Investing in real estate versus the stock market has always been a hot topic
for debate in the world of finance if you've been taking any financial classes
lately you'll definitely have been exposed to different investing
strategies and the next question that may come to mind is what should i invest
in in this video i will be discussing which of these two assets between real
estate and stocks the rich invest in and if you're new to the channel then hit
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first let's discuss how these two assets actually make you money real estate is
one of the oldest forms of investment landlord tenant relationships have been
going on for years simply put real estate is the buying and
selling of properties in land for commercial industrial and residential
purposes and other special uses investing in real estate means you are
buying physical land or property people who invest in real estate make money by
buying a property and selling it when the value has increased they may buy a
property in an area that they believe will soon be developed and hope that the
value will increase they also make money by buying an old house improving its
condition through renovations and selling it at a profit finally you can
also invest in real estate by renting out a home and collecting rent from
tenants investing in stocks on the other hand means that you are buying ownership
of a company this means that if you are buying a thousand shares in a company
that has a hundred thousand shares outstanding what you did was buy one
percent of that company but how does this make you money well as a company
grows the value of the shares tend to rise so your portfolio value will rise
as a result unfortunately when the company performs poorly there is a
chance that this value declines leaving you in a temporary loss position however
these ups and downs don't actually make you money until you sell the other
method that stock investors use to gain returns are through dividends many
companies will reward their shareholders with quarterly payments that stem from
their profits and this can be another way to increase your cash flow through
stock investing so now that you know how these two assets can make you money
let's dive into the pros and cons of each and then uncover which of these two
assets the rich favor when investing the pros of real estate investing when
it comes to the advantages of real estate investment one of the reasons why
it's attractive is that you can use it to gain alternate streams of income
simply put you can make money from real estate in so many ways
the first benefit that this asset provides is flexibility now most people
would think that real estate isn't that flexible given that it usually involves
a brick and mortar property however think of all the ways that it can make
you money you can buy it and flip it hold it for appreciable gains or rent it
out another advantage of real estate investment is through its tangibility
unlike stocks that are just numbers on a computer screen that you can't touch
real estate is tangible you can see it feel it touch it and even handle it this
may not seem like a big deal to you but some people just feel better with the
tactile nature of real estate and if you are the type that likes to be in control
real estate may be better for you than investing in paper assets for instance
you can make certain decisions around the asset like how much you want to
charge for rent or how much to list the house for on the market when you decide
to sell it another advantage to real estate investing is its simplicity
chances are you grew up at a home and are already somewhat familiar with this
type of asset for example you know what kinds of repairs and upkeep it requires
it may have been a part of the buying or selling experience of your parents
moving over the years this asset when contrasted against stocks is much easier
to comprehend stock market investing typically involves reading performance
charts analyzing data and studying the market while you should study real
estate as well i do believe there is a lower barrier to entry when it comes to
real estate investing especially if you're trying to buy individual stocks
versus something more rudimentary like index funds
moving on real estate investing also tends to have a lower market risk and
less market fluctuations when compared to the stock market you don't expect to
wake up one day to hear that the value of your house has doubled overnight but
this is not impossible in the stock market the value of a stock can move up
and down within a few hours a fluctuating market has its advantage
because of the potential profit you can make from it but you can also lose all
of your investment within a short time speaking of risk it's generally safer to
invest in real estate with debts than it is into stocks you can buy a house by
paying anywhere from a few percent as the down payment and financing the
remaining amount with a mortgage loan a similar option to this in stock market
investing is leveraging however the risk in stocks is greater than that of real
estate your investment can go wrong and you may lose all of your money the last
benefit of real estate investment that i will talk about in this video is the tax
benefits that come with real estate investment for example when the value of
your house increases and you sell it you'll be claiming capital gains which
is taxed at a much reduced rate than employment income the cons of real
estate investing one of the major disadvantages of real estate that most
people find difficult to cope with is the time and effort needed if you want
