Investing in Stocks or Real Estate: We will compare the most important investment reasons like liquidity, leverage, tangibility, diversification, ROI, control, tax, management and much more.
Hi, I am Henrikh and we will go over the most important aspects of investing and will discuss whether those aspects are advantages or disadvantages for investing in Stocks and Real Estate.
Ok, let’s start.
Investing in Real Estate and in Stocks can be a good journey for building your wealth. There are many successful investors who are investing only in stocks or only in real estate and very often in both. It is about getting educated to invest wisely, otherwise, both investment tools can be very dangerous. In both markets you can lose a lot or win a lot, neither of them is safer than the other if you don’t have enough education. So from those 2, the better market is the one you understand more than the other. As an investor in both markets, I think I can bring in enough value. That’s it, now let’s start comparing the financial instruments.
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Liquidity. Real Estate is definitely hard to sell when you want to get out of it, it can take a few months, if not in some cases a few years. Instead, the stocks are highly liquid and you can get out of it with just one click if you don’t manage a portfolio as Warren Buffett does. So it’s clear, liquidity is a disadvantage for Real Estate, but is an advantage for Stocks.
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The next one is leverage. In Real Estate you can borrow money usually 70-80%, but sometimes even up to 100% of its price. So this is a great advantage to use debt against the collateral. And in the stock market, you can use marginal investments, but that is highly risky and you don’t have high percentage usage there. So in many cases to be safe, investors use up to 20% of their total portfolio. So that is definitely a disadvantage for investing in stocks compared to Real Estate.
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Next is the hard work to be done for investment analysis and finding the deals. To invest in Real Estate successfully you must make too many phone calls, visit many places, meet many people to find a good deal. As the number one guru of Real Estate investing Robert Kiyosaki suggests going over 100 properties before you filter and find the one you need. That is an enormous amount of work. It doesn’t mean that for investing in stocks you should not do your due diligence. What I mean is that mostly you should be sitting at your desk, doing research, calculations and a lot of reading, which is way easier work compared to finding properties, visiting and trying to find the property problems. Especially when the real estate is not a small one. So this is a disadvantage for Real Estate, but a real advantage for Stocks.
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The next one is work after investing. The management of your investments. Again this is not an easy thing for Real Estate as if you don’t have a property manager, which costs money, you surely need to find tenants, set them up, fix the problems in the property constantly. On the other hand, when you invest in Stocks, you surely have nothing to do, except just following the news or financial reports to see if the company is on the same path you were expecting. So this is again a disadvantage for Real Estate and an advantage for Stocks.
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The next topic is portability. The number one Real Estate investor Robert Kiyosaki teaches not to invest in Real Estate which is far from the place you live, especially when you are new in this market. And imagine if you do 5 deals in that area and you later need to move from there. For example, I think in 10 years I will not be living where I live now. Of course, you can set up a property manager and move from the place you live, but that will increase your costs. Anyway, portability is a real disadvantage for Real Estate and it is a real advantage for stocks. So if I want to move to any place in the world, I will only need my mobile phone with me to manage my stock investments. So this is a great advantage for investing in stocks.
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Let’s move to the next topic, which is taxation. This is a really good tool for Real Estate investors as they use depreciation as an expense and they pay near to 0 taxes, which is a great advantage for investing in Real Estate and is a disadvantage for stock investors. Of course, it depends on your country's tax laws, but most countries tax the income from stocks and you have nearly no way or very few ways to skip it.
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The next topic is volatility. The Real Estate market has way less volatility than the Stock Market, which is a very good advantage for those investors who want to invest once and collect cash flow for too many years and they don’t really love the idea that within a month their asset value can drop 20% and rise 30%. But this is surely not a disadvantage for investing in stocks. It can be a real disadvantage for those who invest in stocks without any protection and who bet that stock should always rise in value. But many good investors, especially value investors take advantage of market volatility and they really buy the stocks they love with lower prices when the market fluctuates. So this can be both an advantage and a disadvantage for the stock market. And it depends on your education level.
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The next topic is the opportunity to invest small. In Real Estate you definitely need to collect some investment capital before you can jump in, which is a disadvantage for investing in Real Estate. On the other hand, you can invest even $1 in the Stock Market and be happy to manage it. So this also gives an opportunity to benefit from compounding as it can take time for you to save enough for investing in the next property you want to own. So in short, you kill time, which could bring profits on the amounts you save every month. So this is an advantage for investing in Stocks compared to Real Estate.
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The next one is tangibility. You really can touch your Real Estate and even live there, which is an advantage over investing in Stocks, especially for older people who want to touch and feel their investments. For me, it’s not a disadvantage for investing in Stocks because I don’t really care if I can touch my investment or not, but there are many people who care. So let’s consider it as a disadvantage for investing in Stocks.
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The next topic is control over your investments. Many Real Estate investors say that it is a real advantage over investing in Stocks, as you can’t control the price, but you can control your Real Estate. You can paint it, fix it, upgrade it and expand it. Ok, but I do not fully agree with it. Yes, you can have some control, but that doesn’t mean you have control. You can’t control your Real Estate price if a recession like ‘08 happens or a war starts in your country or the area you invested in starts to lose interest. You can’t also control the stock prices you invest. But instead, you can get out of your stocks in seconds and you never can easily get out of your Real Estate. And also you can position your investments in the stock market in the right way so that you don’t really take much risk even if the worst happens. So I would put this as a complicated decision if it’s an advantage or disadvantage for investing in Real Estate or Stocks. So I put a dash here and skip it. You better judge yourself.
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And the final topic is emotional decisions. I met a lot of people who think that this is an advantage for investing in Real Estate over Stocks, that people make emotional decisions easily when investing in Stocks and they lose money, while it’s an advantage for investing in Real Estate as it takes a lot of time to invest in Real Estate and you think twice before investing in Real Estate. I would say that emotional decisions are for average investors whether you invest in Real Estate or in Stocks. As Robert Kiyosaki says the number one solution for this is not to be an average investor. So if you don’t know what you are doing you can lose money regardless of where you invest. So even if you could buy a stock within seconds you should not do it if you consider yourself a good investor regardless if the buying process is 3 seconds or 3 months. So again I would not put this as an advantage or disadvantage for investing in Real Estate or in Stocks. Again I put a dash here and skip it.
Ok, those were the most important topics I wanted to bring in on comparing which is better to invest in Real Estate or in Stocks. For me, the biggest advantage for investing in Real Estate is the leverage, but as mortgage loans have high interest rates in our country, I can’t easily use the leverage correctly, that’s why I am mostly invested in Stocks and have less percent of my invested capital in Real Estate only for diversification between asset types.