5 Factors that Determine Whether You Should Invest In Real Estate or Stocks

Investing in stocks has often been associated with the young generation than the old generation when compared to investing in real estate. However, this trend appears to have started changing and now most people are weighing their options on whether to invest in real estate or stocks.

This is not a straightforward question because there are a number of factors that determine which option would be the best fit for you from an individual perspective; investing in real estate or stocks. So let’s examine five crucial factors that could help you make that decision.

Access to capital determines whether you should invest in real estate or stocks

When it comes to investing in real estate, the question of capital must pop up at some point, normally at the initial stages, because the requirement for the initial outlay for acquiring a real estate property is often northwards of $100,000. Therefore, assessing your ability to get the required capital is crucial.

On the contrary, when it comes to investing in stocks, you can begin investing with as little as $10,000, or even less depending on your broker and a number of shares you intend to buy at first. Some stocks are quite ‘cheap’ from an affordability perspective as they cost less than $10 per share while others cost as much as hundreds of dollars or even thousands, like the Berkshire Hathaway $BRK.A $BRK.B and Priceline $PCLN stocks.

Therefore, depending on how much capital you have at your disposal, this is a crucial factor in determining whether you should invest in real estate or stocks.

Risk versus expected return on investment

Whether you choose to invest in real estate or stocks, the expected rate of return compared to the risk taken would be crucial in making your decision. Investing in real estate is often seen as a low-risk investment vehicle as compared to stocks due to the fact that you can expect a constant flow of income with a significant protection to your principle.

Whether you choose to invest in real estate or stocks will depend highly on your risk appetite. Normally, youth is associated with high levels of risk appetite as compared to people who are approaching retirement age. This is probably why most real estate investors are at advanced ages as compared to those popular in investing in stocks.

However, that’s not always entirely true. In fact, investing in real estate can be a lot riskier than investing in stocks especially when you use borrowed money like mortgage as your investment capital. While you can only lose as much as you use to buy a certain stock, investing in real estate can lead to losing a lot more than you initial outlay during adverse market conditions. Consider a situation where your rental property is generating less than the amount required to pay out your monthly mortgage bills, in addition to maintenance costs and repairs. Costs could eventually exceed your income while the bank takes back the property.

Which taxes are you comfortable with?

No one enjoys the idea of paying taxes, but it is the law. Therefore, people try to reduce their tax burden as much as possible while others try to avoid the complication involved in paying and filing for taxation. Whether you choose to invest in real estate or stocks you should expect to pay some taxes one way or another.

With real estate, you would be expected to pay property taxes every quarter while flipping your property or selling it would also attract more taxes. In addition, you will also be required to pay income taxes on your rental income. Therefore, if you hold multiple properties, it may be wise to hire a professional to do this work for you, which again is an additional cost. But it could save you some money in the form of tax deductions.

On the other hand, when you invest in stocks, you are only required to pay tax on capital gains when you dispose of your shares while dividends also attract a withholding tax. As such, both investments attract taxes, but with stocks, the process is a little bit easier to manage. Therefore, taxation process could also determine whether you invest in real estate or stocks.

The pride of touch and feel

Owning real estate property provides you with the ability to see, touch, and feel your investment. This is not possible when it comes to investing in stocks.

With real estate, you can actually call what you have invested in yours and be proud of it whereas, in stocks, you only own an insignificant part. However, this fact holds only when you do not use REITs and other funds to invest in the real estate market.

Therefore deciding whether to invest in real estate or stocks could depend largely on how much you like having the physical feel of what you invest in, as well as, the ability to actually own it.

The cost of time

Choosing whether to invest in real estate or stocks may be a time-consuming exercise, but this could also save you a lot of time in the end especially if you have other commitments that tend to take a majority of your time.

Managing real estate investments is mostly considered a passive way of making money because all you have to do after purchasing your property is waiting for the rental checks to hit your real estate savings account at the end of the month.

On the contrary, managing investments in stocks may require periodic assessments of the market to see which stocks to sell and which ones to buy.

Nonetheless, this may not always be the case. The initial assessment of properties to invest in may be a lot more time consuming than the time required to choose which stocks to invest in. As such, it comes down to how frequent you plan to invest in real estate or stocks and the amount of time it could take on either investment vehicle.


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