Difference Between Stocks vs Real Estate
Today everyone wants to generate good returns on their investments and also there are multiple investment opportunities in the market like stocks, real estate, gold, mutual funds, cryptocurrencies, etc. Everyone invests in these investment options as per their understanding of that asset class. But there is always a debate between stocks and real estate, which is better investments to get good returns or which is secure options, before we decide which option is good between stock and real estate, let us first understand about it and then we will see the differences between them.
What is a Stock?
A stock represents a share or a part of an entity, which anyone can buy and sell on a stock exchange or privately. It is a type of security that is transferrable. It is also called “shares” or “equity” in the financial world and the one who holds the ownership of that security called stockholder or shareholder; this allows the stockholder to that part of the entity’s assets and earnings. The activity of the buying and selling of stocks executes under government rules and regulations to protect the investors from any kind of fraud. Stocks are the best investment options in the market as they outperform in the longer period. Also, shareholders get voting power in the organization to the extent of shares holding and this power is very useful in case of any mismanagement by the organization.
What is a Real estate?
We can say that real estate consists; properties like lands, buildings, structures, roads, Fixtures, etc. Real estate refers to the buying, selling, and construction of real and physical property. Here property, majorly there are four types of property residential, commercial, industrial real estate and lands. Transfers of the property give the ownership of land, air, natural resources, and improvements, etc. Also, many construction companies and anyone can buy stocks of the company and there is also another option to invest in real estate is REITs (Real Estate Investment Trust).
Head to Head comparison between Stocks vs Real Estate(Infographics)
Below are the top 9 differences between Stocks vs Real Estate
Key Differences between Stocks vs Real Estate
Let us discuss some of the major key differences between Stocks vs Real Estate
- Stocks refer to the ownership of the company to the extent of shares holding, whereas in real estate property can be purchased for commercial purposes to get some monetary benefits or personal use as well.
- Stocks are highly liquid and can be sold out easily as compare to real estates, while real estates are less liquid because to sell a property depends on multiple factors. Also, a lot of legal activities need to be done to buy and sell the property.
- If a company earning performs well then it gives a dividend to the stockholders, wherein the case of real estate property it doesn’t come with such kinds of benefit but the owner of the property can generate revenue by leasing the property as it will generate some amount of money periodically in the form of rent.
- The Price of the stock is volatile and it directs impacts by the fundamentals and financial performance of the company, on the other hand, real estate property price depends on many factors like the size and location of the property, return from the property in the future (ROI), investment capacity of the buyer, etc.
- Mostly the Investment objective in the case of real estate property is a very long period, wherein the case of stocks this could be for the short term and long term; it depends on the requirement of the investor.
- Mostly bank provides loans facility to purchase a real estate property, whereas loans facility is not available to buy stocks.
- We can measure the performance of the company based on benchmark performance (e.g. S&P 500, Dow Jones Industrial Average). In the case of real estate, the price-performance can be measured through the sales price of the same type of property in a certain area that will be treated as the benchmark price.
- If required, Stocks can be buyback by the company on premium, there is no such case in real estate.
- A stockholder gets ownership and voting rights as well in different types of situations but they cannot contribute and involve in the management’s decision. On the other hand, real estate owners can take all the decisions for their property by themselves.
- Price of stocks changes every second, as investors need to be alert every time if he/she wants to purchase stocks in bulk because a small change in price can make a huge difference. However, the price in real estate changes gradually and is directly depends on small factors. The price variation of real estate properties designates by the economic conditions.
Stocks vs Real Estate Comparision table
Let’s discuss the top comparison between Stocks vs Real Estate
| Basis of Comparison | Stock | Real Estate |
| Meaning | Stock means part or a portion of a company. | Real Estate means property like part of the land used for further development. |
| Liquidity | Stocks are highly liquid. | It is less liquid as compared to stocks and it can take time to en-cash, which depends on other factors. |
| Types | There are mainly two types of stocks Preferred and Common. | There are major 4 types in real estate; commercial, residential, industrial, and land. |
| Ownership | On paper stockholders or shareholders are the owners of the company but they cannot own the company. | Anyone who owns the property will be the complete owner. |
| Maintenance | Maintenance cost needs to be paid in the case of stocks. | In the case of property regular maintenance is a must and make sure that the property should be in good condition. |
| Loan Availability | There is no such loan to buy stocks. | Bank grant loans to buy a real estate property. |
| Use of Assets | As such, there is no physical use of stocks. | Real estate property can be leased out. |
| Performance | We can measure the performance of stock by comparing it with the benchmark (e.g. S&P 500). | The sales price of a certain type of property in a certain area will be treated as the benchmark price. |
| Risk | Stocks are volatile. | Real estate is less volatile. |
Conclusion
As we have gone through both stocks and real estate differences, both of them have advantages and disadvantages. Real estate can be used as an investment or for personal use, where stocks are mostly buying to get quick returns by the investors. Both are a good option but investors need to look at various parameters before investing like time horizon, risk-taking capacity, funds availability, etc.(For Example – If an investor wants higher liquidity than he/she should not invest in real estate as it could time to convert the property in cash and it also includes very tedious legal process as compared to stocks.
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