Real Estate vs. Stocks: Which is the Best Investment Option?

As more and more people become familiar with investment as a means to build long term wealth, many investors are opting to put their money in different investment vehicles like real estate, mutual funds, bonds and the stock market. The financial literacy movement has also contributed to the increased awareness of the investment process as many people are now keen to save and invest for either retirement, their college fund or to get an additional source of income.

William Huston, AIF®, AIFA®

William Huston, AIF®, AIFA®

Real estate and stocks have become among the two most popular investment options today. Both can be profitable, but each investing strategy comes with its own risks. As an investor, you may ask yourself which is the better investment option. The thing is, it depends on a variety of factors, including how much you have to invest, your risk tolerance and your overall investment goals.

Before you embark on your investment journey, it is advisable that you speak to a financial advisor and real estate professional so they can guide you on the best investment options available in the market. If you would like to gain better understanding on whether you should invest in the real estate market or buy stocks, then keep reading.

Key Takeaways
  • Depending on factors like your risk appetite and how much money you have to invest, you can choose to either get into investment real estate, buy shares in the stock market or a combination of both.
  • Investing in real estate can be a profitable venture as it's a fairly straightforward process and the assets are tangible. However, you have to consider the fact that physical real estate assets can be highly illiquid.
  • Stocks, on the other hand can be easily bought and sold on major exchanges but you have to keep in mind that you'll be required to pay capital gains taxes if you sell them and make a profit.
  • It is advisable that you consult a financial advisor and real estate professional before getting into either type of investment.

The contents of this article are for educational purposes only. They are not intended to be a source of professional financial advice. You will find experts on financial planning and financial management here. More on disclaimers here.

How to Invest in Real Estate

Investing in real estate can be a profitable venture

Investing in real estate can be a profitable venture, but it requires extensive research, proper planning and execution. There are different ways in which a real estate investor can get started investing in the real estate industry. According to the S&P 500 Index, the average annual ROI for residential real estate in the U.S. is 10.6%. On the other hand, the average annual ROI for commercial real estate is 9.5% and for REITs is at 11.8% as of 2023.

To begin with, there are two broad categories that real estate investors can choose to invest in; commercial real estate and residential real estate. Commercial properties are those that are used mainly for income-generating activities, while residential properties are those that are mainly used as homes for individuals and families.

To invest in real estate, here are the general steps to follow.

Step 1: Set clear investment goals and educate yourself about the market and different property types.

Step 2: Determine your budget and choose an investment strategy that aligns with your goals, whether it's purchasing traditional real estate to be used as rental property, house flipping, REITs or crowdfunding.

Step 3: Research and identify potential real estate properties and conduct due diligence to evaluate their potential.

Step 4: Secure financing through various options such as mortgages or partnerships.

Step 5: Engage a qualified real estate agent who can make offers and negotiate terms with sellers and other parties involved in the transaction to secure you the most favorable deals.

Step 6: Once you submit an offer and it is accepted, close the deal by completing the necessary paperwork and fulfilling any contingencies.

Step 7: Finally, manage and monitor your investment by putting in place effective property management systems or hiring professionals.

Be sure to review your strategy regularly so you can adapt your strategy based on market conditions. With thorough research and ongoing learning, investing in real estate can provide long-term financial benefits.

For investors looking to invest in real estate passively, the two most popular investment options to consider include buying shares of publicly traded REITs (Real Estate Investment Trusts) or investing in REIGs (Real Estate Investment Groups).

How to Invest in Stocks

Investing in stocks can be a great way to grow your wealth

Investing in stocks can be a great way to grow your wealth, but it's important to approach it with a well thought out strategy. It is reported that the average returns in the stock market are roughly at 10% in 2023.

As an investor, here's how you can begin investing in stocks.

Step 1: Start by educating yourself about the stock market, different investment options and the different profitable industries that you can invest in.

Step 2: Determine your investment goals, whether it's long-term growth, dividend income or a combination of both.

Step 3: Open a brokerage account to gain access to stock markets and various research tools.

Step 4: Conduct thorough research on companies you're interested in and analyze their financial health, overall performance and growth prospects. Consider diversifying your portfolio by investing in a range of companies across different sectors.

