This is a tricky one. There’s been a long-standing debate over what investment is better and gets the most returns: real estate or stocks?
And the answer most people get can be a bit frustrating because it’s in the it depends realm. Unfortunately, it’s the truth; it really does depend. The different characteristics of each investment, combined with the person investing (in this case, you), can affect the returns.
In this article, you can find more about how each of these investments takes shape, and see which one is best for you.
Differences in Investments
First, it’s worth going into how each of these investments behaves. When it comes to property or real estate investment, you are purchasing a physical thing, like a piece of land, building, or a house. You do it because you either hope to sell it for a profit or to rent it and get your profit through smaller payments over a longer period.
Now, investing in property doesn’t mean paying for it once, and you’re done. Especially if you’re buying something to rent, then you will have to consider the costs of maintaining your property. That means paying extra just to keep it in the condition it’s in. You may also need to renovate and add some improvements to get a better price, which, again, means money out of your pocket. There’s a lot that goes into vacation rental management, so consider all the ups and downs before taking the plunge.
When you buy stocks, on the other hand, you don’t get anything tangible like a house. You mostly buy a piece of a company and therefore are entitled to a cut of the profit. But the money is tied in the stocks, and you can’t access them unless you cash it.
For instance, let’s say that you own 5000 shares of a company that has 500,000 shares total. You effectively own 1% of that company’s profit. With dividends, people generally have to pay great attention to their worth and anticipate any changes in the market that may tell them to buy or sell stocks.
Which Should You Buy?
There are pros and cons on both sides, and the only way to understand which one you’re better off with is to take a look at your resources regarding time and finances, primarily. Let’s put them side by side:
- More people are familiar with real estate investment than stocks, so it’s more likely to find someone who can advise you;
- Financially speaking, more people could afford to invest in real estate than in stock (at least regarding buying a considerable number of shares);
- Stock investment is a lot less of a hassle than property buying (and upkeeping);
- Stocks have a higher return than real estate historically, but the market is more volatile;
- Debt or leverage is safer with real estate than stocks;
- With real estate, there’s always the risk of investing for nothing because you can’t find tenants or a buyer.
Neither scenario has a get rich quick thing going for them. Whichever you choose, know that you’ll have to pay close attention to the investment. Moreover, you can’t expect to see a profit in your bank account overnight.
Such is the way for most types of investments: they take time. And the best thing you could do before you start spending money on either of them is to carefully review what your possibilities are, and which one is better suited for them.
Conclusion
Buying properties vs. buying stocks, a battle of investments in which neither side can claim supremacy regarding returns. Leaving the state of the markets aside, the return on any investment depends on the person making them: their experience with this process, how much time they can focus on them, how much money they have to invest, and so on.
If you’re just starting, it’s better to test the waters and make only a small investment. Over time, when you get more comfortable with real estate (and what vacation rental management involves) or stocks, you can increase spending and up the stakes. Just remember never to go beyond your means.
