According to Grandview Research, the US real estate market is set to register a CAGR of 5.2% between 2022 and 2030. This makes it one of the most promising investments for investors looking to grow their wealth.
Aside from real estate, many investors are also looking into the stock market. With an average annual return of about 10%, investing in the stock market doesn’t sound too bad. However, the market volatility and inherent risk of stock market investing are what put most investors off.
That said, there are tons of differences between investing in real estate vs stock market. If you’re torn between the two, we’re here to help you make a more informed decision.
In today’s post, we’ll be highlighting the differences between investing in real estate and the stock market.
What Is Real Estate?
Real estate is a broad term encompassing land, buildings, and any improvements or fixtures on the land or buildings. Investing in real estate means buying a property that people can use for residential, commercial, or industrial purposes.
You can invest in real estate in several ways. For instance, you can buy a property outright and rent it out to tenants. Or, you can invest in a real estate investment trust (REIT).
What Is the Stock Market?
Investing in the stock market means buying stocks in publicly-traded companies and holding on to them for a while.
You can make money from stocks in two ways: through dividends and capital gains. Dividends are payments made to shareholders out of the company’s profits. Capital gains occur when you sell your shares for more than you paid for them.
The stock market can be a volatile place, and prices can go up or down very quickly. That said, it has the potential to generate high returns over the long term.
Differences Between Investing in Real Estate vs Stock Market
While you can make a killing from investing in real estate or the stock market, these investment options are very different. Here are the differences between real estate investing and stock market investing.
The Investment Method
As mentioned earlier, there are many ways to invest in real estate. Some of them include:
- Buying a property and renting it out
- Buying a run-down property and flipping it for a profit
- Investing in a real estate investment trust (REIT)
- Joining a real estate investment group (REIG)
- Joining online real estate investment platforms
Similarly, there are also a couple of ways you could invest in the stock market. For instance, you could:
- Invest in stocks directly
- Invest in mutual funds
- Invest in exchange-traded funds (ETFs)
The best part about having multiple ways of investing in these assets is that anyone can invest in them. For instance, well-off investors can buy turnkey properties and rent them out. Investors with a tight budget can renovate derelict properties and sell them for a profit.
The Investment Capital
It’s common knowledge that real estate investments fetch a hefty price tag, but this isn’t always true. As mentioned above, there are real estate investment options that are less capital-intensive. These include house flipping or investing in real estate investment trusts.
However, it’s safe to say that you’ll likely need more capital to invest in real estate than you would in the stock market. That’s because the most common way to invest in real estate is by buying a property outright.
On the other hand, you could start investing in the stock market with as little as $500.
Investing in stocks directly might require more capital, but you could always opt for mutual funds or ETFs. These are less expensive and more affordable for investors with a tight budget.
Complexity of the Process
Investing in real estate is a lot less complex than investing in the stock market.
In investing in real estate, all you have to do is find a property, buy it, and then wait for it to appreciate in value before selling it for a profit. You could also rent out the property or flip a house and sell it for a higher price.
Investing in the stock market is a lot more complex. For starters, there are different types of stocks you could invest in. These include common stocks, preferred stocks, and penny stocks.
Not to mention, the stock market is constantly changing. This means that you have to be on the lookout for changes in the market so you can make the necessary adjustments to your portfolio.
The Volatility of the Assets
Investing in real estate is a lot less volatile than investing in the stock market. That’s because the value of properties typically appreciates over time.
Of course, there are always exceptions to this rule. For instance, if there’s a recession or a housing crisis, the value of your property could drop significantly.
However, as long as you’re patient, the value of your property will eventually go back up. It’s also a good idea to pay attention to current real estate trends. You can check out this resource to learn more about current trends in real estate.
The stock market, on the other hand, is very volatile. The prices of stocks are constantly fluctuating, meaning your investments could lose or gain value at any given moment.
Why Invest in Real Estate?
If you’re on the fence about investing in real estate, here are a couple of reasons why you should:
It’s a physical asset: Unlike stocks, real estate is a tangible asset. With real estate, at least you’ll always have something to show for your investment.
It’s less volatile: As mentioned earlier, the value of real estate typically appreciates over time. This makes it a lot less volatile than the stock market.
Better control over your investment: For instance, you can renovate a property or choose to rent it out.
Pick the Right Investment Option
Now that you know the difference between investing in real estate vs stock market, our work here is done. It’s up to you to pick the one that works best for you. Of course, you can always invest in both to diversify your investment portfolio.
It’s worth noting that there’s no guarantee of returns for both investment options. It takes a lot of hard work and smart moves for your investment to generate significant returns. Otherwise, we wish you the very best with your investments.
Check out the other posts on the site for more informative content.
