Are you contemplating investing in real estate vs. stocks, wondering which is a better yielding investment? Worry not. You have come to the right place! In this article, we will discuss investing in real estate vs stock, and which one is a better investment!
This has been an age-old topic of discussion in the field of investment: investing in real estate vs stocks. Each has its own advantages and pitfalls, and it is essential to weigh in both to make an informed investment decision. In this article, we will discuss the two types of investment in detail, weigh their pros and cons, and help you achieve better clarity, and decide on an investment that will suit you the best.
But before we go on to discuss investing in real estate vs stocks, the difference between the two investments, their advantages, and disadvantages, let us define what they are as investments.
1. Real estate investment : The process of investing in property purely to generate income rather than using it as a primary residence is a real estate investment. Real estate is one of the most secure forms of investment.
2. Stock investment: tocks are nothing but shares of ownership in a corporation. The place where stocks are bought and sold is called a stock market. Upon buying or investing in a company’s stock, you become a part-owner or one of the shareholders of that particular corporation.
We will discuss these two types of investment a little more in detail before we move on to talk about investing in real estate vs stocks.
In detail: Real estate investment and Stock Investment
When it comes to investment, it has majorly boiled down to investing in real estate vs stocks. These are two of the most popular investment, and often these are the two choices people are always confused about.
While real estate is a tangible asset and stocks, intangible, both are valuable investments that come with their own set of pros and cons and features, which make them unique investments in their own way. There are two ways you can make money when it comes to stocks – one when the company’s stock value appreciates in the market; and two, through dividends. Meanwhile, in the case of real estate, you can lease or rent out your property which is a source of income for you.
Recommended Post: How Market Of India Is Beneficial For Traders
In this section, we will talk a little more about real estate and stock investments and understand both terms better!
Real estate Investment
Real estate investment is one of the most popular forms of investment people undertake today. When it comes to real estate investing, we need to have solid capital to put in, right in the initial stages, for it to be a fruitful investment. When you consider investing in real estate vs stocks, you must know their features. The following are the characteristics of real estate investment:
|DID YOU KNOW?
According to housing.com, as per the COVID-19 estimates, the real estate sector in India was expected to reach a market size of USD 1 trillion by 2030 and contribute 13% to the country’s GDP by 2025.
Characteristics of real estate investment
1. Real estate is a tangible asset, which has a physical existence and can be touched, experienced, and seen.
2. Real estate is a secure asset. It is that investment the value of which stays unperturbed during inflation.
3. Real estate can appreciate even in adverse situations. Even when the market is down, the investment can result in appreciation.
4. Real estate investment results in dual enhancement of value. This kind of investment generates steady income for the investor while also seeing an increase in the asset value over time.
These are a few of the many characteristics of real estate. Before we move on to discuss investing in real estate vs stock, let us talk a little more about Stock investment.
Recommended Post: Tips for NRIs Investing in Commercial Property in India
Companies issue stocks so that they can raise money to run their business while also managing the liquidity. The process of buying and selling stocks of a company is a stock investment. After real estate investment, stock investment is the most popular type of investment there is. While real estate is tangible, stocks are not.
|DID YOU KNOW?
According to Business Standard, the stock fever in India is spreading like wildfire. Active investor accounts rose by a record 10.4 million in 2020, according to the data from the country’s two main depositories.
The following are a few features of stocks:
1. Stocks represent ownership. When you invest in a company’s stocks, they represent your ownership of the company.
2. Stocks come with voting rights. When you own stocks of a company, you become a shareholder, and you will be able to take part in some of the company’s decisions when they are deciding on dividends and election of directors, and more.
3. Stock investment gives you a periodic dividend. This is one of the features that attract investors to invest in stocks. They are entitled to be paid a periodical dividend by the company if they have invested in its stocks. A dividend is the profits distributed by a company amongst its owners and shareholders.
4. Stocks are an intangible investment. They do not have a physical entity and, unlike real estate, cannot be felt or touched. However, they do have an intangible value that tags with them, which makes them an investment.
Now that we have defined real estate and stock investment, along with a few of their characteristics, let us move on to talk about investing in real estate vs stocks and figure out which is better!
