Should you buy stocks or real estate for investment purposes? If you’re considering investing your money to make tons of profits, then one of the first questions that you will ask yourself is: should I buy stocks or real estate for investment purposes?
It is only common knowledge that these two types of capital investments have the highest potential for returns, and investing in them can be a life-changing decision, for better or for worse.
Of course, deciding to purchase stocks or real estate for investment purposes is always a major financial decision with high stakes. This is because investing in either of these markets requires a large sum of capital to begin with, and you won’t always guarantee that you will be making a profit.
In fact, some of the biggest capital losses that anyone can suffer comes in the form of buying stocks or real estate for investment purposes and not being able to manage your investment successfully, leading you to lose the money that you have invested.
Since this is a major life decision that will either make or break your financial future, it is important that you choose the right market to invest your money in if you want to avoid tying your money in a failed investment.
Before I get started, I want you to know that my personal preference is that buying real estate for investment purposes is always a better idea than investing in stocks.
In this article, I will talk about the different advantages and disadvantages of both investment types by comparing them to one another in terms of stability or volatility, tangibility (flexibility of use), appreciation/depreciation of value, portfolio diversification, profitability & timeframe, and tax benefits.
To learn more about how we will help you make faster and smarter real estate investment decisions, click here.
Should I Buy Stocks or Real Estate for Investment Purposes?
Market Stability & Volatility
One of the main aspects that people often neglect when considering investing in real estate or stocks is the stability or volatility of the market.
An investment market can be either stable or volatile depending on the number of unpredictable factors that can affect the market’s performance.
Although a volatile market can sometimes have a positive effect on your investment, investing your money in a volatile market means that you’re leaving the success and failure of your investment in the hands of luck.
For this reason, buying real estate for investment is generally considered a better idea as the real estate market is far more stable than the stock market. There are very few unpredictable factors that can affect the real estate market, and most of these factors will typically happen over a longer period of time, allowing you to react to them and save your investment if the need arises.
The stock market, on the other hand, is a very volatile investment. There are hundreds of thousands of variables that even the most experienced of investors cannot predict. These factors can happen very fast, leaving you with a very small time window to react, and they can result in you losing large sums of money overnight.
Tangibility & Flexibility
There isn’t much to say about the tangibility of your investment.
Simply put, if you’re buying real estate for investment purposes, you will always have the option to use your asset for different purposes or to turn your investment property into a primary or a secondary residence.
This is because real estate investment properties are tangible assets, and you can find multiple uses for them. If you invest your money in a piece of land, for example, you can choose to do whatever you want with that land.
Stocks, on the other hand, are not tangible assets. When you buy stocks for investment purposes, there are little to no other options that you can use your stocks for. For this reason, real estate properties have a very clear advantage when it comes to tangibility and flexibility of use.
In fact, and according to a recent study, the number one reason why millennials said they prefer buying real estate for investment purposes over stocks is that real estate properties are tangible, which gives them a stronger sense of security because if their property fails as an investment they can always find a different use for it.
Appreciation & Depreciation
One of the biggest and most known advantages of buying real estate as an investment is that real estate properties are almost guaranteed to appreciate in value over time.
This means that the simple act of buying a real estate property, even as a primary residence, can be considered as an investment because you can use it to make a profit by selling it once its value appreciates.
Stocks, on the other hand, don’t exactly appreciate in value. Instead, stocks rely on the market’s volatility to increase or decrease in value.
This is why I said earlier that the market volatility can be a positive thing. In fact, the biggest gains that can be made in the stock market can happen overnight due to volatility. If you own stocks, there is always a chance that the value of your stocks might increase in value drastically in a very short amount of time, so you can sell them and make large sums of profit.
This, however, makes investing in stocks much riskier than buying real estate for investment purposes. Similar to how real estate appreciation is very difficult to predict and measure, the stock market’s volatility makes it even harder to predict the increase in value of stocks. You will need to have a lot of experience and use a lot of tools in order to manage your stock investments and make a profit from them.
Related: Is it OK to Invest in Real Estate Just for Appreciation?
Portfolio Diversification
Diversifying your portfolio through investing in stocks and real estate is one of the most recommended aspects of investing your capital.
Diversification refers to investing your money in a number of different markets in order to reduce the risk of losing all of your money if the market that you’re investing in suddenly crashes or shrinks. Diversification can be a good way to greatly reduce the level of risk associated with investing your money but at the expense of slightly reducing your potential for profits.
For example, if you invest 100% of your money in the stock market, and the market suddenly grows, then 100% of your money will grow with it. If you invest 50% of your money in stocks, and another 50% in real estate, however, then if the stock market grows only 50% of your capital will grow with it. Conversely, the same will apply to losing 100% of your money if the market shrinks, making it much safer to diversify your investments.
The disadvantage of buying real estate for diversification is that the minimum amount of money that you can invest in a real estate property is much higher than the amount needed to invest in stocks. But since the risk/reward is proportionate to the amount of money that you diversify, this has little effect on diversifying your investments.
Related: Diversified Investments in Real Estate – A Basic Guide
Profitability & Timeframe
The straightforward answer to which investment type has the higher potential for profits is: the stock market.
As I mentioned earlier, investing your money in stocks means that your money can multiply or be split in half overnight. The most experienced investors will know which stocks to invest in that have the highest chance to suddenly grow and multiply their money in a very short amount of time. Of course, and also as I mentioned earlier, this comes at a much greater risk.
Buying real estate for investment purposes, on the other hand, almost guarantees that you will be making a profit from it. However, this profit can be very high or very low depending on the strategy that you’re using and the appreciation rate. More importantly, making profits from investing in real estate will typically require a much longer time period, sometimes tens of years, before you can reap the rewards that you’re hoping for.
This means that neither of these types of investments has an advantage over the other. Instead, you will have to choose the balance that you want to have between the potential for profits, the timeframe, and the level of risk that you’re willing to take.
Related: Is Property Investment More Profitable Than Stock Investment?
Tax Benefits
Another straightforward answer to which type of investment has the advantage when it comes to taxes is: the real estate market.
In fact, buying real estate for investment purposes will give you the biggest tax benefits than any other type of investment. There are several tax deductions that you can take advantage of in the real estate market, such as deducting any expenses related to managing and running your real estate property from your taxes.
The stock market, on the other hand, barely has any tax benefits if at all. Which means that investing in real estate has a clear advantage when it comes to taking advantage of tax benefits.
Related: What Property Tax Deductions Apply to You?
Bottom Line
My personal preferred choice is to invest in real estate. I personally prefer to have a minimal level of risk when investing my money, even if it means I will have to wait a longer time to reap the benefits.
Additionally, the real estate market has a number of great online tools and platforms that make it much easier to purchase real estate for investment purposes based on accurate readings and analytics, which helps me plan the future of my investment and manage my finances more efficiently.
Mashvisor, for example, is a unique platform that provides me with all the tools, data comps, and analytics needed to make wise investment decisions and find the perfect property to invest my money in.
To start your 14-day free trial with Mashvisor and subscribe to our services with a 20% discount after, click here.
Make sure to check out Mashvisor, or watch this demo video, to see how you can start using the tool right now to make real estate investments in the U.S. market. You will notice how easy it is to invest in real estate when using such tools, which can help you make the choice between purchasing stocks or real estate for investment purposes.
Do you agree or disagree with me? What are some of the other aspects that I’ve missed? Do you prefer investing your money in the stock or the real estate market? Let me know in a comment down below!