This can be a very difficult question to answer. Why? Because both have their advantages and disadvantages and different people have different personalities and preferences. So, in order for you to make a decision on which investment to go for, we have compared the two based on characteristics common to both. You will then weigh the better option depending on what makes a good investment for you. Please read on.
- Rate of Return
Stocks have had a significantly higher rate of return – between 7-9% – as compared to the real estate whose rate of return is between 2-4%. But growing with stocks business takes longer than for real estate business. You can boost your stocks returns by going on margin but in case things don’t go as expected, in order to come up with cash you’ll be forced to liquidate your holdings. In real estate business, however, you won’t be forced to move out. Provided you’re paying your mortgage.
If you decide to cash out your real estate, you’ll be forced to take out a home equity line of credit which will take you more than a month. But in case you invested in stocks and want to cash out, you simply have to sell your stock holdings and get immediate cash.
- Ease of Accountability
If you invest in the stock business, you’ll have to trust the company reports. You’ll have to take what the company has stated as their accounts receivables, dividends, depreciation value, and amortization. And for the real estate business, you will be able to calculate the expenses and income and obtain future budget. You can easily monitor the underlying equity component and cash flow which can guide you on the way forward.
You can easily diversify your stocks business. You can invest in more than one states and countries. But for real estate business, unless you’re having huge amounts of money to have real estates in various states, you can hardly diversify your business.
Real estate business requires that you have a good amount of money for starting and licensing. With a small amount, you can hardly grow in the business. The capital is reasonably high as compared to the stocks business. In the stocks business, you can start the business with small amounts and expand slowly as time goes by.
- Control of Business
In real estate investment, you will be in charge of every real estate. You will control the rents, marketing, costs, and which tenants to allow in your investment. You will be making major decisions for your business. But this won’t be the case with stocks investment. The company you invested in will be controlling your investment for you.
- Amount of Work
Stock business requires less maintenance. This gives you time to concentrate on other projects and family. Also, at only 0.5% per annum, you can pay a mutual manager fund and you won’t have to stress yourself picking the stocks. Real estate business, however, requires your full concentration. You’ll have to be ready for constant maintenance, tenant rotation, and common conflicts with neighbors.
Both investments are good and are worth investing in. Which investment is better between the two will depend on what your goals are. These points will help you decide which investment to go for. If you do not have enough personal finance to start real estate business, you can start with stocks. And if you’re financially able, you can choose to invest in both but ensure you have a good plan prior on how you’ll manage both investments.