There are a lot of ways to make money and use money. So, when weighing their various financial options, many people find themselves asking, “Should I invest in stocks or real estate?”. That’s like asking whether pizza or ice cream is better – both are great, but ultimately it all comes down to personal preference. That being said, there are some things to take into consideration that might help you determine if you’re on team pizza or team ice cream – I mean, stocks or real estate.
The Pros of Real Estate
- Real estate is especially appealing because it’s something nearly every one’s familiar with. It’s something we all grow up exposed to, so it’s easy to understand how owning an apartment building or selling a house can turn a profit.
- There are many of different types of real estate. Whether it’s a commercial space, apartment complex, parcel of land, or second home, there are a variety of ways to invest in real estate, each with their own perks.
- Real estate is tangible, which can be especially satisfying. It’s something you can drive by and say, “I own that”. You get to see where your money has gone. That sweet vacation home? It could be yours.
- Seeing it isn’t just a fun perk: it also makes real estate harder to defraud than stocks. You’re able to walk in and see the condition of a building or piece of land, which gives you confidence in your purchase.
The Cons of Real Estate
- Real estate requires hefty capital up front for investment. While there are great ways to get the funds – such as hard money real estate loans or partnering up with other investors – the sheer amount of capital necessary can make it hard to diversify your investments. With real estate, you’re putting a lot of metaphorical eggs in one basket.
- There are several external factors that affect the value of your real estate investment. Things like natural disasters, market dips, and normal wear and tear can really cut into potential profit.
- It can be a lot of work. If you have tenants helping you turn a real estate profit, you need to be ready and on call to deal with everything from a broken toilet to a flood at 2:00 in the morning – which could take a hit on your capital gains and sleep schedule.
- Real estate can cost you if it goes unoccupied. There’s unavoidable monthly costs that won’t end if you don’t have tenants. Profit can depend on how fast you can get tenants in and paying rent.
The Skinny on Stocks
Stocks are a little more abstract than real estate, so it’s important to have a good grasp on what exactly they are before venturing into investment. When you invest in stock, you essentially fund a piece of a company, which means you get a cut of their profits.
The Pros of Stocks
- Throughout history, stocks have been the greatest creators of wealth. Think Bill Gates and Mark Zuckerberg. They both made money from owning parts of a company, and so too did the people who invested in their companies. It’s all about finding the right company to invest in.
- Compared to real estate, stocks require little capital up front. Whether you have a hundred or a million dollars to invest, you’ll be able to find a stock with prices that work for you.
- They’re easy to diversify. Instead of pouring a few hundred thousand dollars into one house, you could allocate a few hundred dollars to a thousand different companies. If one isn’t successful, you have plenty of different stocks to profit off of.
- Stocks are easy to sell and easy to buy. If you want to get rid of your stocks, you could do so in a matter of seconds, meaning there’s less awkward downtime on the market in which you could potentially lose money.
The Cons of Stocks
- Stock prices change all the time. Over the course of a week, your $100 investment could be worth $50 and $150, which might be disconcerting to some.
- Stocks are stressful, and the constant fluctuation can cause an emotional rollercoaster. Even savvy financial advisors have fallen victim to their emotions and advised people to sell while the market was down. In general, if you stick it out and reinvest your dividends, you’ll turn a profit – but human emotions often hinder that.
How you invest your money really depends on YOU. Regardless if you opt to do real estate or break into the stock market, make sure to do you research so you know what you’re getting into. Now get out there, and have your money make money!