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Why Buying Real Estate is Different From Purchasing Stocks

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Why Buying Real Estate is Different From Purchasing Stocks
4 min. read

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Wondering whether you should invest in real estate or in the stock market? Well, it isn’t exactly like comparing apples to apples. In reality, there’s no one right answer; it depends on a variety of factors, including your personality, your aversion to risk and what your lifestyle holds in the future. Additionally, one stock could be a better investment than a piece of land, but the reverse could be true in a different situation.

Real estate and stocks are very different types of investments. Even if you’ve purchased stocks or owned land, you may not necessarily understand all of the ins and outs of these types of investments. Buying real estate is very different from managing stocks; here’s why.

Real Estate is Tangible & Usable

There’s something to be said for the “reality” of real-estate investments. You can walk across the property, live in a house and visit the tenants in the condominium you bought. It’s a physical space, and that makes a big difference in how you feel about the investment. Many people enjoy investing in something they can actually touch and inspect. It’s much more reassuring than pouring money into an intangible stock. On the other hand, real things require work and maintenance; stocks don’t.

Although most people are more familiar with real-estate investments than stocks, managing real estate is typically much more challenging than watching stock investments. For example, in real estate, you can’t just use a smartphone to monitor the market and make quick decisions; there are maintenance costs to address, market trends to understand and tenants to keep happy.

Real Estate Likely Won’t Skyrocket Like Stocks

Unless you purchased land a few decades ago on the coast of California or made a key investment in the Seattle market, your property likely won’t jump in price immediately. Although it will grow in value, it won’t increase that much – considering how the inflation rate grows.

However, that doesn’t mean that real estate is less profitable than stocks. In the past, real-estate investments have proven to be excellent inflation hedges. That means they will protect you if the local currency loses its value due to the surrounding prices.

And, although real estate might not skyrocket in value, it also doesn’t fluctuate as much as the stock market. A stock may be worth $10 one day and $80 the next; you never know what the future of your investment holds. However, real estate is fairly steady, which makes it a more comfortable investment for many small businesses, as well as low- and middle-class homeowners.

You Have More Control Over Real Estate Than Stocks

Generally, you can’t control what your stocks are going to do. You aren’t an employee of the company, you don’t vote in big decisions, and you can’t dictate the ebb and flow of the market. This can make for nerve-wracking investing for many, especially those who are more comfortable with tangible investments.

Conversely, there are plenty of things you can do to increase the value of your real estate investment. How you advertise, landscape, maintain, upgrade and generally care for your property can make a world of difference in its worth. Furthermore, what you build on the land can dramatically add to its value.

Predicting what the market will do in your area is also easier than predicting stock performance. For instance, a little bit of research will tell you that the Seattle housing market is staying relatively cool, but some of the suburbs, like Tacoma, are booming. Knowledge like this can make real-estate investments and decisions less risky.

 

There’s no right way to go about investing your money, and every financial expert you talk to may have a different opinion. However, there are stark differences between stock and real-estate investments. Generally, people who like investing in real estate prefer the steadiness and tangibility of the process, and they’re willing to put in the hard work that’s required to turn a profit.

 


 

This is a guest post by Eric Davis, founder and owner of Davis Property Management, based out of Seattle. They are a full-service property management and brokerage company assisting owners and tenants with a wide range of property solutions.

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