Real estate and stocks are both common tools for making investments. Many people just wonder which one to choose from. Before you make a final decision, it’s recommended that you should know both the advantages and disadvantages of the two types of investment.
Real estate investments include investing in residential properties and commercial properties. You may purchase a house and sell it for profits, or you can buy an office building and rent it for money.
It is relatively easy to invest in real estate. You just need to buy a house, keep it, and resell it at a higher price. Since you can see the exact property, you will feel much secured with your investment.
Investors usually worry about inflation, and owning real estate can be regarded as a hedge to protect investors from inflation because the values of homes and rents tend to increase during inflation.
In addition, investors usually enjoy a tax deduction for mortgage interest. Tax breaks can also be available when you sell a residential or commercial property.
Maintaining your property can be an effort-consuming task, and buying a house can be expensive. Besides, it is much more difficult to get your money out of the real estate than you expect. The high transaction costs may also disappoint you on some occasions.
What is more, if you lack enough money, you may find it hard to diversify your investments by purchasing properties with different locations and types. Also, there is a possibility that you may lose money in real estate investments during the financial crisis.
It is much easier to know the value of your stocks than your real estate and compared with real estate, stocks are highly liquidated. Besides, there are almost no transaction fees when you invest with stocks.
Stocks are also more likely to be diversified. While it can be hard to buy various properties, building a broad portfolio is more feasible to most average investors.
The stock prices can fluctuate greatly from moment to moment. Sometimes the huge volatility can be unbearable if you just focus on short-term returns
Besides, you may be required to pay a capital gains tax if you intend to sell the stocks, and as markets go up and down quickly, the frequent buy-and-sell strategy can easily spur people to make more emotional investment decisions.