Real Estate vs Stocks: Which is Better Investment?

real estate vs stocks

Buying commercial real estate with a long-term prospective can be lucrative as it promises steady rental income and good returns however, it is a cash-intensive proposition and carries certain amount of risks. Investing in bond, on the other hand, can be done with little capital, is easier to execute and can be rewarding provided you can do a good stock selection and time your investment right.

Before you choose either of the option, you need to analyze your risk appetite and your financial goals. If you have sufficient capital, investing in commercial real estate is an attractive investment idea over investing entirely in stocks and here we discuss why.

1. Appreciation of asset value

It has been seen in the past that a commercial real estate investment meets or exceeds the appreciation value of the asset in comparison to other investment types. Many factors such as proactive management, demand and supply, and cost efficient methods to improve the usability of the property increases its value. Stock investment on the other hand is highly volatile and hence their value fluctuates.

2. Sustainable recurring income

The major advantage of investing in commercial real estate is the earning potential. The assets are typically secured by lease that provides income on regular basis and significantly higher than what one yields in stocks.

3. Longer lease period

The lease period in a commercial property is usually longer, between 3 years to 10 years, which provides added monetary security and continuous side income for a long time.

4. Tax benefits

As a landlord, there are certain tax benefits to real estate owners. Depreciation deduction and mortgage interest covers a huge portion of your income stream. Thus the interest expenditure on your mortgage is deducted from the tax, including property taxes, operational expenses, insurance as well as depreciation.

5. Hedge against inflation

Investing in commercial real estate provides hedge against inflation as both the value of the property and rental yield rise with inflation. However, your mortgage interest does not increase with inflation. On the other hand, stock investments are not so directly related to changes in inflation.

6. Tangible asset

A real estate property is something you can use, feel and see. Real estate provides a higher quality of life and you can take shelter in your property. Stocks, on the other hand are just piece of paper, or not even that when everything is done online. Real estate is one of the three modes of survival, besides food and clothing.

7. Quantifiable asset that can be assessed

Stocks require you to trust the reports of the company, which makes you totally dependent on them. With so many ways to tweak around to make the numbers look better, such as adding on off gains, using depreciation strategies, and adjusting accounts receivables, it is not easy to decide which company to invest in. Real estate, on the other hand, is something that you can quantify. If you calculate the expenses and rental income of the property, you can easily analyze and value the property.

8. Ownership pride

Owning a property is a source of immense pride which cannot be put in words, but indeed possesses highest value along all asset categories. It is also a reminder that taking calculated risks pays off with time in your favor. This asset is something that you can pass on to your generations to let them feel your presence long after you are gone.

So, if you desire to invest money in an asset class that generates good profits in the long run, offers a steady income stream and is less risky investment compared to stocks, investing in commercial real estate is a good idea. The key to profitable investing remains the same whether you are buying a property or investing in stock - do a thorough background research, assess your risk appetite and time your entry and exit well.