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Stocks vs. Real Estate: Which is a Better Investment?

Donny Gamble
February 27, 2022
stocks vs real estate
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A portfolio with a million dollars in Apple stocks, or a beachfront property in Santa Monica that’s worth it’s weight in gold—which one sounds more appealing to you?

Buying real estate is great, but it’s not the only option you have. Plenty of investors make their millions in stocks, which compared to real estate aren’t actually tangible.

So what’s the deal on these two completely different investment styles?

Buying real estate is different from buying stocks, and we’re going to explain what the pros and cons of each are, because there’s a reason that these two investment types attract different types of investors.

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Is Real Estate Risky to Invest in?

Real estate requires more tact to invest in than stocks, which is the key difference here. HGTV and house flipping shows make it seem like an overly lucrative, glamorous process, but do yourself a favor and really truly inspect all the ins and outs of real estate investing before you start sinking money into it.

If you are tactical, real estate investing can be extremely lucrative, but you also have to be patient and mitigate risk as much as possible. These are a few problems that you can run into during real estate investment:

  • Negative Cash Flow: You’re outputting more money than you’re earning. This is not a sustainable business model and will bottom out fast.
  • Bad Tenants: If you decide to renovate a home and become a landlord, be ready for your fair share of bad tenants. They can happen, so you should develop a screening process before you rent to anyone.
  • Bad Locations: This is critical, because you can drive the price of your home down tremendously if you don’t pick an up-and-coming area, or one that experiences slight historical price growth over time.
  • Bad Renter’s Market: If there just aren’t a lot of renters right now, you experience a shortage of potential tenants. You can’t pick-and-choose, so you’re either left with bottom-of-the-barrel tenants or worse: a vacant house.
  • Loss During Construction or Renovation: Every month that your home is not ready to rent out it a month you’re losing money on your investment. Renovation plans need to be actual plans so you know when you can start to expect an income from your real estate.

Real estate investments generally refer to someone buying real estate to rent or sell. There are so many risks that it’s hard to count, but if you understand those while going in and you have a plan to mitigate that risk, it can be a lucrative endeavor.

Are Stocks Risky to Invest in?

Yes and no. It all depends on how you invest. Stocks can tank overnight, but we all know that the odds of Apple or Google shutting their doors entirely is unlikely.

However, these expensive stocks aren’t gateways for most stock investors, so where’s the risk associated?  If you go all-in on one company’s stock, you’re not investing intelligently.

Sure, they may do exceptionally well, but all the stories about “If you invested in X company 10 years ago, you’d be a millionaire by now” are all retrospective.

They’re not financial advice, because nobody could have foreseen ten years of market data into the future.  The answer is index funds: a fund where your money is split up across dozens, hundreds, or even thousands of stocks (depending on how you manage it) so that you have a little piece of every corner of the market. 

If the tech sector has a bad year, that’s okay, because you have stock in the clothing sector as well.  Stocks are risky if you’re careless, but the entire stock market isn’t going to hit absolute zero all in the blink of an eye.

If it does, money isn’t really going to be worth anything anyway, so what’s the harm in investing in a broad index fund? Even if one sector falls completely, a 10% hit to your portfolio is beyond recoverable (it’s really not that scary), as opposed to all of your investment burning on a handful of stocks.

Should You Own Stocks and Real Estate at the Same Time?

Yes, there’s no reason not to. Many real estate investors who make most of their investments off of real estate, such as YouTube and financial visionary Graham Stephan, still put a decent percentage of their investment money into stocks.

You don’t have to go 80/20 or even 50/50 on these assets, it’s all up to you and how you want to diversify your investments and income.

Real estate has bad seasons just like the stock market does, but even so, it’s better to have your eggs in multiple baskets rather than all in one.

Is it Worth it to Invest in Real Estate Right Now?

Real estate is in a tricky spot in early 2022 at the time of writing this article. Rent prices are soaring, the cost of goods for renovation are soaring, so it’s difficult to say.

It depends on the location, if it’s an up-and-coming area, and what you stand to gain from the initial investment. Every real estate opportunity and investment may play by the same rules, but they are entirely different.

You will have a different experience when you buy, renovate, and rent/sell your first property versus your second property, and so on. If you’re willing to relocate to focus your real estate investments in areas that are experiencing growth, by all means give it a shot.

Real Estate vs. Stocks FAQ's

Does the stock market beat real estate?

Technically if you look at the data, stocks often yield a higher return over time when you look at the broad market. In some cases, stocks can return 230% more than what the housing market yields

However, you have to look at this in multiple ways. For one, there’s no future-proof way to buy a stock. Buying a house in an upcoming neighborhood is something you can do, and you can properly predict, and that can more than double your initial investment.

It all depends on how you want to approach the housing market as an investment, whether you plan to rent, do commercial property, or flip houses.

A good real estate investor with knowledge can have more control and outperform traditional stock investments.

Is real estate riskier than stocks?

People need somewhere to live, so houses and apartments will always have tenants. If a company that you’ve invested $10,000 into (in the form of stocks) goes under, well then people didn’t really need what that company was offering, now did they?

Real estate is seen as a less risky investment to stocks, primarily because the real estate market is massive and fulfills a basic human need.

Plus, it’s tangible, so you have a completely different way to assess your assets instead of just opening up an app and seeing its value.

Which will gain more money over time?

There is no way to predict the future of any market, whether that’s stocks, real estate, cryptocurrency, or any asset that you could invest in. Historically, stocks continue to earn money over time.

You can look at a decade-by-decade chart and see how the stock market has done, but real estate tends to go one way or the other. You always hear “buyer’s market” or “seller’s market”, but you never hear that when people talk about the stock market.

How about investing in both? You can invest in stocks through a broad index fund, but you can also invest in an REIT, which stands for Real Estate Investment Trust. 

This allows you to technically earn money through real estate in the form of a stock, and it operates differently since REIT operators have to pay out 90% of their profits to shareholders.

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About the author 

Donny Gamble

I’m Donny. I’m a world traveler, investor, entrepreneur, and online marketing aficionado who has a big appetite to compete and disrupt big markets. I thrive on being able to create things that impact change, difficult challenges, and being able to add value in negative situations.

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