If you invest in real estate, you are actually buying a tangible, physical land or property. Investing in stocks is completely different; If you buy shares of a business, you are buying a claim on a portion of the company itself.
The risks associated with each investment type are different. When you own real estate, you incur maintenance costs, capital costs, and perhaps development costs each month. That said, physical asset values are less likely to be worthless than stocks.
investing in real estate
Many investors are more comfortable with real estate investments because they tend to be real. You can touch, feel and inspect your property. Additionally, you as the property owner have more control over the value and use of your investments than a standard stockholder.
Real estate investments fall into two broad categories: residential and commercial. Residential real estate includes all single-family units, buildings for one to four families, co-operative units, and more. Typical investment strategies include acting as landlords for land development, house flipping or rental purposes.
Commercial real estate investments focus on land or buildings that have profit-generating activity and generally have higher start-up costs than residential investments. Rental properties containing five or more family units are also considered commercial. Most commercial real estate owners earn income through rent from office and retail space leases.
investing in stocks
Outside of preliminary research to determine what to buy, investing in stocks doesn’t require much work on your end. Stocks are really just pieces of legal title that serve as claims to the company’s profits (and possibly dividends) as they are realized.
You are not an employee of the Company, nor do you participate in almost any management decision. (Shareholders participate in votes regarding management, such as electing members of the board of directors.) To this extent, stocks represent an easy investment, but they leave you at the mercy of others’ business acumen.
Stocks are more liquid assets than real estate. It is easier to buy and sell shares than to list and sell assets. Even though you can borrow for both investments, it is easier to borrow against shares.
investing in real estate vs stocks
Some financial experts believe that buying and holding stocks (and reinvesting dividends) is considered the best way to accumulate wealth in the long run. However, real estate sees less uncertain swings than the stock market. You can also see tax benefits over real estate property ownership and depreciation. However, both investments have a proven long-term track record of generating returns.