Step 5: Decide whether you want to be an active trader or a long-term investor, and develop a disciplined approach that aligns with your goals.

Step 6: Monitor your investments regularly, staying informed about market trends and company news.

Step 7: Keep your emotions in check and make decisions based on sound analysis rather than short-term fluctuations. Remember, stocks investing requires patience and a long-term perspective to potentially achieve favorable returns.

Investing in Real Estate vs. Stocks

real estate investment savings growing with time
Risk and return profiles

Real Estate: Real estate investments typically offer moderate to high potential returns over the long term. While they may experience fluctuations, real estate historically appreciates in value, providing a stable and relatively predictable return on investment.

Stocks: Stocks are known for their potentially higher returns, but they come with increased volatility and market risks. Stock investments can deliver significant gains but are also susceptible to substantial losses in a short period.

Income generation

Real Estate: One advantage of real estate is its potential to generate passive income through rental properties. Rental income provides a regular cash flow that can help cover expenses, including mortgage payments, while potentially generating good profits.

Stocks: Dividend stocks can also generate income, but it generally requires a sizable investment portfolio. Dividends are payments made by companies to shareholders, and they can provide a steady income stream. However, not all stocks pay dividends, and the income is subject to current market conditions and company performance.

Tangibility and control

Real Estate: Investing in real estate provides tangible assets that you can see, touch and have direct control over. This control allows you to make improvements, influence property value and mitigate risks by actively managing your investment.

Stocks: Stocks, on the other hand represent ownership in companies but lack physical presence. As a stock investor, you have no direct control over the day-to-day operations or management decisions of the company.

Diversification and liquidity

Real Estate: Real estate investments offer diversification by adding an asset class that typically behaves differently from stocks and bonds. Real estate can provide stability to an investment portfolio and act as a hedge against inflation and market volatility.

Stocks: Stocks offer greater liquidity, allowing investors to buy and sell shares more easily. This liquidity provides flexibility and enables portfolio adjustments in response to market conditions or changing investment goals.

Tax Considerations

Real Estate: Real estate investments offer various tax advantages, such as mortgage interest deductions, property tax deductions and potential depreciation benefits. Additionally, profits from selling a property may qualify for favorable capital gains tax treatment.

Stocks: Depending on the country and specific circumstances, stocks may also have tax advantages, such as preferential tax rates on long-term capital gains and the ability to offset gains with capital losses.

Investing in REITs (Real Estate investment Trusts)

miniature real estate

For people looking to invest passively in real estate, REITs (Real Estate investment Trusts) are a great option to consider.

A REIT is a company that owns, operates or finances income-generating real estate across various sectors, such as commercial properties, residential complexes, shopping malls, office buildings and hotels. REIT investing allows individuals to invest in real estate without owning or directly managing properties. Here's how REIT investing works.

REITs are structured as companies that own, manage or finance income-producing real estate assets. They are required by law to distribute at least 90% of their taxable income to shareholders in the form of dividends.

There are two main types of REITs: Equity REITs and Mortgage REITs. Equity REITs own and operate income-generating properties, while Mortgage REITs invest in real estate debt, providing loans to property owners or acquiring mortgage-backed securities.

Most REITs are publicly traded on major stock exchanges, making them easily accessible to individual investors. They can be bought and sold like regular stocks through brokerage accounts. REITs generate revenue from the properties they own or finance. They distribute at least 90% of their taxable income as dividends to shareholders, making them an attractive option for income-seeking investors.

REITs provide investors with the opportunity to diversify their investment portfolio across different types of real estate properties and sectors. They are managed by professional teams with expertise in real estate operations, property management and financial analysis. This relieves investors of the direct responsibilities of property ownership and management.

Like any investment, REITs come with their own set of risks. Factors such as economic conditions, property market trends, interest rates and management quality can affect the performance of a REIT. Investing in REITs provides individuals with exposure to the real estate market without the need to own and manage physical properties. To learn more about REITs, access more information here.

Pros & Cons of Investing in Real Estate

Here are some advantages and disadvantages to consider when investing in real estate.

