Real Estate vs. Stocks: Which Is the Better Investment?

First Time Buyer, First Time Home Buyers, Real Estate


Real estate and stocks are two of the most popular investment options. Both can be profitable, but each has its own risks and rewards. So which is the better investment? Well, it depends on a variety of factors, including how much you have to invest, your risk tolerance and your overall investment goals. 

To help you make an informed decision on which investment opportunity is right for you, we’ll take a closer look at the nitty-gritty of investing in real estate and stocks.

Investing in Real Estate 

When you invest in real estate, you’re buying property. You may be purchasing a primary residence to live in year-round, buying and flipping homes for a profit or purchasing an investment property to rent. There are also commercial real estate options to consider, such as office buildings you can lease out or larger apartment complexes you can manage.

While real estate investing has some risks, it can be a very lucrative endeavor. 

One key to success in real estate investing is to do your homework. You must research the market and understand the ins and outs before you dive in.

It also helps to diversify your real estate portfolio by investing in different types of real estate, such as long-term rentals, flipping properties, real estate investment trusts (REITs) and more. This way, you can offset any potential losses with gains from other real estate investments.

You can choose from a few options to fund your real estate investments. You can use your savings, take out a loan, pull equity from another property or use real estate crowdfunding. Either way, you’ll need a solid plan in place before you start investing.

Since real estate is a physical asset, it can be a more hands-on investment than stocks. For example, if you’re flipping properties, you’ll need to be involved in the process of rehabbing and selling the home. And if you’re a landlord, you’ll need to deal with tenants, repairs and other day-to-day responsibilities of being a property owner.

From March 1992 to March 2022, the average real estate return in the U.S. was 5.3%. And in March 2022, U.S. house prices grew 17.5% year-over-year – an increase from 17.4% for the previous quarter.[1]

Investing in real estate can be a great way to build your wealth over time. But it’s important to remember that real estate is a long-term investment. 

Investing in Stocks

Like real estate, you can make a lot of money by investing in stocks. But how do stocks work?

Think of a publicly traded company as a pie. When you buy shares of that company, you’re purchasing a tiny slice of that pie. As the company grows and becomes more successful, the value of your slice will increase. And if the company pays dividends, you’ll receive a portion of those profits.

Of course, stocks can also go down in value. Even the most successful companies can have down years. So it’s essential to diversify your portfolio by investing in different types of stocks across different industries or risk levels.

You can also limit your risk by investing in index funds. Funds spread your investment out over a large group of stocks or mutual funds managed by professionals.

Historically, the average return on investment of the S&P 500 was roughly 10% per year.[2] If you invested $1,000 in the S&P 500 today, you could expect to have $6,000 in 20 years.

Of course, past performance is no guarantee of future results. But while stocks may be a more volatile investment than real estate, they can also offer the potential for higher returns. With the help of a financial advisor, you can minimize your risk and maximize your chances for success.

Diversify Your Portfolio

In simpler terms: don’t put all your eggs in one basket. Diversification is an investment technique that reduces risk by allocating investments among different asset classes.

Pros and Cons of Investing in Real Estate

While real estate has the potential to offer a high return on investment, it’s also a more hands-on investment than stocks. And it may take years to see a return on your real estate investment. Let’s look at the pros and cons of investing in real estate:

Generates cash flow

Compared to stocks, real estate can offer a more stable and predictable cash flow. For example, you’ll generate monthly rental income if you’ve invested in a rental property. And, if you’re flipping properties, you’ll receive a lump sum of cash when the property is sold.

Passive income

Once you’ve bought a property, you can hire a property manager to handle day-to-day tasks, such as repairs, marketing and rent. This hands-off approach can offer a great source of passive income.

Tax advantages

Investing in real estate can offer some tax advantages, such as deducting your mortgage interest payments and property taxes from your taxable income.

Protects against inflation

Since real estate values tend to go up over time, investing in real estate can help protect your investment against inflation.

Increases leverage

With real estate, you can leverage your investment by taking out a mortgage, which allows you to own property worth more than your initial investment without paying the full price upfront.

Value appreciates over time

Real estate values tend to appreciate over time. If you buy a property and hold onto it for a few years, you will likely see an increase in the value of your investment.

