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Real Estate vs. Stocks: Which is better?

When you start investing, you may be stuck between investing in real estate and stocks. We go over the options for investors, the risks and rewards, and other factors to consider before you start to put your money behind these investment programs.
When you start investing, you may be stuck between investing in real estate and stocks. We go over the options for investors, the risks and rewards, and other factors to consider before you start to put your money behind these investment programs.

So you want to invest your money. Now that you’ve made one decision, you have a million other decisions ahead. Where will you invest your money? How long do you want to wait for returns? How much money are you willing to invest? What risks are you willing to take?

There is a lot of advice out there for potential investors, and a lot of this advice might be unique to the specific investor’s perspective. Different investment “gurus” might offer hot takes on the many debated topics within the investment world.

One of the most fiercely debated topics is real estate vs. stocks. Which one is better for your overall portfolio?

The answer is...well, you’ll see.

Throughout this post, you will be able to compare real estate vs. stocks in a few different categories:

  • Ways to invest
  • Risks of investing
  • Returns of investing
  • Other considerations

Take these factors into mind before you build your portfolio. Investors who have less cash, less time on their hands, and less of a desire to “play the game” may want to choose one option over the other. Be sure to real out to a financial consultant if you still have questions about how to start investing.

Let’s get started, shall we?

How to Start Investing in Stocks

Once you decide to buy real estate or stocks, you will have to make even more decisions. Let’s look at the different options investors have if they want to invest in real estate or stocks.

Individual Stocks

Want to invest in stocks? Then buy a stock! It’s as simple as that.

When you buy stock, you buy a share of a company. While the general market may go up or down, the price of each stock will vary based on the company’s performance. Investors tend to diversify their stock portfolio by investing in a handful of different companies.

If you just want to buy individual stocks, you have a few different options. You can buy stocks directly from the company or open up a brokerage account to manage all of your stocks. Investors can meet with brokers face-to-face or complete the entire process online through sites like Charles Schawb or Ameritrade. Keep in mind that when you buy and sell stocks through brokerage accounts, you will have to pay fees.

Investors don’t have to put a lot of cash into their account to start trading stocks. Penny stocks earned their name because they sell for under a dollar or $5.

If you want to wait to buy a stock at a certain price, you can also purchase the stock through a limit order. Rather than purchasing the stock at market price through a market order, a limit order allows you to set a minimum and maximum limit for stock prices. If the stock does not fall within that range, the order will not go through. This is a strategy for investors who have a specific budget that they want to spend on specific shares.

ETFs and Mutual Funds

There are many benefits in diversifying your stock portfolio (and diversifying your investment portfolio in general.) The old saying “don’t put your eggs in one basket” certainly applies to investments. As the price of one goes up, another one might go down.

Many investors choose to put money into exchange-traded funds, or ETFs. ETFs are “baskets” of stocks and other securities. They trade like stocks and can be bought and sold instantly on the stock market without any fees. Investors can get ETFs for relatively cheap prices and invest in a handful of commodities and industries (gold, silver, insurance,) that might be less accessible to individual stockholders.

Mutual funds work very similarly to ETFs. ETFs are essentially mutual funds that are packaged with a set formula and put on the stock market. Mutual fund managers package the holdings within a mutual fund and collect fees.

Investors may choose which ETF or mutual fund to invest in based on information on the fund’s performance and the general type of stocks that make up each fund. When investors buy shares in a mutual fund, they are also less likely to know upfront what is in the fund than if they were to buy an ETF. Fund managers make a selection of securities in the mutual fund; ETFs are more general collections of securities that focus on a single niche or industry.

Investors can buy shares in ETFs throughout market hours on the stock market, but are limited to buying mutual funds through managers at the end of the day.

Consider looking into ETFs and mutual funds if you want a diversified portfolio but don’t have a lot of time or money to spend.

Ways to Invest in Real Estate

Buy Real Estate Properties

Let’s switch for a moment to real estate. When most people think of “investing in real estate,” they think about buying a property and selling it later for a higher value. In the meantime, real estate investors may:

  • “Flip” the property using the BRRRR method
  • New construction (build on vacant lot and sell/lease)
  • Use the property as a second house or vacation house
  • Purchase a stabilized (fully rented) investment property

Owning physical real estate certainly has advantages, especially when you compare it to owning individual stocks. Property owners have a tangible asset that will always be worth something. The investor can make money in the long run while allowing themselves to enjoy their investment first. Also, if you live in a hot market and consistently have tenants that pay rent, you don’t have to wait until you sell the property to make money.

Unfortunately, not every investor has the cash to buy real estate. Even if you take out a mortgage loan, you will still need to put down 3-20% of the home’s value as a down payment. The less you put down, the higher interest rates you will obtain on the mortgage loan. Investors who only have a couple hundred dollars to play with might want to consider a different type of real estatement investment.

Real Estate Investment Trusts

There are many ways to invest in real estate without physically owning (or paying for) property. One popular option is real estate investment trusts (REITs.) REITs are made up of a collection of investors who put money toward buying income-producing real estate. This real estate could be anything from office buildings to apartments to hotels; it all depends on the REIT that you choose.

