Should I Invest In The Stock Market or Real Estate?
TL;DR - The massive upside of real estate is hard to beat. Stocks can (sometimes) be easier to manage, though.
We’ve covered the pros and cons of investing in a 401k vs. real estate. Now it’s time for the real competitor to real estate - stocks.
These two investments are the first two mentioned in any conversation. They are the most popular and most consistent that you’ll find in any serious investor’s portfolio.
In fact, you probably have some money in one or the other - or are looking to get started.
Well, you’re in luck. Undoor has you covered for everything real estate related.
Stock vs real estate
Good On You
We’re proud of you, here at Undoor. Because you’re investing in your future by reading this article.
Whether you invest in stocks or real estate, you’re making a great decision. You’re using your money to build wealth for yourself.
Keep in mind that if you ever need help with real estate investing, we’re here for you. Just go here and ask us a question.
With that in mind, let’s get onto the good stuff.
Pros and Cons
Stocks and real estate have their own unique set of pros and cons. That’s what makes this a debate in the first place.
We want to present the facts to you, the reader, so that you understand what each investment can provide for you.
Stocks
Essentially, buying a stock means that you buy shares of the company you’re investing in. So, you technically become an owner of that company. You’ll own a tiny fraction of that company, but that’s still pretty cool.
Pros
Liquid Quick - You can buy stocks very easily. We’re talking less than 5 clicks of your mouse. Online. At home. This also means that you can sell them just as easily - as long as there are buyers looking for some shares.
Easy To Diversify - When investing in the stock market, you aren’t limited to single stocks alone. You can invest in mutual funds, ETFs, index funds, and more. This allows you to spread out your money over a variety of companies and industries. Pretty easily too.
Low Transaction Fees - There are a ton of investment companies out there for you to open an account with. And most of them offer extremely low rates for when you invest. For example, Fidelity charges you nothing when you buy shares of stock.
Main Con
Very Volatile - The stock market can drop just as quickly as it rises. So your stock might be worth $1,000 a share today and then $50 dollars tomorrow. It can be hard to gauge the market, if you can even gauge it at all. Most of the time, you’re better of leaving it to the professionals. And even they lose big. If you like to gamble, you’ll feel right at home with stocks.
Real Estate
Properties - residential or commercial - and land. The options are limitless with real estate.
If you choose one property type and focus on it, you can make a huge profit. You’ll be able to understand the unique qualities of that property type and find deals that’ll feel like you’re stealing them.
Real estate can become your whole income if you put the work in... it can even fund your entire retirement.
Pros
Appreciation - The moment you buy a property, it begins to appreciate in value. This is because of improvements to the property, natural inflation over time, developments in the surrounding area, and a number of other factors. You can feel safe knowing that your money is invested in something that’s gaining value over time.
Safe Returns - Unlike the stock market, you can predict the value that your real estate property will bring in over time. This is because the real estate market is highly stable. It appreciates in a steady climb, whether that be your rent rates or equity.
Control - You have complete authority over your real estate investments. If you want to make improvements, you can. If you want to raise your rent rates, you can. You choose the tenants of your property and have the power to make any decision you deem fit. Whereas stock performance is out of your hands, real estate performance is in the palm of them.
Passive Income - Your rent rates are a steady stream of income that you get each and every month. Not only do they put money in your pocket, but they also pay off your mortgage and any other expenses for your property. Stocks only pay out money when you sell them. Real estate pays all the time.
Main Con
Potentially Less Passive - Stocks can be easier to manage than real estate. Instead of a simple click of your mouse, real estate might require you to play a more active role in its acquisition. While this can be a con, you can also negate it. There are plenty of resources that can automate the process for you. Or at least make it as simple as possible.
By The Numbers
So we’ve gone over the big pros and cons of investing in the stock market and real estate.
But, we know some of you like to look at numbers. Here’s a simple example for you from Graham Stephan.
Let’s assume a 10-year investment of $100,000.
Stock Market
For our $100,000 investment in the stock market, we’ll be going with the SP500 index fund.
Based on averages (over time), you would be looking at a $196,000 return. That’s including inflation.
Without inflation being factored in, your return would be $236,000.
Real Estate
We’ll be using our $100,000 real estate investment for a 20% down payment on a $500,000 deal.
Our $400,000 mortgage will be financed at a 4.2% interest rate. That calculates out to be $1,950 per month.
Let’s be conservative and assume that our $500,000 property will get us a 7% return each year. That 7% is completely yours. Take-home money, if you will.
This property would bring in $35,000 in profit, or $2,916 per month.
If you subtract the mortgage payment from our monthly profit ($2,916 - $1,950), we’re left with $966 total monthly profit. That turns out to be $11,500 per year. An 11.5% return. Pretty nice, huh?
And it’s about to get sweeter. Each month you pay your mortgage, some goes to the principal (which pays down the loan) and some goes to the interest (which is a tax write-off).
Simply by paying your mortgage, you’ll gain $6,800 per year in equity. Add 6.8% more to your yearly return - which totals at 18.3% (11.5% + 6.8%).
The $100,000 investment you made in real estate? It’ll be worth $215,000 in 10 years, simply from monthly rent.
You’ll also get $83,000 in equity over that 10-year period.
In total, you’ll have made $298,000 from cash flow and paying down your loan in 10 years. By the way, that’s without accounting for rent increases or improvements you make to your property.
The Breakdown
Stock Market - invest $100,000 into a SP500 index fund for a $196,000 profit.
Real Estate - invest $100,000 into a $500,000 property for a $298,000 profit.
Again, this example is from Graham Stephan. Be sure to check out his video.
You Have The Facts
Now, all that’s left is for you to invest.
After reading the pros and cons, you should have a good idea of whether stocks or real estate are the right choice for you. Or maybe you like them both!
Stocks are more passive than real estate but can be very volatile and risky.
Real estate offers huge upside for profit and passive income, with the potential to need to be actively managed.
Which do you prefer?
How We Can Help You
Does investing in real estate sound intriguing to you? Would you like to learn more? We’d love to be of value!
At Undoor, we pride ourselves on teaching new and experienced investors how to maximize their gains with minimal stress. Our goal is to help you fall in love with real estate and real estate investing. What we’re most passionate about is maximizing investment gains for people like you.
Do you want to get key insights and advice that’ll help you get ahead of the game? Don’t hesitate to contact us for any and all real estate wants or needs.