  • Investing in real estate is a straightforward process that is easy to understand. The basics of purchasing real estate includes acquisition of the property, maintenance and upkeep and re-selling if you're a house flipper or wholesaler.
  • Real estate is a tangible asset that you can control and also use as leverage. Investors can make improvements and have direct influence over their investment. With stocks, you don't necessarily own a physical asset and the performance might be tied to external market factors.
  • Real estate has the potential to appreciate in value over time, allowing investors to build equity and potentially realize capital gains.
  • Owning rental properties can generate regular rental income, providing a steady cash flow and potential passive income stream.
  • Real estate investments offer diversification benefits, as they have historically exhibited lower correlation with other asset classes like stocks and bonds. Adding real estate to your investment portfolio can help spread risk.
  • By owning real estate assets, you can enjoy various tax advantages such as deductions for mortgage interest and property taxes. In addition, any profits that you generate from the sale of a property can qualify for specific tax deductions.
  • When purchasing property, you will be required to make some significant payments upfront. Such payments include down payments, closing costs and potential renovation expenses.
  • Real estate is a relatively illiquid asset, meaning it may take time to sell or convert into cash. This lack of liquidity can limit flexibility and accessibility to funds in case of an emergency.
  • Real estate prices can be affected by market fluctuations and current economic conditions. Changes in supply and demand dynamics or economic downturns can impact property values either positively or negatively.
  • Owning rental properties entails property management responsibilities including tenant selection, maintenance, repairs and dealing with potential issues or vacancies.
  • In real estate investing, factors such as the quality of the neighborhood and access to amenities can affect property values and rental demand.

Pros & Cons of Investing in Stocks

  • Stocks have the potential for significant long-term returns, outperforming many other asset classes over time. Unlike real estate, stocks offer high liquidity, allowing investors to buy and sell shares quickly and easily.
  • Stocks provide the ability to diversify investments across different industries, sectors and geographical regions, thus reducing the overall risk.
  • Many stock investments are managed by professional fund managers, providing expertise and research to optimize investment returns.
  • Investing in stocks can be accessible to a wide range of investors, with options to start with small amounts of capital.
  • Stocks are subject to market volatility, with prices fluctuating based on factors such as the performance of the different companies and the current economic conditions.
  • As a stock investor, you have no direct control over company management decisions or operations.
  • Stock investing can be influenced by psychological factors such as market sentiment and emotions, potentially leading to impulsive decisions.
  • Investing in stocks carries the risk of potential losses, including the possibility of losing the entire investment in some cases.
  • Understanding stock investing requires knowledge of financial markets, company analysis and the ability to navigate through a range of investment options and strategies.


Choosing between real estate and stocks as an investment option requires careful consideration of your financial goals, risk tolerance and personal preferences.

While real estate offers tangible assets that have the potential to generate rental income, stocks provide more liquidity and ease of diversification. Many investors opt for a diversified portfolio that includes both asset classes to balance risks and optimize returns.

Consulting with a qualified financial advisor and real estate professional can provide valuable insights tailored to your specific needs, helping you make a well-informed decision about the best investment option for you. If you would like to access more reading material on real estate investing, click here.

Bay Street Capital Holdings

Bay Street Capital Holdings Logo

Situated in Palo Alto, Bay Street Capital Holdings is a prominent wealth management firm specializing in financial planning, wealth management, and investment advisory services. What sets them apart is their unique approach that places emphasis on effectively managing overall risk and volatility, rather than solely pursuing maximum returns.

Under the guidance of the esteemed founder, William Huston, who was honored as one of Investopedia's Top 100 Financial Advisors for 2021, Bay Street stands out as one of the two Black-owned firms among the nineteen recognized in California. For its work in the real estate industry with Resthaven Properties, the firm has been named a finalist in the 2023 Industry Awards under the category of Asset Managers: Diversity, Equity and Inclusion.

The company's commitment to fostering diversity and supporting emerging fund managers and entrepreneurs is evident, as demonstrated by their selection as a finalist in the Corporate Social Responsibility (CSR) category for the Asset Manager in 2021. This recognition came after competing against more than 900 firms nationwide, highlighting their dedication to social impact.

Sources investment returns market/ investment-357992


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