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We’ve heard arguments about a better investment: real estate or stocks. Both have advantages and downsides, and various characteristics distinguish them as distinct investments in their own right.
To make money with either investment, you must first grasp the benefits and drawbacks of each.
They all provide returns on your money, but for different reasons. Their risk factors are also varied. Should you invest in either one or both? Let’s find an answer to that question by comparing the dangers and benefits of investing in real estate vs. stocks.
Real estate vs. stock- an overview of the Indian investment market
When you invest in real estate, you are acquiring an actual piece of property. Regardless of the form of real estate investment, most investors profit from monthly rental revenue and/or when the property is sold for a higher price.
Stocks and shares are two inter-related terms. Even though they go hand-in-hand, there are some basic differences between the two.
A stock is a general term used for ownership certificates of any corporation or company while a share is used to describe the stock certificate of that particular corporation or company.
If you have shares of a company, you become a shareholder of that company. When you buy stock, on the other hand, you’re buying a portion of a corporation. As the company’s worth rises, so does the value of your stock. If you hang on to your stocks for a long period, you can also get money in the form of dividends.
Broadly, there are two categories of stocks – Common and preferred. Common stocks allow the shareholder to have voting rights which he or she can exercise in corporate decisions but preferred stocks do not allow that.
However, shareholders with preferred stocks are entitled legally to get some predefined dividend payments before they are issued to other shareholders of the company.
Investing in real-estate investment trusts, or crowdfunding options are an alternative to buying physical property. Individual firms that own income-producing commercial real estate assets such as office buildings, retail spaces, hotels, and apartment buildings are known as REITs.
Crowdfunding is an investment method wherein a group of investors come together and pool funds to finance a real estate project. These investments are generally done through crowdfunding platforms such as Assetmonk, which is becoming a reliable platform in India. They are a common choice for retirement investment accounts as well.
Difference between Real Estate & Stock Investments in India
| Parameters | Real estate | Stock |
| Long-term investment | This is a long-term investment that must be held until the market price reaches its full potential. | It is a long-term investment, though perhaps not as long-term as real estate. |
| Ease of investment | It is time-intensive because it necessitates extensive research to make the best decision, as well as legal documentation to finish the procedure. However, by investing in crowdfunding options, you can now invest in real estate easily through online platforms such as Assetmonk. | To invest in stocks, all you need to do is choose a reputable stockbroker, open a Demat and trading account, and link it to your bank account – all of which can be done online. |
| Market conditions | Market risks are present, but holding them until market prices rise yields higher returns. The market in the case of real estate assets is stable and less volatile. | Market volatility is a risk, but it often yields. However, investors are frequently led astray by false market patterns and make rash purchasing and selling decisions. |
| Liquidity | To liquidate your investment, you must wait for the perfect market conditions, identify the best buyer, and then sell the property. However, by investing in crowdfunding and fractional investment options, you can liquidity your real estate investments. | During market hours, you can sell your stock assets at any moment. You can also sell a portion of your stock interests to suit your demands. |
| Portfolio diversification | It is considered to be one of the best ways to diversify your portfolio as it helps in investing with minimum or reduced risk. | Enables diversification however, they invite a higher level of risk due to the volatile nature of stocks. |
Real estate or stock for better cash flow
You are purchasing physical land or property when you invest in real estate. Some real estate, such as an empty block of land that you pay taxes and maintenance for while waiting to sell it to a developer, costs you money every month you own it.
On a month-to-month basis, rent from real estate can provide a consistent and stable income flow. Some real estate is profitable, such as apartment buildings, rental houses, storage sheds, or strip malls, where you pay expenditures, renters pay rent, and you keep the difference as profit.
The cash flow from stock investments is not the same as the cash flow from renting out your property. The majority of the money you make from stocks comes when you sell them in the long run. Dividends, on the other hand, can be paid to investors while they still own stock. Dividends can be reinvested. If you utilize the cash a company provides you for owning its stock to purchase more shares, you’ll eventually own a lot more shares and be eligible for even more cash dividends.
The company’s board of directors, which is elected by investors like you, decides how much of the profit is reinvested in growth and how much is paid out in cash dividends each year.
Real estate vs. Stock for lower volatile rate
Real estate investments have historically been a great inflation hedge to guard against a drop in the dollar’s purchasing power. While real estate prices might fall over years or decades in some regions, most investors who see this trend can sell their property before losing money.