Recommended Post: Why should You Invest in The Indian Real Estate Market Right Now
Investing in Real Estate vs. Stocks: Which is better?
As discussed before, it boils down mainly to investing in real estate vs stocks when it comes to investment. Let us consider both kinds of investment based on a set of factors.
1. Cash Flow
Real Estate: Real estate investment will cost you a sum for taxes and maintenance every month. But when you rent your real estate property out, it will give you a steady in-flow of cash.
Stocks: Cash flow from investing in stocks usually comes in the longer run when you sell. However, as an investor, you are still entitled to receive dividends in frequent intervals. You can also re-invest these dividends, thereby owning more shares in the company than before. This will give you more cash dividends.
The cash flow is steadier and more consistent in the case of real estate investment. In the case of stocks, it depends on your investment strategy and how you play the game. This is an important factor to consider when deciding between investing in real estate vs stocks.
Recommended Post: The Future of Commercial Real Estate in Chennai
2. Management Expenses
Real Estate: If your property is not occupied, real estate can cost you money every month. Expenses include taxes, maintenance, utility charges, and more.
Stocks: Management expenses in the case of stocks are relatively lower than real estate as it is only limited to paying your mutual funds manager.
Monthly management expenses incurred are comparatively lower in the case of stocks than real estate. Keep this factor in mind when you plan your investment and decide on investing in real estate vs stocks.
Recommended Post: 7 Different Types of Commercial Real Estate Risk
Real Estate: Real Estate has a history of being one of the most secure forms of investment. Inflation does not have an immediate effect on the value of a real estate asset. It often takes years or even decades for a property’s value to depreciate. Investors, however, look to dispose the property once the market conditions start to adversely affect the asset’s value.
Stocks: The stock market can fluctuate even on a daily basis, i.e., stock prices can increase or decrease on a daily basis. According to the rates on that day, you can seize the opportunity and either buy more (in case the prices are lesser) or sell existing shares (in case of higher prices). However, if you are looking to make quick money, the volatility in the stock market may not favor your investment goals.
Recommended Post: Things to Consider While Investing in Commercial Real Estate
When it comes to volatility and investing in real estate vs stocks, make sure you know your end goal as an investor. Real estate will stay unperturbed for a longer period of time in a volatile market. In contrast, the effect of the stock market’s volatility on your investment depends on how you wish to handle it and your end goals as an investor.
Real Estate: In any investment, liquidity is one of the most important aspects to consider as it is the ability to get cash from selling off the investment. In the case of real estate, liquidating an asset is usually time-consuming and does not happen quickly.
Stocks: Stocks can be bought and sold easily, and selling stocks is usually quicker than liquidating real estate assets. It sometimes only takes a few seconds to sell your stock position entirely. To receive the proceeds, it may take quite some time, but making the sales is quicker!
If you consider investing in real estate vs stocks, it is essential to take a call after carefully considering the liquidation period of both types of investment.
5. Diversifying your investment
Real Estate: Unless you have good amounts of money, it is difficult to expand your assets. The more properties you want to invest in, the more capital you need. Even if you manage to diversify your assets by being smart with the location and the types of properties you invest in, the whole process of diversification is going to be time-consuming.
Stocks: Stocks, on the other hand, is easier to diversify. You have the window to invest in stocks of more than just one or two companies so that if the stocks of one take a hit, you can still see good returns with the other stocks you have invested in.
Once you start to invest, you will come across many opportunities to diversify and grow as an investor. For this reason, you need to be smart and decide between investing in real estate vs stocks.
These are five main factors to consider while contemplating investing in real estate vs stocks. Both real estate and stock investments are valuable and giving in their own way. You can go for the one that best serves your purpose.
If you want to make quick cash, you can go in for stock investment, but real estate is an ideal choice if you want to see growth and consistent returns over a longer period of time.
If you decide to go for real estate investment, the two most popular types include residential real estate and commercial real estate. If you are looking to invest in commercial real estate, Market of India is one of the best options to go for. Being India’s largest wholesale and retail market, Market of India serves as a commercial extension of Chennai’s 9 major markets, therefore bringing the city’s trade to a centralized location.
Are you an investor who has investment experience in both real estate and stocks? Let us know your take on investing in real estate vs stocks in the comments below!