Sep 2020

Real Property Versus Stocks – Which is Better for Investment?

When deciding to invest, most of the time, investors rely on their personal preferences. Their choices typically depend on their finances, risk tolerance, goals, and investment style. But if you are a beginner, you are probably confused about which among many investment streams will benefit you more.

You have probably heard that investing in real estate or stocks can give you a profitable investment portfolio. But of course, you don't want to take too much risk if you have limited finances and knowledge. With this, you might ask yourself: which is better – investing in real property or stocks? 

You need to understand the key differences between these two investment streams. What are their advantages and disadvantages? How can one benefit you more than the other?

Before anything else, let's dive in first into the stocks.


Investing in Stocks

Return on Investments

If you are an investor who focuses on long term gain, investing in stocks may sound interesting for you. Looking at past events relevant to investment, stocks have always outperformed all types of passive income streams. It is because stocks give higher returns than most of the other investments over time. The opportunity to grow your money in stocks in the long term is possible – only if you have a good analysis in picking stocks to trade.


Knowledge and Time

The factors for a good analysis always come from knowledge and time. Before getting into the real battle in the stock market, investors often study stocks thoroughly. They are exerting effort and spending time to understand the general nature of stocks and trading.


Flexible and Highly Liquid

Unlike real property, stocks are highly liquid. It means that stocks are easier to convert into cash. This is one of the benefits of stocks – if you urgently need cash, you can withdraw your earnings right away. When it comes to trading, traders do the stock exchange over the stock market through buying and selling. The flexibility of stocks caught the attention of many investors and also those aspiring ones.


Low Start-up Cost

If you are a beginner and have a little cash in the pocket, stocks can save you from a huge start-up cost. Stocks don’t really require big cash to begin, unlike in real property. You just need perseverance and patience when studying how stocks work.


Investing in Real Estate

Potential for Substantial Appreciation

Investing in real estate opens opportunities to properties in which values increase in the long run. If the location is right, the demand from the market will make the value appreciates and would be unlikely to decline. Due to this, real estate is a great inflation hedge. The combination of both rental income and value appreciation can outsmart inflation if the investing is done properly.


Brings Steady Cash Flow

Rental properties bring steady cash flow through the monthly rental income from tenants. Unlike in stocks in which the earnings are fluctuating, the passive income earns by the landlord is constant.


Easier to Understand

Stocks need meticulous learning, as there are plenty of technical terms used in the stock market and trading. Additionally, studying stocks for beginners can be overwhelming.

But when it comes to real estate, vast knowledge and experience is not a requirement. Some professionals are experts in real estate that can help you manage your investment. Thus, having a high level of expertise in the field is not necessary when investing in real estate. You just need to be committed to the process of investing and know the basics of it.


Low Liquidity and High Start-up Costs

Real properties are illiquid, unlike stocks. You cannot quickly redeem the large sum of money you invested.

And when it comes to the start-up costs, you need to shell out a hefty amount before you can own a property. But your cash outflow won’t stop there. You also need to have funds for its maintenance, property taxes, and other related property expenses.


Historically, which among the two performs better?

Generally speaking, it is difficult to distinguish which among them performs better historically. Real estate and stock investments have experienced growth and failures. Hence, for this argument, picking a certain time frame is helpful to determine the answer.

Take an example of a report from the ASX and Russell Investments about the returns of long term investments that released in June 2018. Accordingly, residential investment property had better gross returns for the past 20 years. For a good comparison within that time frame, Australian shares' average return is 8.8% p.a., while Australian residential property's average return is 10.2% p.a.

However, you must consider that both of these investments have different risks and opportunities. Before investing you must consider those factors, and which among them you can manage better.