Categorized | Real Estate

Real estate versus stocks: How they stack against each other?

The debate of stock market versus real estate as an investment option is an unending one with proponents of both holding their stand in the favor of what they feel will give them better returns. This post tries to clear the air through a healthy mix of logic, assumptions and statistics.

Those who have extra cash to invest are often confused about which segment to choose between stock markets and real estate; as both have their own benefits and disadvantages. The traditional wisdom maintains that real estate is more stable and thus risk-free avenue to invest as compared to stocks. However, this doesn’t mean that real estate has won the war already. A long term view of the RoI in these two sectors clearly shows that stock has beaten real estate all the way and that too by a long margin. According to a report from 1980 to 2004 the home sale price increased 247%, while during the same period S&P 500, (the Standard & Poor stock market index) rose by 1000%. This clearly shows that a comparison between stock and real estate is a sophisticated and less than perfect process.

How is real estate better than stock as an investment?

Tangible asset
1.If we go by the layman’s approach to investing, real estate clearly seems to be a better investment. The biggest reason being it a tangible asset. Real estate investment makes you feel more confident and comfortable as you can feel, see, utilize and control your investment. On the other hand, stocks are nothing more than ticker symbols and numbers, or intangible complex assets that are controlled by someone else. The ability to control your purchase, maintain and grow your real estate investment gives you much more leverage than stocks.

Comparatively risk-free than stocks

Although real estate isn’t free from the effects of economy cycle, if you have made a good judgment of the existing local economic factors your real estate purchase is more likely to remain insulated from the events of national or international importance. A perfect example would be the 9/11 attacks after which the stock market nosedived dissolving a lot of equity in the process. However nothing such catastrophic happened to the real estate market which maintained its composure in such distressing times also.

Why stocks are better than real estate?

Better returns
It has been historically proven that stock pay you a far better return on a long term basis than real estate. Research shows that despite all the crashes, buying stocks and holding them for long periods of time creates maximum wealth. When you buy a stock, you buy a piece of business, a share in an already established business entity which is managed by professionals at its headquarters. You don’t have to show up at the company even a single day, but if the company benefits it automatically reflects in your bank accounts. You can better your returns by investing in high quality stocks, which not only increase in profits year by year, but also increase in cash dividends.

More liquid
Real estate listings have a typical waiting period of 30 days that can easily extend to either double or triple the typical duration. Stocks are far more liquid, where sometimes you can sell your entire portfolio within a matter of seconds. This is the kind of investment that you would wish to own when you are in need of immediate cash.

Real estate versus Stocks
For all the security and stability that real estate investment has, it takes a whole lot of hands-on work and money to maintain and manage a property. Moreover, a property will cost you money for every month that it remains unoccupied as you still have to pay for the taxes, utilities, maintenance and more. On the same lines, despite of all the conclusive arguments that stocks generate more wealth than real estate, most investors lack the aptitude, patience and discipline to benefit and end up losing money, blaming stock market’s fickleness for their failure. Thus to summarize it, none of the two is better than other or worse. Both the investments are good provided you do not go overboard.

sdddAuthor Bio: Delhi born Saurabh Tyagi has a penchant for writing, which he discovered early on in life. He likes to put pen to paper every now and then for topics such as Gurgaon properties, budget and finance serviced apartments for sale.