Most people think stocks are the best option to invest their money in the long run. But in reality, real estate might be a better option for you as it can help you earn a stable income on the side.

Whether you are a college student or someone nearing retirement, real estate is a good investment strategy for everyone. It offers lesser risk compared to stocks while providing you with better returns and diversification.

Read on to know the returns and risks involved in real estate and stocks. We will discuss what makes them different, what benefits they have, and what you should keep in mind while investing. Finally, we will find out which one would be the ideal option for you.

What should I keep in mind before investing?

What is your financial situation? This is the first question you need to ask yourself before choosing real estate over stocks. How much risk can you tolerate? This is vital to consider as real estate is not as liquid as stocks - they aren’t always affected by economic and inflationary risks.

If you are simply looking for a passive income stream, does the investment plan align with your long-term goals? Real estate will require an initial investment and patience to reap benefits in the long run. Do you have time to wait till it becomes ripe?

If you have a positive answer to these questions, you can make an informed decision. It is important to note that each person’s investment strategy is different and you need to find yours based on your situation and goals.

How can I gain value in both arenas?

In stocks, you can buy a portion of the company based on how much you invest. You are accountable for the portion of the company that is under your control. You will become the owner of that portion and can gain value appreciation in two ways.

One way is gaining value for your stocks when the company’s stock increases. The other way is through dividends. This refers to a sum of money that is paid by the company to its shareholders. The money comes from the company’s profits and reserves.

On the other hand, real estate helps you acquire a piece of land or property. If you sell or rent this property, you can earn an income. As the property’s value goes up, you will gain value appreciation as well.

If the people renting your property are willing to pay more than the amount you paid to buy the property, you gain value. This is more appealing for prospective investors, as the assets can be controlled and diversified.

Nature of returns and risks

Stock markets can give you a massive boost in returns although they have a limit. It is unpredictable and your overall return on investment might be lower than expected. In terms of real estate, you get good returns and considerable appreciation.

You need to put in a lot of research before investing in real estate properties. You can’t sell your property if you need money immediately and it is a slow process to build your returns. It is also important to consider repairs and rental costs - your properties might require expenses to fix repairs or your tenants might not pay on time.

For stocks, the major risk is the stock market and the status of the economy. If there is inflation, your stocks might perform unpredictably and you might have to plan carefully before cashing in.

Stocks are volatile (which real estate is not) and the prices will keep fluctuating. You will have more stability and almost no volatility in terms of real estate. In real estate, there is no concern about monetary policies, tax revisions, or government regulations. You will get tax advantages and leverage good income consistently.

Summing up

Real estate might require hard work to acquire. But with the right research, you can turn it into a passive income that will give you an edge against inflation. You can have a diverse set of properties and not worry about volatility or stability of prices.

Selling your stocks might end up triggering taxes that are higher than your initial investment. But real estate can give you a tax advantage and with good tenants, you can set up a passive income on the side.

Yes, you have a lot of risks and rewards involved in both real estate and stocks. So it makes sense to do your research and choose a plan wisely. Keep your long-term goals in mind and check your financial situation before choosing an investment strategy.

To know more about diversifying your investment portfolio and maximizing your returns with real estate, click here.