The Best Investment: Real Estate or the Stock Market?

Posted On Friday, 28 August 2020 23:45
The Best Investment: Real Estate or the Stock Market? Source: Designed by Creazilla

There is a lot of debate about what the best investment is – real estate or the stock market. Real estate investors claim that property is the best investment, while stock market investors claim just the opposite. Both of them are right to some degree - the truth lies somewhere in the middle. But to find out where exactly, we need to take an in-depth look into each of them.

Let's start with the fact that real estate is expensive, no matter where you live. People often work their entire life just to own one property. That was probably the case with your parents. To make a single real estate investment, you need a substantial amount of money.

On the other hand, you can start investing in the stock market with as little as five dollars. Of course, the price depends on the stock, but even huge companies, such as Apple, are traded at around $500 per share. So, you can become an investor in one of the largest companies in the world with just a few hundred dollars. 

You can purchase stocks these days without having to pay a broker, but the cost doesn't stop with the purchase when it comes to real estate - the transaction fee is quite expensive. That doesn't necessarily mean the stock market is better. The risks that come with the stock market are much higher. It's difficult to analyze the market and individual stocks in particular. We might be at the peak of an expansion period, for instance, where the entire market is overvalued, and your investment may fall by 20, 30, or 40 percent if you don't cash out before the market crashes. If history has taught us anything, it is that nothing is too big to fail. In fact, Apple was once on the brink of bankruptcy.

Stock prices change every day for different reasons.

That can trigger an emotional response and push you to exit the market at a loss, which happens quite often, even with professional investors. But with real estate, it isn't like that. The land in a city will always be valuable.

And even during crises, property values are often restored fairly quickly, since everyone needs a roof over their heads.

Real estate covers one of our most important needs - shelter. When you buy a property, you can sleep well and be confident that you are not going to wake up the next morning with the news that your property has lost half of its value. What also makes real estate attractive is that it can provide a passive income. With rent prices going up, you don't even need to work. Property is one of the few investments that can provide you with a strong, stable income, with a dividend yield of up to 10 percent. On the other hand, it's extremely rare for any company to pay a dividend yield of 5 percent or more. Some companies do, but they are risky stocks, where you may lose much more money than you could make out of dividends.

But it also works the other way around - real estate doesn't appreciate as much as the stock market.

You will never find the same returns in the real estate world as you would in the stock market, partly because companies constantly innovate to stay ahead of everyone else. In 25 years, Amazon grew from nothing to a trillion-dollar company. However, the business world is ruthless. Today you are at the top, tomorrow it could be your competitors.

Stocks aren’t like real estate, which sits in the corner, giving you a monthly passive income. When you buy a stock, it’s just a digital document. You have almost no control over it and your single stock doesn’t give you much influence, given that the company may have another 3 billion of them. But real estate gives you complete control over your investment. You can touch it and feel it. Besides the passive income it can provide, you can use leverage. Let's say you have $50,000 dollars. By putting $50,000 into securities you get $50,000 in value. Conversely, the same investment in real estate could buy $200,000 in property with a mortgage and tax-deductible interest.

So, where should you invest your money? The answer is - it depends! If you are keen on passive income, then real estate is your choice. However, if you want to aim for higher returns, the stock market is undoubtedly a better option, especially if you are an amateur investor with only a little money to invest.

Or you could start with the stock market, moving on to real estate once you have saved enough capital. 

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