Helps build generational wealth

If you’re looking to build wealth that you can pass down to your children, real estate is a great option.

Requires more work than stocks

Real estate investing requires more work than simply buying and selling stocks. You’ll need to find a property, get a mortgage, make repairs or find tenants. The amount of cash you pay upfront may feel daunting, and you’ll experience fewer “small wins” with real estate investing.

Requires large upfront investment

To buy a property with a mortgage, you’ll need to come up with a large sum for the down payment and closing costs and ensure you have the income to cover the monthly mortgage payments. As a result, real estate investing is not for everyone, especially borrowers with unpredictable incomes.

High transaction costs

Between the real estate agent’s commission, closing costs and repairs you may need to make, investing in real estate can be a costly endeavor. You’ll need to be sure you have the money to cover all upfront costs before you purchase a property.

Value appreciation isn’t guaranteed

While real estate values have appreciated over time, there’s no guarantee that your property will appreciate in value.

Pros and Cons of Investing in Stocks

Whether you’re investing in stocks for the long term or looking to make a quick profit, there are risks and rewards associated with this investment option.

Highly liquid

Because stocks are traded on exchanges, they can be easily bought and sold. The result? You can cash out your investment quickly if you need to.

Easier to diversify portfolio

With stocks, it’s easy to diversify your portfolio by investing in various companies across different sectors.

Requires less work than real estate

Stocks are a relatively passive investment. Once you’ve bought shares in a company, you can sit back and let the dividends roll in.

Low transaction fees

Compared to other investments (such as real estate), there are relatively low transaction fees when you buy and sell stocks.

Easy to add to tax-advantaged retirement accounts

You can easily add stocks to tax-advantaged retirement accounts, such as a 401(k) or IRA, to grow your money tax-free.

Historically has a higher rate of return

Over the long term, stocks have outperformed other investment options, such as bonds and real estate.

Higher volatility than real estate

The stock market is notoriously volatile – prices can go up and down quickly, often without warning.

Capital gains taxes

If you sell your stocks for a profit, you’ll need to pay capital gains taxes on your earnings.

Emotional decision-making

It can be hard to stay calm when the stock market is erratic. But if you make decisions based on your emotions, you could end up losing money.

Real Estate vs. Stocks: Which Is Right for You?

So which is the better investment? Real estate or stocks?

The answer depends on your investment goals, risk tolerance and financial situation.

Think of it as an apple to oranges comparison. You can’t say which is better, but you can decide which one is right for your unique circumstances.

Here are a few things to consider:

If you’re looking for a long-term investment, real estate may be the better option. There are no guarantees, but real estate tends to appreciate in value over time.

If you’re looking for a more passive investment, stocks may be the way to go. Once you’ve bought shares in a company, you can sit back and let your investment play out.

For investors who are risk averse, real estate may be the more appealing investment. Although there’s a possibility that your property could lose value, it’s typically less volatile than stocks.

On the other hand, if you’re comfortable with risk and looking for a higher potential return, stocks may be the right investment. Given the historical rate of return, stocks have the potential to generate more wealth than real estate.

It’s also worth noting that real estate can be a more expensive investment than stocks. Between the real estate agent’s fees, closing costs and repairs, there are a lot of upfront costs associated with purchasing a property.

However, you don’t have to choose between real estate and stocks – you can always invest in both!

The bottom line is that there’s no right or wrong answer when you’re deciding whether it’s better to invest in stocks or buy a house. It all comes down to research and choosing the investment option that aligns with your financial goals.

And if you decide you want to invest in both, that’s OK, too! Be sure to consult with a financial advisor. They can help you develop a personalized investment strategy and provide guidance along the way.

Invest Wisely

No matter what you decide, remember that there are no guarantees when you’re investing. But as long as you’re comfortable with the risks and are making informed decisions, you’re on the right track!

Whether you’re looking for a long-term investment or something more passive, real estate and stocks both have the potential to generate wealth. Just remember to do your research and invest wisely!

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  1. CEIC Data. “United States House Prices Growth.” Retrieved August 2022, from https://www.ceicdata.com/en/indicator/united-states/house-prices-growth

  2. US Securities and Exchange Commission. “Saving and Investing.” Retrieved August 2022, from https://www.sec.gov/investor/pubs/sec-guide-to-savings-and-investing.pdf



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