Stocks vs. Real Estate: A Balanced Comparison

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Stocks vs. Real Estate
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Stocks vs. Real-Estate

• The following is a neutral and balanced
  comparison and contrast of stocks and
  real-estate.

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Income (Regular Strategies)

• These are the traditional ways stocks and
  real-estate normally generate income
• Stocks Capital appreciation from the increased
  value of a stock and dividend payments for stocks
  that pay dividends.
• - Real-estate Increase in property value and
  collection of rent payments.

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Regular Fees Expenses

• These are basic fees that must be paid (of course
  some slight variations will occur depending on
  the location).
• - Stocks Commissions for buying and selling
  stock. Management fees especially for actively
  managed portfolios and funds. Less of an expense
  for passively managed funds, mainly index funds.
• -Real-estate Property maintenance
  expenses(whenever they may arise). Utility and
  strata fees(if applicable, they may be paid by
  tenants instead of landlords). Fees for buying
  and selling property and rent collection(if
  applicable). Depending on how much of the
  property is managed by a 3rd party.

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Taxes

• Taxes will of course vary depending on the
  location and jurisdiction. These are just broad
  generalizations.
• -Stocks generally have higher taxes for
  short-term trading (often buying and selling a
  stock in less than one year). Long term capital
  gains and dividend taxation is normally lower by
  comparison.
• -Real-estate Regular property taxes. Investment
  property taxes, speculation taxes for short term
  ownership.

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Losses

• There are a many contributors to losses, these
  are among the most common.
• -Stocks Decrease in stock value, usually due to
  poor company or sector performance. As well as
  broader regional or global economic downturns.
  Changing markets, consumer behaviour,
  geo-political uncertainty/speculation.
• Large trends can generally be foreseen with
  enough research, however it is near impossible to
  time the market to buy and sell at the perfect
  time. These events are out of the individual
  control of stock traders and investors.
• -Fluctuations in property value usually due to
  surrounding development of the local area. The
  current state and history of the property(what
  condition the land and building are in). Property
  damage by natural wear and tear, the elements of
  nature(ex moisture, rotting, rusting), and of
  course bad tenants). Bad tenants may also
  contribute to losses when they dont pay rent.
  Losses from vacant property when no tenants can
  be found to rent. Poor work done by bad
  contractors.
• If you have the ability and foresight and the
  right knowledge of people(tenants, contractors,
  property managers this will be less of an issue.

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Altered, Adaptive, Advanced Income Strategies

• These are more complex strategies meant to reduce
  losses and risk, and/or increase income.
• -Stocks Reconfigure/adjust portfolio and
  positions.
• Use stock Options
• Short Selling
• These strategies can increase profits and reduce
  losses, but they are very difficult to learn and
  even more difficult to master. A lot of
  dedication is needed to utilize them successfully
  and consistently. They are also risky if not used
  properly.
• -Real-estate Specialized property selection,
  for example residential, business, industrial,
  agricultural properties.
• Tenant selection to avoid nightmare tenants and
  acquire long-term ones that are secure and
  reliable with their payments. To a degree it
  comes down to an innate understanding of people.
  Also knowledge about demographics, and
  development trends in the surrounding areas.
• Property or building value can be increased with
  renovations and esthetic upgrades such as a new
  coat of paint or new decor. These can be
  inexpensive ways to boost income when done right.
  
• All these methods require good communication
  skills and the ability to form trustful
  relationships. They also need an understanding of
  what is physically and esthetically desirable in
  and around a property.

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Miscellaneous Comparison Points

• Some additional attributes that dont exactly fit
  into the previous categories.
• - Stocks are more convenient and accessible. It
  is much easier and affordable to buy shares or an
  index fund than it is to hold an entire property.
  Thus they have a lower barrier of entry for
  newcomers.
• Stocks in general are more liquid so it is easy
  and quick to buy and sell with lower price
  disparities between buyers and sellers.
• It is easier and to diversify across economic
  sectors by buying different stocks, and funds.
• There is greater flexibility to sell a few shares
  or use some dividend cash payments. Rather than
  selling an entire property or using rent income.

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Miscellaneous Comparison Points

• -Real-estate is a physical tangible asset with
  real intrinsic value. Shareholders need to have a
  large holding in a company to even have a minimal
  impact on the business. Property owners have
  direct control of what they do with their
  property.
• Since property is physical and more tangible at a
  local level it is often easier to foresee
  potential influences on property value by
  observing the surrounding location. As opposed to
  trying to predict influences on the stock market
  from around the world.
• Historically real-estate has been a proven method
  to preserve and grow wealth even before the
  modern stock market was established. Thus it may
  be more expensive, but it holds greater trust due
  to its long proven track record.
• Psychologically human are naturally more
  comfortable having physical and direct control
  over property. Peace of mind isnt the same with
  stock seven when an intangible stock holding has
  all the right numbers going for it.

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Miscellaneous Similarities

• Both stocks and real-estate..
• Can be bought with leverage loaned money, a
  mortgage for real-estate and margin for stocks
  (can be risky).
• Can be very involved and active requiring your
  time and energy be fixed. Ex property flipping,
  seeking out tenants, buyers, and sellers. Ex
  Actively managing a personal stock portfolio, day
  trading, swing trading.
• Can be very hands off and passive requiring
  little attention and need to remain at a fixed
  location. Ex hiring a manager or having
  friends/family look after property, and issues
  with tenants, buyers, sellers, and contractors.
  Ex focusing on long term passive dividend income
  and/or having a portfolio manager manage stock
  positions.

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Verdict

• In many ways stocks and real-estate are equally
  different in that they share similar risks and
  rewards that take different forms. IN GENERAL
• -Stocks allow for greater flexibility and
  diversity in terms of how much capital can be
  allocated, deposited, and withdrawn. Regular fees
  are often low and predictable. However there is
  little control over the factors that can
  influence stock prices(the best you can do is
  properly allocate capital appropriately to lower
  risk). Strategies especially the advanced ones
  are very adaptable, but are difficult to master.
• -Real-estate generally carries more fees and they
  can come up unexpectedly. It is less suitable for
  those who cant communicate effectively with
  people. However great returns can be had if you
  understand esthetics, human behaviour, and
  property location.

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Verdict

• Both real-estate and stocks allow wealth to be
  preserved and grown. Risk is also present with
  both, but in different forms. Some may find one
  suits them better. Suitability may also depend
  on current and future market conditions . If
  possible trade and invest in both, dont limit
  yourself if possible. At the very least learn
  about property and stock markets for a better
  understanding.
• In the end choose wisely, know your capabilities
  and limitations, and research thoroughly before
  allocating your money.

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Finally
I wish you higher returns and lower
risk. Simon from ascencore.com

• Visit my website www.ascencore.com for more
  helpful and realistic trading and investing
  content.