Investment Options: Real Estate Vs Stock Market

Sujan Afi S

Introduction

Are you looking for investment options? But confused where to invest: Is its real estate or stock market? Then you are in right place because in this blog we are going to solve your confusion regarding this issue of investment (real estate or stock market).

The argument i.e. which is better investment option: real estate or stocks is appeared as quite age-old debate. Both the real estate and stocks are considered as the major sectors for investment. They (real estate and stock market) are considered to be just two ends of the investment spectrum. Investment in real estate simply refers to the investment in various tangible property like house, building, office etc. which are permanently attached with land. While investment in stock market refers to the investment of your money in a company through the process of purchasing share of stock of the company.

You can make money both in investing in real estate or stock market. But the amount of return, risk factor, your personal requirements and ability etc. would affect your investment destination. Your investment destination decision would affected by your present situation like whether you are planning for retirement, earning residual income, saving for a fund like college, looking for first time investment, urgent need of money, amount of money in your hand for investment etc.  The main factors that would be needed to considered before your investment and the basic difference between investment in real estate and stock market are discussed below – 

Nature of investment: Real estate vs stock market

Buying stock is very easy and time saving. You don’t need huge amount of money while investing in stocks. But here through buying a stock you just able to buy a tiny piece of a company. Stocks are not tangible rather it is intangible in nature. You can make money only through the process of value appreciation (as the company share stock increases) and dividends.

On the other hand, when you buy a building or house or any other real estate property then your investment is a tangible property. You can make money by the collection of rent while your investment destination is in real estate. Besides, the appreciation of the value of real estate property would also make money for you. Real estate investors are own something concrete and for which they can be accountable.

It should be noted that in present real estate investment trust (REITs) is an alternative way of investment in real estate market and this can be bought or sold like stocks.

Return amount

When a company make profit then it distributes its dividends among its share holders and in this way an investor who invest in stocks can gain money. The appreciation of the value of stocks make good profit when it paired with benefits and this can boost your returns. But this kind of perks is not always available and there is also some limitation of benefits from perks like this. It is witnessed from the analysis that between the years 1970 – 2016 the stock market has an average annual return of 10.31 per cent (as the performance of US Stocks). Although in many cases investment in stocks generated more return through high value appreciation than real estate but return of stocks are not assured.

On the other hand, return from the investment of real estate sector mostly depends on the location of your property. real estate provides a steady and regular source of income and have stronger return potentiality. Real estate property values generally tend to outpace inflation but it is not very much. Return from real estate sector is comparatively a long-term process than stocks.

Risks

The great economic recession 2008 and corvid – 19 pandemic throws light over the risk factors on investment in real estate as well as stocks market. Investment in real estate need a lot of research because it is not liquid in nature and can not be convert in cashed quickly, which indicates that you will not get the actual property value shortly although you need it urgently. Besides you have risks of damaged your property through rentals and have headache with tenants. But the good thing is that as it is tangible therefore it is generally less volatile compared to stocks.

Stocks have a number of risks like inflation, market condition, economic situation, technological advancement and change in human test etc. Therefore, it is more volatile than real estate. As it is intangible in nature therefore your risks increase many folds. Even political stability and government monetary policies also influenced stock market largely which increase its risks.

Diversification

Diversification is observed as much easier for stock market than real estate. besides there is a lot of diversification option in stock market. But real estate sector provides you limited options for diversification of your investment. Diversification in real estate generally required a huge amount of money whereas stock market does not required this kind of huge money for diversification. With your limited investment money you can diversify your investment for stocks.

Pros and Cons

Investment in real estate provides you the opportunity of income from rent which assures you a steady income source. You don’t need to think about inflation as your rent amount and property value will also increased keeping relation with inflation. Investment in real estate with the help of loan is safer than stock market as it is tangible in nature. You can get various tax benefits also while investing in real estate sector.

On the other hand, the value of real estate property highly subjective in nature which indicates that it depends on a lot of issues like its location, condition etc. The real estate sector in India largely unorganized in nature. Transaction cost like stamp duty, registration fees etc. observed as quite high for real estate property. You may require huge amount of money for the maintenance of your real estate property. Investment in real estate is largely time consuming, research based, huge efforts oriented and high amount of money based.

Stocks on the other hand recognized as more liquidity in nature than real estate. Buying and selling of stocks are very easy. You required minimum transaction fees while investing in stocks. Stocks provides dividends with value appreciation. You don’t require huge amount of time or money to buy stocks and there is no maintenance cost of stocks like real estate. diversification of investment is very much easier while investing in stocks.

Stock prices are more volatile than real estate and have not assured or steady return like real estate. Investment in stock market requires well update knowledge of stock market and good financial knowledge. Selling of stocks resulted capital gain tax.

The key differences between real estate and stock market investment can be provide through a chart also

BasisStockReal estate
MeaningEarning from the share of a companyEarning from property on a piece of land
Ownership StatusOwner of the stocks only and not of the companyCan be the sole owner of the property
LiquidityHighLow
RiskHighly volatileLess Volatile
Maintenance CostNo maintenance costHave maintenance cost
Steady income No steady incomeHave steady rental income opportunity
TimeLess long-term investment Highly long-term investment in nature
DiversificationHighly diversifiedLess Diversified
Tangible/IntangibleIntangibleTangible
Cash FlowLess cash flow optionBetter cash flow option
Locational importanceNo locational importanceHave locational importance
Requirement of researchHigh research is not requiredHigh research required
Investment amountCan invest low amount of moneyRequired high amount of money for investment

Conclusion

So, what is better for investment: stock market or real estate? After the above discussions it can conclude that both the real estate and stock markets have some advantages and disadvantages for investment purpose. The destination of your investment actually depends on your situation and perspective. If you are in an age of retirement then probably you go for real estate investment because it is less volatile and at that time you have time for research of real estate property. Although there a greater risk for stock market but in this sector, you can enter only by just the click of a mouse. If you have good financial knowledge and updated with stock market then investment in stock market will be best option for you. Through stocks you may be generate huge profit in short period of time whereas it is not possible in real estate investment. Therefore, if you want to gain maximum profit in short duration then investment in stocks is better for you. Finally, if you have low amount of money for investment then it is better for you to go for stocks.

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