Stocks vs. Real Estate: Which has a Better Return on Investment?
Navigating today’s global economy in order to find a safe haven for your savings is a challenge. It is important to find assets that grow your funds at a high enough rate for retirement. Deciding on the right investment can mean the difference between a comfortable retirement or a stressful financial rollercoaster ride.
Where to Put Your Savings for a High Return
There are several different assets in which you can invest your money. The two main choices are stocks and real estate.
Are Stocks Worth it?
Stocks are peddled to us as easy money, but is that the case? The upside that stocks offer is counterbalanced by high volatility which results in steep losses during a financial downturn.
Why Real Estate is the Logical Choice
Real estate, on the other hand, is characterized by four main reasons that make it the ideal investment for those seeking stability and growth.
1. High Returns for Low Money Down
People can make anywhere from a few hundred to a few thousand dollars by purchasing a cheap or distressed automobile, repairing and renovating it and then selling it for a profit. With real estate, the margins on flipping a house are much greater and you can start small and work your way up.
Average investors overlook real estate due to a preconception that it requires a great amount of initial investment on their part. However, upon further examination, success in real estate can be achieved with reasonable seed capital or none at all.
For those not willing to go into debt to pursue real estate, the option of leveraging other people’s capital is a viable and attractive option. There are people with large amounts of dormant capital waiting for motivated individuals to partner with them to make a higher return on their money.
2. Safer, Higher Returns
Gains made on real estate are much safer than those made from stocks. Movies and the financial media including financial advisors create a narrative that stocks are making tons of people rich. The truth is that just as with the lottery, there are millions of people playing so that a few individuals can win. These winners are always celebrated while the ones with losing lottery tickets are never mentioned.
Stocks can make the average investor anywhere from four to six percent. By playing it safe, stock returns can get as high as eight percent. Real estate, on the other hand, can easily offer a 12 percent return while leveraging bank capital can boost returns to 20 percent.
3. Real Estate is an Asset You Control
With real estate, you have ultimate control over the path of your investment. The ability to raise the rent on your property, cut expenses or find better tenants offers the flexibility to deal with changes in the market.
4. Resistant to Economic Downturns
When investing in stocks, you study the company you intend on investing in and hope for the best. The company could go belly up or a black swan economic event can wipe out your investment. Recent economic crises have shown that a life’s worth of savings can vanish virtually overnight.
While the value of a property can fluctuate, your rental income will remain stable and you always have the option of selling your property at a later date when prices have recovered. Stocks, bonds and mutual funds do not offer this kind of security as any sudden losses you incur can wipe out previous gains.
Are There Any Drawbacks with Investing in Real Estate?
Everything concerning finances has pros and cons. With real estate, the advantages far outweigh the drawbacks. A potential such drawback is the time investment.
More Time Upfront Required
Investing in real estate requires spending a significant amount of time selecting the right property and the right team. A good team consists of a reliable realtor, a competent contractor and a knowledgeable property manager.
Having said that, even time may not necessarily be a disadvantage when comparing real estate to other asset classes. Picking a stock or mutual fund that will be profitable in the long run can also require a great deal of research and due diligence.
Investing in real estate is not as intimidating as it seems. Taking the time to learn how to do it right can be liberating for people seeking a higher return on their investment. Real estate is ideal for anyone from high school graduates to college students to individuals near retirement. Success is as simple as taking the first step and following through with action.
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