Finance Corner: Should You Invest Your Money in Real Estate or Stocks?

Finance Corner: Should You Invest Your Money in Real Estate or Stocks?

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If you’re thinking about investing in real estate, you may be wondering whether it would just be easier to invest in the stock market instead. While managing a stock portfolio does require research and work, it also won’t call you in the middle of the night to say a pipe has burst at your rental property. Real estate may require more work, but it’s something tangible you can manage yourself as opposed to letting unknown executives impact your wealth.

Table of Contents - Finance Corner: Should You Invest Your Money in Real Estate or Stocks?

Investing in real estate generally requires purchasing property or land. Ideally, you’re investing in income-generating property, like a residential or commercial space that you would then rent to tenants. Another type of investment includes buying and holding property that you believe you can sell one day for a much higher price.

Investing in the stock market requires buying a share or a piece of a company. As a shareholder, you earn returns on any profits the company makes. You can also lose your investment if the value of the company’s stock falls. Shareholders appoint a board of directors to manage publicly traded companies who make decisions about how to allocate company profits.

Whether real estate or the stock market is right for you depends on several factors. Your personality, the market and the individual investment all determine whether one path is better than the other.

Real estate investing is tangible and familiar

Real estate feels like a comfortable investment for many people because they already have personal experience being a homeowner and/or a tenant. If you own a home, then you’re familiar with the lending process and the many experts you must consult when buying a home. If you were a renter, you’re familiar with a landlord’s duties and what’s expected of tenants as outlined in a lease. Real estate investing is familiar because it’s a process we interact with every day, even if we aren’t thinking about it. Stocks require more of a learning curve to understand how they work.

Real estate investing feels more secure than investing in the stock market because real estate is a tangible asset. The real estate market can crash, but even if you find yourself underwater you still own a piece of property. If necessary, you can always sell your property.

Another benefit of having a tangible asset is that you can physically inspect what you own. It’s more difficult to be defrauded when you’re buying real estate than when you’re buying stocks. You can physically see the property for yourself. You can also hand-select and investigate the property managers, tenants, contractors and others you’ll be trusting with the care of your property. With stocks, you have to trust management and auditors with whom you have a minimum, if any, interaction.

For both types of investing, you have to spend money to make money. With real estate, you can leverage your debt more safely. Using debt to buy stocks requires trading on margin, which is riskier. If the dollar loses its purchasing power, real estate is a strong inflation hedge.

Successful stock investing takes time and discipline

Despite infamous market crashes, stocks are generally the strongest investment for growing wealth. However, achieving wealth from the stock market requires a lot of money, know-how and most importantly time. The best investors are rational, disciplined and unchanging. It can take many years (and many dollars) to learn how to invest well.

Stocks can have large short-term fluctuations, for better or worse. If you’re being diligent, you can buy low or sell high. Your money is much more liquid than if it were in real estate so you can pull it whenever you need it. It’s precisely this benefit that demands stock investors have the discipline to ride out any fluctuations.

Business ownership is the strongest asset class. Owning stock is owning a piece of business. Unlike managing your own company, the stock market allows you to benefit from the company’s profits without doing the actual management. Your only job is to research the companies to determine the right investment.

Anyone can get started in stock market investing. Apps now offer micro-investments where you can invest as little as one dollar. Real estate investing requires a substantially larger investment; however, that investment will yield a better profit. Investing a few dollars at a time in stocks will hardly grow substantial wealth.

REITs: The best of both worlds

If you like the idea of investing in real estate but aren’t ready to own your investment property, REITs may be your answer. A REIT – real estate investment trust – is a company that owns, finances and/or operates income-generating real estate properties. Shareholders buy stock in a REIT and administrators use the money to invest in properties.

REITs cover many types of real estate, including commercial, residential, office, health care and mixed assets. With REITs, you can invest in a diverse real estate portfolio without having to buy multiple properties. You can expect stable dividends from REITs, making them less risky. If you only own one property, your investment success is tied to how well that property performs. You’re less likely to feel market fluctuations with a REIT.

Publicly traded REITs are subject to government regulation. Information about their portfolio and performance is readily available. As with the stock market, you can have a good idea of what to expect from your investment with some research. REITs are a lower point of entry for beginning your real estate investing career.

Invest in real estate, or invest in stocks? The decision comes down to the individual. The stock market is an important tool many people use to grow their wealth; however, it’s hard to make a career out of playing the stock market. Once you get started in real estate investing, you can leverage your assets to grow your wealth. You can control your property to create the career you desire.

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Scott Dillingham

Scott Dillingham

I have been investing and lending to real estate investors for nearly 10 years now. After thousands of successful deals between flips, rent to owns, student properties and commercial assets I have developed a deep knowledge of real estate investments and have a passion of sharing this information with the world! If your looking for a lender who specializes in rental property financing you're going to want to connect with me at team@lendcity.ca.