So which is the “better” investment…stocks or real estate? In this video, I do my best to break down the pros and cons of each option and weigh the results against the potential return one could possibly expect to achieve. Since picking individual stocks can vary so widely in price, as would flipping a house, I’m comparing long term rental real estate to an total stock market index fund.
It’s a hard question to answer, and a lot comes down to personal preference, but these are some things to take into consideration before we break down the numbers. Just for clarification – picking individual stocks, day trading, or swing trading is NOT included – you could achieve much higher returns and many people do this. However, since you could also invest and flip real estate, I felt this would be an unfair comparison with too many variables – which is why index funds vs rental properties were used.
Each have their upsides and downsides…
Pros for index fund investing:
-It’s completely passive. Once you spend a few minutes going to a website and buying a stock, you’re done.
-You don’t need tens of thousands, or hundreds of thousands of dollars like you generally need with rental real estate.
-There are no hassles of working with tenants, fixing items, or maintenance.
-You can buy index funds within a tax advantaged account such as an IRA or 401k.
-Stocks are fairly liquid and you can cash out quickly when you want to sell.
Pros for real estate investing:
-You have total control over what you buy and at what price
-You can take advantage of undervalued properties and areas
-You can add square footage, remodel, and gain quick equity and increase cash flow
-You can leverage your money and achieve potentially higher returns
-You can receive consistent rental income
In terms of the raw returns, generally real estate CAN yield a higher return, usually if you leverage your money – HOWEVER, the higher return is balanced by the amount of work, skill, and knowledge needed to find the right deal and close on the right price. Real estate is also not an entirely passive investment, so even though you can make significantly more, it also comes with more work. If you’re looking for something entirely passive, stocks will likely yield a little less but it comes with the ease of not having any responsibilities or obligations. So much of it comes down to personal preference. My recommendation is to do both 🙂
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