Stocks and real estate investments come in a platinum category of mediums through which a goal of good passive income can be achieved and sustained. For our indecisive peeps, we have curated a list of comparisons between stock and real estate that explain in detail how much potential each option has, keeping in mind their drawbacks.
Pros of Real Estate Investments
The following points explain why you should take a step toward real estate.
Real Estate is Accessible
Going into real estate doesn’t require a steep learning curve. An average person with adequate knowledge of how things work can turn their investment into fortunes. Moreover, agents, consultants, or agencies (in the market) are available to help you make the right property decision.
Furthermore, there are a plethora of real estate courses and guidelines available over the internet targeting your specific country. Another amazing thing is that property laws, ordinances, and verification approaches are somewhat similar in all parts of the world.
Tax Advantages Are Insane
You can’t compare real estate and stock market tax advantages; real estate is way ahead in this game. Whether in Pakistan or in other parts of the world, governments constantly and consistently introduce schemes to promote the buying and selling of property, as this factor is associated with the country’s GDP.
With Right Real Estate Investments, You Can Beat Inflation
Inflation, in easy words, is a rise in product pricing over a certain period. During this time, paper money loses its value. And as soon as this happens, purchasing power also decreases as people are reluctant to buy costly items. But inflation works differently in the case of real estate.
When inflation strikes, housing value and rental rates tend to increase with the increase in demand for houses in the market. But, in these times, people hold their housing asset because they know that rental rates and housing value is increasing.
When this happens, the supply and demand issue rises, creating the scarcity of property houses in the market. Following this phenomenon, the pricing of homes and rental rates goes up, providing an inflation hedge to homeowners.
Thus, in this way, real estate owners and investors always have the upper hand over inflation.
Cons of Real Estate Investments
Every money making has cons, risks, and points to be varied about. For real estate, these are things you should note before diving in.
Real Estate Demands Time
If you’re thinking of going into real estate as a passive business strategy, you might struggle a lot at the start. It’s because there are things in this business that requires both time management and working strategies.
Concepts such as laws, flipping, risk estimations, market understanding, documentation, experience, and advertising bite out a massive chunk of time from your daily activities. Practicing such concepts and honing them to perfection might take some time, even if you’re actively putting day and night into this job.
Therefore, instead of going passive, look at things (businesses) broadly; you’ll find that almost all of them require a healthy time at the start. With experience, learning, and tweaks, you can mold any business into a passive money-making machine.
It’s an Expensive Option For New Investors
New investors who want to play safe might find real estate heavy on their pockets. As a fresher, you at least need to have 20 lacs to start with the property investment, let alone buying a house.
Moreover, transaction fees in this business are relatively higher than their counterparts: stocks. Expenses such as “broker service charges,” “agents fees,” “consultant firm charges,” and blah-blah-blah make real estate investment a problematic choice for newcomers.
The good news is many of these can be cut down to a minimum if you have the right agency or an agent by your side to help you at every possible step. Or, if you have enough sound knowledge of the market, that will be the cherry on top.
Liquidity in Real Estate Investments is a Headache
Liquidity is a term used to describe the ‘ease’ involved in the conversion of an asset into its cash-ready form without deteriorating its market value. The process of selling a property can be agonizing and has the following essentials to be fulfilled.
- Documentation and paperwork.
- Advertising a property.
- Paints and touchups.
- Agents or firms.
- Legal jargons.
Once done with the above prerequisites, then you have to manage a buyer that is willing to buy from you at your prescribed price. Therefore, as we have said before, converting a property business into a passive income strategy can be difficult for starters.
Pros of Stock Market
The stock market has tons of pros; let’s briefly understand some of them.
Diversification of Portfolio is Made Easy With Stocks
Diversification in terms of investing refers to diversifying your asset classes by holding on and using as many opportunities and wide varieties of investments to reduce overall portfolio risk.
In real estate, you don’t have many options to diversify your portfolio, whereas, in stocks, due to their high liquidity, they are easy to diversify and provide with low-risk (in some cases).
More on Liquidity
Liquidity in real estate is pretty high, as discussed above. However, nowadays, in the stock market, you can buy and sell stocks more rapidly than ever before.
Due to this advantage, one can assess beforehand which of the stocks are underperforming or will outrank others in the future. This fast ‘liquidity’ aspect of the stocks safe everyone from more enormous losses.
Transaction Fees Are Almost Zero
As compared to real estate, stocks have a much-reduced transaction fee. The only price you need to pay is for availing of the broker’s services which isn’t more than 2-3% of the total purchase price, in case you need a broker for a better investment.
Additionally, buying, selling, or doing anything on the stock market comes with zero fees. Furthermore, you can also avail unique “tax-advantaged account” for trading and other purposes.
Cons of Stock Market
Here’s why you should be concerned before going into the stock market.
Volatility is Pretty High
Stocks are pretty much an unpredictable investment. History has recorded many stock market crashes that plunder millions in the acquisition of the world’s renowned and knowledgeable investors. The volatility of the stocks is determined by many of such reasons given below:
- A change within management or in boards of directors creates trust or a favorable environment among investors.
- The company’s activities include employee layoffs, dividend announcements, new contract accords, etc.
- Introduction of the more unique product or the feature in an actual product.
- Degrading or fake news about the company or a specific board member.
- Poor decision-making and whatnot.
There can be a hundred more points that need to be considered when making an investment in the company’s stocks. Therefore, stocks are the most volatile forms of investment out there. In comparison to this with real estate, the latter was found to be much more reliable in terms of volatility.
Research and Taxes
Before plunging in for stocks, you must be much more researched and informed about the company you want to invest in. The kind of research we are talking about doesn’t come after reading 2-3 top-ranked articles on Google but with more rigorous and extensive research about the company’s past, present, and future.
The amount of time you spend researching the company will help you in making much more informed decisions about your investment.
On the other hand, when stock investments make profits, they are accountable for capital tax gains. But, if your investment is in a loss instead of a certain amount of revenue, you may get a tax exemption based on your country’s law.
Real Estate Investments vs. Stocks: Which one is for you?
Having answered the pros and cons of both investments, it boils down to the kind of investor you are and the type of investment you’re interested in or more flexible for your portfolio. If you’re looking for an accessible, tax-free, inflation-secured, long-term investment game, then real estate is your friend. Similarly, for short-term diversity and easy liquidity, stocks can be a great choice.
We hope that you’ve learned something important today from these real estate investments vs. stocks debates and that ‘Raas.pk’ tips helped you to make a more informed decision.