Real Estate Vs Stock - Which Gives Better Return?

Bangalore : Over the years, we heard the divergence as which is better return – Real estate or Stock; this could be the decisive question of financial life. Don’t make the mistakes while opting; both have their pros and cons. There are several facets of each that make them unique investments in their own way. Let’s have a look at each type of investment and their pros and cons.

Real Estate: Real estate investment is one of the available ways to invest using borrowed money. There are two types of real estate; one is commercial and other Residential. Making money in real estate is not so easy. Few real estate properties like vacant parcel of land cost you money if you hold it - but you have to spend your own money for maintenance and taxes. Some people prefer the home flipping way like selecting distressed properties and selling them for profits at a higher market value after revamping. Others choose properties for a consistent rental income. For many decades, this investment generated a trustworthy wealth and long term appreciation for millions of people.

Suppose think of a rental apartment or retail building where the tenants are paying you the rents every month, the payment of the expenses can be made and rest can be financed. This helps you to build net worth.

Pros:

1. This real estate investment is a comfortable investment option for lower and middle class people because they may not know clearly about stocks, bonds and other securities and moreover, they heard the importance of owning a home from their parents. The upper classes often learned about that during their childhood and teenage years.
2. Investment in Real estate is something that you can physically touch and feel - tangible. Many investors feel more real.
3. Fraud is less in real estate when compared to stocks. In real estate if you do homework like background check, repairs, inspection and cost check you will be in safe mode, but in case of stocks you have to trust the management and auditors.
4. In real estate by using debt you can plan for more safety than stock.
5. Investment in real estate gives you terrific returns to protect against a loss.

Cons:

1. Real estate takes a lot of hands on work than compared to stocks.
2. Most prominently, the investment is illiquid. When you invest in real estate you cannot sell the property right away. You may have to hold it for a long time to apprehend its true profit potential.
3. If the property is unoccupied you need to pay the maintenance, tax, insurance, utilities expenses from your own pocket.
4. Real estate prices have a tendency to fluctuate. Some cases it may increase and go down or stay flat. If you have borrowed money against the property, it makes you trouble.

Stocks: If you buy a share of stock, it means you are receiving an ownership in a company. Whether that company sells furniture’s, makes ice creams, manufactures machineries, create video games, provides tax services or any other, you are allowed to grab the profits, if any, for every share you own. There are two types of stocks, one is common and other preferred. Common stock allows you to vote at share holder’s meeting and to get dividends. Preferred does not have voting rights, but has a higher claim on assets and earnings.

Pros:

1. Stocks are very liquid, quick and easy to sell. If you need immediate cash, you can sell your stock holdings easily.
2. They are flexible and it can be reallocated in to a retirement account and tax free until you start withdrawing the money.
3. In stocks by taking a long term approach and being balanced you can build net worth at a greater rate than real estate.
4. With the stocks you can not only invest in different countries, you can also invest in different sectors.
5. Through stocks you can easily short stocks or buy inverse ETFs to protect the portfolio.

Cons:

1. Stocks prices are extremely more volatile than real estate prices.
2. The cost allied with investing in stock is lower than real estate. When you buy a stock the most you can lose in the form of initial investment and broker charges.

Conclusion:

Stocks may seem more advantageous than real estate but, real estate seems to be better when it comes to stability and tax advantage. A good concede is to own a REIT as it combines the benefits of both stocks and real estate whereas each area has its pros and cons, to decide which gives better return and effective work depends on your financial situation and comfort.