Real Estate or Stocks: Which is the Better Investment?

There are many different ways of investing for your future. You can choose any one or a combination of a few of these methods to make your future secure. Two of the most popular vehicles of investment are the stock markets and the real estate. On one side you have real estate tycoons like Donald Trump and on the other you have people like Warren Buffet who earns money incessantly from stock markets only. Which one of these two methods of investment is better for you and why? Let us find out in this article.

Pros of Investing in Real Estate

1. It is a tangible asset

   Real estate is tangible and you can see and feel it. You get the feeling of owning a piece of property and you can show it to your friends. In comparison, investments in stock markets are mostly in the form of papers or in electronic form to be an intangible asset that is hard to feel.

2. You can look after your investment

   When you buy a property, you can renovate and repair to enhance its value. You can actually contribute to the upkeep and maintenance of the asset. In the case of stock market investment, you are mostly dependent upon managers and financial experts.

3. You can invest in property using other people’s money

   Real estate allows you to borrow money from banks to buy a property. On the other hand, it is very difficult to ask for money to invest in stock markets.

4. Tax deductions

   You get benefit of tax deductions when you invest in real estate. You can deduct the interest paid to the bank on mortgage when calculating your income tax at the end of the year.

5. You profit from compound growth in the case of real estate

   If the value of your property increases by just 5% after a year, you actually gain 25% if you purchased it with 20% down payment. This is because the appreciation on entire value is yours while you paid only 20% of the value. For example, you bought a property worth $1000000 but paid only a down payment of $200000. Now if the value of the property after one year is $1050000, your profit is $50000 on a investment of $200000 that stands at 25%. This kind of compound growth is not possible in the case of stock market investments.

6. Value of investment continues to increase

   Investment in real estate continues to appreciate with passage of time. You have years when this growth is lesser than other years but prices do not remain stagnant. On the other hand, investments in stock market are volatile and their value can come down drastically when the markets are falling. If you cannot stand the volatility of stock markets, real estate investment is a better choice for you.

Cons of investing in real estate

1. Cost of maintaining a property

   You have to spend money on the maintenance of your property. This can include expenditure on repairs, renovations, painting, etc. There are no such costs involved with stock market investing. There is also annual property tax that you have to pay to the authorities.

2. Liquidity of asset is less

   You can get cash for the sticks you have within a few minutes. This means your investment in stock market is highly liquid. On the other hand, it may take months to get back your investment in real estate, particularly if the market is sluggish.

3. Tax on selling

   Government taxes you in the form of property gains tax if you try to sell your property to book profit after some time.

4. You are stuck with the same property

   Once you have bought a property, your investment is locked in the sense that you gain only as much as the value of this property appreciates. On the other hand, you can easily dispose off your stocks and buy stocks of other companies with the same investment.

5. Hard to borrow money against your property

   Even though banks provide finance against property, it takes a long time and requires fulfilling many formalities. The rate of interest charged by the bank is also quite high in such loans. On the other hand, you can borrow money against your investment in stock market within a few minutes.

In the end, it must be said that both types of investment are quite effective. Both provide attract returns on investment. If you want your investment to be a hard and tangible asset, real estate investment is good for you. On the other hand, stock market investment is better if you are concerned with the liquidity of your investment. Choose a mode of investment that gives better returns on investment and one with which you are comfortable and relaxed.