When it comes to investment, the following is the most commonly asked question: stocks or real estate? Should you invest in real estate or the stock market? Which is more profitable?
Although there’s no one-size-fits-all answer to this, both have their pros and cons. Understanding these factors can help you make an informed decision.
In this blog, Long Island Insurance Executive Gregg S. Marcus explores the positives and negatives in stocks and real estate investment:
Real estate investment refers to buying or selling a property or land for profit. The property could be either residential (home, condos, etc.) or commercial (malls, offices, and such) real estate. When you invest in real estate, you actually buy a tangible asset.
Unlike real estate, stocks are intangible assets or securities. Stock investment refers to buying shares of a company. In other words, a share of stock represents legal ownership in a company.
Companies from diverse industries issue shares to raise capital. Meanwhile, investors gain company ownership and earn returns on investment. Corporations issue a variety of stocks, such as common and preferred stocks.
Real Estate vs. Stocks: Which is right for you?
Real estate investing offers several benefits, including:
- As real estate is tangible, you can view what you invest in. It provides a physiological advantage to people that their investment is safe and sound.
- Investors can keep an eye on their investment (land, rented property) to minimize the chances of fraud.
- Real estate offers a stable source of income for years. It’s a safe investment option for lower and middle classes.
However, the non-liquid nature of real estate is its biggest drawback. Stocks have a greater liquidity than real estate. You can easily sell off stocks for cash, without incurring a loss. On the other hand, selling a land or property takes much longer.
In addition, maintaining real estate can cost you substantial amount of money every month. This is particularly true for unoccupied properties.
Even if your real estate property is vacant, you will have to pay maintenance, taxes, utilities, insurance and more.
Stock investing offers several benefits, including:
- With stock investing, you become a legal owner of a business entity.
- Unlike real estate, borrowing against stocks is much simpler. All you need is an approval from a broker for margin borrowing.
- Although you gain ownership of a business, you won’t have to worry about its day-to-day management. The company managers will be running the management affairs.
Although stocks provide higher returns and greater liquidity than real estate, stock prices can significantly fluctuate in the short-term. Keeping track of these changes can be stressful.
For more information on financial markets, check out Gregg S. Marcus’ blog.