Real Estate Vs Stock Market

Are you wondering which one between the stock market and real estate is the better option for investing your money? I am going to show you all the pros and cons, all the historic returns across different countries so you can decide for yourself. I am also going to show you how you can get the best of both worlds.

First let’s start with the historic rates of returns in both cases.

Average annual return ( adjusted for inflation ) :

Stocks – 6.89%

Real Estate – 7.05%

As you can see if we just look at the bigger picture real estate slightly outperforms stocks, but bear in mind that this data is pulled from 16 different first world countries and we get the average result. In the US for example the stock market has returned 8.4% on average with the housing returning around 6%. In France on the other hand the return on housing has been 6.5% with the return on equities being 3.3%.

What I am trying to say is that both are viable options and there is not a right or wrong answer. Also for a good diversification it is good to have a part of your portfolio in both investment vehicles.

Now I want to give you my pros for both paths of investing so you can see for yourself which one would fit you better.

Real Estate Pros :

1.Easier use of leverage

– It is considerably easier to get an investment mortgage compared to a margin loan. Especially in the low-interest rates we are it makes it quite a lucrative idea to get an investment loan where you need to put just 5-10% down as the value of the property.

2.Having something more tangible

– What I mean by that is that if you buy a house for example you can rent it and get returns in the form of rent. But you can also use it to live there down the road if you need a house for whatever reason.

Stock Market Pros :

1.Everything is simpler

-Investing in stocks is much simpler in my opinion because you only need a stock broker and some cash in the bank. You do your research, invest in the given stock and can forget it for a long time. You don’t have tenants, renovations or anything around the stock.

2.More liquidity

-The liquidity in the stock market is much bigger. It is much easier to sell your stocks than it is to sell a duplex for example. Selling a property can take months while in the stock market you can have your money within a day, which is more convenient for sure.

3.More passive

-If you are looking for more of a passive income the stock market is where it’s at. Investing in property can be fairly passive aswell, but you still need to be involved in one way or another. With equities you can truly set it and forget it once you do your resarch.

Best of Both Worlds?

There is something called REITs which is a real estate bussines traded on the stock market. Those REITs are also required by law to distribute 90% of their cash flow to the stock holders in the form of dividends. That is basically your rent and in my opinion this is the much easier way to invest in property without all the hassle of renting. The interesting part is that REITs have outperformed both equities and real estate in the long run with annual returns of over 9% mainly due to their great dividends. Personally this is my way to diversify into property in the stock market and is something that is worth looking into.

So to sum it up both of them are great ways to generate wealth, but the main difference in my opinion is that in real estate you need to be more involved , but you can make better returns.

I personally prefer investing in stocks, but that is mainly because I really like researching companies, reading income statements, balance sheets and so on. If I liked painting, interior design or something of that matter I would probably be in real estate. My point is that the more important thing is to go with what you would like better, otherwise at some point you are going to get fed up and the end result is not going to be what you expected.

This was my quick take on some of the differences between the stock market and real estate. Hope you learned something from it and decided which path is going to be a better one for you.