to be as passive of an investor as possible then quite frankly real estate
investing may not be for you when it comes to this formative investment you
have to look for a property in the location you want even if you want to
leverage the help of an agent you have to be physically present to inspect the
property to be sure that it meets your needs another disadvantage of real
estate investment is the recurring cost of owning a real estate property several
unexpected costs come with real estate such as maintenance moreover you may
have to pay for cleaning when someone moves out or is about to move into your
property also diversification is difficult in real estate investment you
can easily spread out your funds amongst different industries when investing in
stocks but chances are you won't have the capital to be buying multiple
properties in different areas or for different investing purposes one other
disadvantage of real estate investment is that it is not liquid what this means
is that real estate assets are not easily convertible to cash unlike stocks
you may not be able to sell your house anytime you want to sell it you may have
to wait for weeks or even months before you can sell a property and this is not
ideal when you need money urgently there's also a high transaction cost in
real estate some agents may take up to a six percent share for helping you sell
property whereas in stocks there are brokers with zero transaction fees the
last downside of real estate investing is the high financial barrier to entry
it's easy to buy a fraction of a company's stock but owning a single
property will cost you a lot of money although there are new ways of investing
in real estate with a little money such as investing in real estate mutual funds
like real estate investment trusts if you want to own your property you will
need a lot of capital which is not easily available to everyone the pros of
investing in stocks the first advantage of stock investing is a low barrier to
entry if you compare it to real estate a single unit of a share would be cheaper
than a single real estate property and you can even invest in stocks by buying
a fraction of a company's shares this is an advantage especially for a beginner
who wants to start investing but does not have much money moreover no physical
work is required when investing in stocks you don't need to visit a company
before you can buy their shares all you need to do is research the company you
want to invest in and then decide if you want to or not you can do all these
things with just your computer or phone another advantage to stocks is that they
are liquid you can easily sell stock whenever you want with just a single
click of a button also when you invest in stocks you can buy into a company
that you love and understand this is one of the rules of thumb only invest in
what you know and understand stocks are flexible such that you can either decide
to invest for the short term or long term depending on your goals
the cons of investing in stocks if you're the type that loves to see and
touch what you own then the first disadvantage of investing in stocks for
you is that they are not tangible although you have an account where you
can see your portfolio and how much you have it is not like real estate where
you have a physical property also the stock market can be very volatile and if
you do not do your due diligence you may lose all of your investments the value
of your investment can reduce in a flash for instance there can be a war in one
country and it may affect your investment because the company you
invested in has a branch there or a bill may be passed that will affect the
operations of the company you were invested in this means that you do not
have any control over the value of your investment in the stock market the
prevailing condition of the market determines the value of your investment
in real estate you may be able to increase your rent to help protect
yourself against inflation but you have no input when it comes to stocks there
is also emotional stress associated with investing in the stock market watching
the value of an asset rise and fall day after day even hour by hour can cause
serious emotional stress even for experienced traders
some have made emotional decisions that have led to the loss of their money such
as selling out of fear or buying overpriced stocks due to fomo needless
to say that stocks do have many upsides but their downsides are plentiful as
well the historical returns of real estate and stocks
you may not be able to predict the outcome of the market accurately but you
can carefully analyze how the market has performed in previous years and make
reasonable decisions based on that performance so here's how these two
assets stack up against each other if you take into consideration the data
available from the past six decades the stock market has outperformed real
estate the average return on real estate has been around three percent annually
while the average return from stocks has been between seven and 10 annually
which one to invest in depends on many things such as your tolerance for risk
your financial strengths your short and long term goals and the type of
investment you are comfortable with now to answer the question of which asset
the rich invest in well as you probably guessed the rich invest in both
both assets have many upsides and by investing in both real estate and stocks
you and the rich can get the best of both
worlds thanks for watching if you want to go from the life you have to the life
you deserve then hit the subscribe button now