both real estate and the stock market are popular ways in which to invest your money. Some people swear by one or the other, however, both have amazing potential when handled correctly. Below, we offer some pros and cons as well as questions to ask yourself in order to determine if you should invest in stocks or real estate!
The Benefits of Real Estate Investment:
Tangible
Real estate is a tangible investment meaning you can physically see and touch it. You know it’s there and it isn’t going anywhere, greatly reducing your risk of fraud. Owning property has many great psychological benefits as well. You’ll feel a sense of pride when telling people about the property you own.
Long Term Appreciation
Your real estate investment is likely to appreciate over time. This isn’t always true for stocks. Some companies are here today, gone tomorrow, making the stock market much more volatile. In most cases, the value of your property will go up over time, even if the market stalls here and there.
Tax Deductions
Real estate investment offers all kinds of tax breaks for investors. The 1031 exchange will allow you to defer taxes as long as you reinvest your proceeds into a like-kind investment. You can also deduct things like interest, property management, business travel, your home office, and more.
Lower Risk of Fraud
You can see the property, check it out, make repairs and upgrades as you wish. The stock market leaves much more room for fraud.
More Control
You decide how the money is spent as opposed to a board of directors. If you want to redo the roof, you do it. Add an addition? That’s up to you too. You decide how to reinvest into the property, giving you the opportunity to maximize the value of the property.
What to watch out for…
You don’t want to find yourself getting stuck with one kind of property investment or location. It’s best to diversify your real estate investments, buying properties in different areas and of different types. Single-family rentals, multi-family rentals, apartment buildings, and commercial real estate can all be great income producing assets.
Another thing to be mindful of are the fluctuating holding costs. Insurance rates can change. Taxes can go up. You may find yourself without a renter at some point, forcing you to cover all of the monthly ownership costs yourself. Utilities can vary depending on the time of year, making your investment more costly during these times.
The Benefits of The Stock Market:
Diversification
Stocks offer a wider range of diversification options, giving you the opportunity to build wealth at a faster rate. However, this will often require an aggressive portfolio that carries some risk.
Liquidity
Stocks can be easier to sell if you need the money right away. Investment properties, especially duplexes and apartment complexes will have a smaller number of interested parties than a single-family property would.
No Work
Owning stock requires very little from you other than making that initial investment. From there, you will only have to watch the market, buying and selling as needed. Many investors choose long-term stock investment as a hands-off way to collect dividends.
What to watch out for…
The stock market can be very volatile, there is a lot of fluctuation, which can pay off in some ways, but be detrimental in many others. When watching stock prices go up and down throughout the day, you may become more prone to buying and selling based on emotion, rather than by the facts along.
Ask yourself these questions…
How Hands On Do You Want To Be?
Investing in the stock market won’t require much from you other than making the purchase and selling when the time is right. Investing will likely require more of your time and be more of a hands-on process, however, the returns can be well worth the effort.
What Kind of Returns Are You Expecting?
Before you invest in stocks or real estate, it’s important to have a clear vision of what you wish to accomplish. How hands-on do you want to be? How quickly are you expecting your returns and for how much? By knowing what you need and what you want to achieve, you’ll be able to make the investment that is right for you.
Of course, when making any sort of financial decision, it is important to speak with your accountant, financial planner, lawyer, or all of the above!