The pros and cons of investing in real estate vs stocks

Of the two types of investing, investing in stocks seems more accessible to many than the world of property investment.

So, why would you consider investing in real estate?

Both types of investment have pros and cons, but the beauty of investing in property lies in its low risk, stability, and predictability. Furthermore, real estate investing provides tax advantages and a level of control over your investment because it is a physical asset. 

Let’s take a brief look at some of the pros and cons.

The pros of investing in stocks

1. Passive income
2. The process of investing in stocks can be automated.
3. Liquidity
4. Buying and selling stock is a relatively straightforward and speedy process with low transaction costs.
5. Diversification
6. Due to the relative ease of buying and selling stocks, it is fairly simple to spread your capital across different stocks. This is a way to combat the volatility of the stock market, where the prices of individual stocks fluctuate daily.

The cons of investing in stocks

1. Volatility
2. During a dip in the economy, you may be subject to the disappointment of diminishing funds as the profitability of the company drops.
3. Stock prices experience extreme short-term volatility depending on the day’s events. Most smart traders do not react to these volatile market cycles but take a long-term approach; however, the unpredictability of stocks can take its toll emotionally.
4. Risk
5. Stocks are volatile by nature because they depend greatly not only on the economy but also on a company’s performance and, more importantly, on the performance of the flawed individuals that run those companies.
6. If a company goes bankrupt, the money you have invested in those stocks dissolves.
7. Ambiguity
8. Accurate stock analysis calls for a great deal of study. Even many honest experts admit that they are barely scratching the surface regarding accurate, in-depth analysis.

Real Estate – Positives and Negatives

A great appeal of real estate investment is its stability. This kind of investment has generated consistent wealth and long-term appreciation for millions of people.

Real estate investment provides a very consistent and stable rental income. Having a home is a vital necessity for all people, and as a result, rental investors are relatively protected even during economic downturns.

The pros of investing in real estate

1. Property investment provides an opportunity to invest for cash flow which means buying a rental property for the income it generates each month.
2. With skillful management, this cash flow income can significantly increase after your investment.
3. The passive income from your real estate investments can dramatically improve your quality of life.
4. Rental properties give a steady source of cash that keeps up with inflation.
5. Many investors are often able to earn cash flow completely tax-free.
6. The government gives many tax advantages to those that effectively help them with their responsibility to provide suitable housing for the populace. Owning real estate brings many tax advantages, not least of which is depreciation.
7. Depreciation is a key tax advantage with real estate investment.
8. Because you are depreciating an asset that increases in value, you receive a tax credit accordingly.
9. This tax credit is received in addition to property maintenance and other costs that you can take away from the rental income you receive.
10. Hedge against inflation
11. Depending on the type of securities you hold, inflation can be problematic. Real estate investing serves as a hedge against inflation. The property’s value is tied to inflation as replacement cost increases and the tenant’s rent is adjusted upward.

The cons of investing in real estate

1. Lack of liquidity
2. With property, you can’t just sell it at the end of the trading day. 
3. It may be necessary to hold the property for several years to realize the anticipated significant returns.
4. Lack of diversification
5. Transaction costs