Real Estate Vs. Stocks

Real Estate Vs. Stocks

In today's economy, after the real estate crash, it may seem strange for some people to even consider real estate as an investment opportunity. For most of us, the house we live in is enough real estate risk. You may wonder why anyone would want to purchase an investment house right now, especially if you were one of the many people burned by the housing crisis. Others may feel the same way about investing in the stock market. Why invest now, when our economy is still struggling?

These questions and more leave us all a little baffled. Real estate or stocks? Both present dangers. But both also present some opportunities for great buys during the down market. So which is better? Let's take a look at the pros and cons of each.

Real Estate

Right now, real estate is cheap in many parts of the country. California, Florida and Arizona house prices have been slashed extraordinarily. This means that buying an investment property now can be a great idea, if you are prepared for the entire ordeal.

The investment property purchase experience can be rough right now. If you are purchasing the property with borrowed funds, you have to be prepared to kick in at least 25% – ouch. Also, if you plan to rent the property for income, you must have at least three months of liquid funds to cover the mortgage, should your renters leave unexpectedly – double ouch.

You may also have to contend with a short sale. Sounds quick, right? That's what I thought, but it turns out a short sale actually takes longer to close than a normal sale, sometimes costing you many grueling months of waiting.

However, if you are willing to contend with the high down payment, stringent rules, and possibility of a drawn-out closing, a real estate investment can be a great opportunity. Historically, homes have averaged 4 to 6% appreciation and sometimes more in the right market. Also, homes can be rented out, used as vacation homes or both, which will help you pay for the home or save on vacation costs.


On the other hand, stocks are also making a comeback. Just like with real estate, many stocks are being sold at better prices than at the height of the bull market, before the market crash. So, if you swoop in quickly, you can get some pretty great deals before prices begin to climb.

Of course, there are many dangers in the stock market. Purchasing the wrong stock could make you lose money, another market crash could send you spiraling back to "Go" (where you do NOT collect $200), and playing the bear market could leave you waiting a while for any kind of return.

Even so, with the right research, you can find the perfect stock to purchase at low, low prices. Then waiting for the market to turn around may be a test of your skills in the patience department, but the returns could be excellent, over time.

So, which is better, real estate or stocks? At this point, both options are great for investors, but depending on your situation, needs and comfort level, one opportunity may be better for you personally. If you vacation to the same spot every year, for example, an investment property may make more sense than stocks. If you don't like housing upkeep, however, the stock market may make more sense. The key is to assess your life and decide which is better for you and your family.

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MoneyCone's picture

MoneyCone wrote:

Mon, 04/25/2011 - 11:35 Comment #: 1

Buy a bit of both! Allocate a portion of your portfolio for real estate stocks if purchasing a house is not an option.

Ravi Gupta's picture

Ravi Gupta wrote:

Mon, 04/25/2011 - 12:18 Comment #: 2

Great article! I would say go with stocks instead and invest in a REIT fund for real estate exposure. At the present moment with job uncertainty it would make more sense to not have any additional liabilities and to be as flexible as possible. Just my $.02. :)

-Ravi Gupta

retirebyforty's picture

retirebyforty wrote:

Tue, 04/26/2011 - 03:39 Comment #: 3

I'm sure you know I think real estate is the way to go at this time. Stock have recovered a lot in the past 2 years, but real estate is still down in the dump. I think now is the time to trade some stock investment in for some rental real estate. :)
Short sale is a huge pain in the butt, I've been waiting to hear back from BofA for 2 months. They are overwhelmed by the number of short sales and foreclosures.

Christa Palm's picture

Christa Palm wrote:

Tue, 04/26/2011 - 13:20 Comment #: 4

MoneyCone, great point about REITs -- they are a great choice when purchasing is out the the question.

Ravi, awesome 2 cents! REITs may be the better choice for those with any potential income instability.

Retirebyforty, I like all your points on your site about real estate -- your investments really paid off for you! Good luck on your short sale!

Perfecting Dad's picture

Perfecting Dad wrote:

Mon, 05/02/2011 - 16:15 Comment #: 5

I've invested in 9 real estate deals over the last several years and I've found that it's pretty simple to "guarantee" or at least structure the deal so that losses are very unlikely, while being able to increase the value. You have to look around a lot to find the opportunities.

Christa Palm's picture

Christa Palm wrote:

Mon, 05/02/2011 - 21:17 Comment #: 6

Perfecting Dad, welcome! Awesome that you were able to invest in nine deals so seamlessly! I'll definitely check out your website to find out how you structure the deal so well!