In a short period, stock values can change substantially. If you believe your shares are inexpensive, you can buy more, or sell them if you believe they are overvalued. If you hold well-valued equities for a long time, these highs and lows will be smoothed out. The stock market’s volatility, on the other hand, can work against you if you want to make money rapidly.
Real Estate vs. Stock For Risks
Stocks are a lucrative option for investment because of the high return on investment. However, it comes with a high-risk factor. They can be quite volatile, especially when there is a crunch period going on in the economy. If the markets crash or go down a significant amount, there is a chance that the value of your stocks goes down to almost nil. Dealing with stocks and the share market is often an emotional choice and to pull out or go further depends on a quick assessment of the market scenario and consequential choices. In case the company goes bankrupt, the shareholders lose all the money so that is a risk involved in dealing with stocks all the time.
Real estate, on the other hand, involves much less risk and volatility. Market prices of real estate hardly fall and in 90% of the scenario, it is an upward hill movement. In the rare case of a natural calamity or the like, your property might get affected but otherwise, it is one of the safest assets to invest in.
Real estate vs. Stock for a higher return
Individuals who invest in stocks contribute to the company’s ownership. As a result, whenever the company produces a profit, it is immediately distributed to the stockholders. Dividends on shares are available to investors. Selling them at the correct time also yields good profits.
In most cases, real estate yields can outperform inflation. Real estate returns are mostly determined by the location of the property. By investing in tier I or tier-II cities, you can earn a higher return on your investments. By investing in crowdfunding options you can also invest in multiple locations and earn higher returns.
As it demands a large lump sum payment as an initial investment, real estate is more expensive than stocks. However, by investing in crowdfunding platforms, you can now invest in real estate with little or lower funds. You can also invest through platforms offering fractional ownership to eliminate the high capital requirements of real estate. As this is a new concept that ensures massive growth potential, Assetmonk will guide you through the process.
Real Estate vs. Stock For Liquidity and exit options
One of the biggest disadvantages of investing in real estate is the fact that it can be quite illiquid. Selling off a property that you have bought can give you a huge profit margin however, it involves a lot of time. From the time you put it in the market to the time you get your money is a long drawn process so if you are in need of quick money from your investments, this is not a very catchy option.
Stocks are extremely liquid in nature. In fact, while dealing in the share market, stock owners are advised to go for quick turnarounds, selling off their shares depending on rising market trends by many financial advisors. Since you are able to get a bigger return in a shorter period of time, people sometimes do not risk a fall in the market and sell their shares when they get a hunch of the markets being in a profitable situation.
Real Estate vs. Stock for Resale Value
Real estate is always an appreciating asset. On average, the value of your property can go up by a minimum of 10-12% in a year. This stands true even when you are renting out your property. Thus, the resale value of any property – be it personal or commercial, comes with a huge profit margin, making real estate one of the choicest investment options. Another thing that makes it so attractive is that even though you put in a lot of money while buying a property, what you get back on the resale is a huge lump sum amount that benefits you in the long run.
Stocks do not have any resale value as such. You buy and sell them as per your instincts and market trends.
Bottom Line
You must get your timing perfect when it comes to real estate investments, both in terms of acquisition and selling. Invest in one when market prices are cheap, on the cusp of rising, or have a lot of potentials. You can sell it when the price has risen dramatically, allowing you to profit handsomely from your investment. You must also wait for the perfect market conditions, find a solid and legitimate buyer, and then sell your real estate investment to liquidate it. Assetmonk is a rapidly expanding real estate investing platform with opportunities in Bangalore, Hyderabad, and Chennai. After doing thorough due diligence and evaluation, we provide properties with an IRR of 14-21 percent. Come visit us to learn more about our investing options.
Real estate or Stock Market FAQ’s:
Q1. What is a better investment property or shares?
Real estate is thought to be a safe and secure investment. For people who want to own a home, this type of investment is both a long-term objective and an emotional asset. Although stocks and shares may provide superior profits over a three- to five-year period, the risk is extremely high.
Q2. Why is investing in real estate different from investing in stocks and bonds?
When you invest in real estate, you are purchasing a piece of real estate. Most real-estate investors profit from monthly rental income and/or when the property is sold for a better price, regardless of the type of investment. When you buy stock, on the other hand, you’re purchasing a piece of a company. The value of your shares rises in tandem with the company’s worth.
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