Real Estate Mutual Funds and ETFs

If you like the idea of mutual funds and ETFs but still want to invest in the real estate industry, you’re in luck. There are mutual funds and ETFs that focus specifically on real estate projects. The securities could be shares in real estate companies or shares in companies that work with real estate indirectly. Investors may find REITs within their real estate mutual funds; there are mutual funds that consist only of baskets of REIT shares.

Conclusion: In general, real estate offers more options for investing, but these investments may be less accessible than the options on the stock market. Investors who want to trade on the stock market have the ability to get on their computer, press a button, and start investing. Real estate isn’t so accessible (or cheap,) but it does give investors the opportunity to enjoy the luxuries of a vacation home while holding onto an investment.

If you are new to investing and don’t have a lot of cash on hand, stocks are probably the way to go.

Risks of Investing in Real Estate vs. Stocks

Depending on the amount of cash you are willing to invest and how much you like to take risks, you might want to invest in programs that offer different levels of risk. Often, with higher risks come the higher potential for reward. It is very possible to lose big money in real estate or the stock market, so consider how much you are willing to “gamble” before you send off your money.

Risks Within the Stock Market

Stock prices can fluctuate for any reason and investors can gain or lose the potential to make money off of their shares in an instant. Just look at these reasons for dramatic changes in stock prices at the end of 2018:

  • When anti-marijuana advocate Jeff Sessions left his position as Attorney General, stock prices for the marijuana business soared.
  • Prices of Tesla stocks plummeted after Elon Musk tweeted about his negative feelings toward the Securities and Exchange Commission (SEC)
  • Prices for Snap, Inc. stocks dropped over 6% after Kylie Jenner tweeted that she didn’t use Snapchat anymore.

Stock prices aren’t only reliant on tweets and politics, but it goes to show how quickly stock prices can rise and fall. In the last days of 2018, volatility in the stock market led to increases between 500 and 1,000 points in a single day.

Generally, the roller coaster of the stock market is more bumpy than the real estate market.

Risks Within the Real Estate Market

Real estate is generally a safe investment, but it does come with risks. When neighborhoods or cities become less attractive, real estate prices drop. Unexpected renovation or repair costs will eat into returns. Natural disasters, rising crime rates, or high rates of competition may all present high risks to investors.

If you want to reduce risk when buying real estate property, you will have to spend more time and effort choosing and maintaining your investment. Create a strategy that considers all of the costs of investing and what you want to do after you sell your property. Before you buy any property, know when you are going to sell it and how you can account for months when your building is not 100% occupied.

Conclusion: Risk will vary depending on what type of programs you invest in. Do your research and create a strategy to minimize risk on your investment. If you are willing to stick out your investment for the long-haul and are prepared to put time and work into your investment, consider real estate. If you enjoy the thrill of the game and are prepared to monitor your investments and want the freedom to trade at a moment’s notice, consider stocks.

Returns of Investing in Real Estate vs. Stocks

The greater the risk, the greater potential for returns. While we can’t go into the potential return of every individual stock or mutual fund on the market, we can look at the history of general returns for both investments.

Let’s say you put your money into a typical S&P index fund. Recent history shows that the yearly return for investors who put their money into this type of fund is 7%. Returns on individual stocks may be much higher if the company does great that year, or the return may be a loss if the company takes a turn for the worse.

Returns on investment properties have the potential to be twice as high, especially in hot markets. These returns may not always be immediately available (selling an investment property takes time to process,) but if you rent out units in your property, you can see returns every month.

Conclusion: Are the higher returns worth the costs of investing in real estate and playing the game of “landlord” or “fixer upper?” That is up to you. Are the high returns of high-performing stocks the risk of potentially investing in a dud that results in a loss? That is also up to you.

The returns of real estate are generally higher than stocks, but this will rely on your ability to maintain your investment or keep your tenants happy. (The tax benefits for real estate are also higher for real estate, but we’ll get to that later.)

If you want the best of both worlds (or don’t have a significant amount of money to invest,) consider a real estate mutual fund that offers short-term returns from of the steady real estate market.

Other Considerations In The Real Estate vs. Stocks Debate


This is one major advantage of investing in stocks over real estate. We already know that stocks are generally more accessible to real estate, but they also don’t come with the “surprise costs” that come with buying investment properties. Investors may be subject to the following costs:

  • Repairs and renovations
  • HOA fees and insurance
  • Closing costs
  • Interest and private mortgage insurance

Choosing a property without assessing the costs can make your investment in real estate even riskier and reduce your chance for yielding high returns.


Not all real estate investments or stock options are taxed the same. While most investors will have to pay some sort of capital gains tax or taxes on dividends, the management of each program is slightly different. Investors who hold mutual funds, for example, may have to pay extra taxes when fund managers buy or sell shares within the fund. Once you hold your investments for over a year, you may be subject to long-term, rather than short-term, capital gains tax.

If you decide to purchase real estate, you may be subject to property taxes. This is one reason why investors may choose an REIT or real estate mutual fund over income-producing properties; with an REIT, you can own a share of a commercial property without paying the property taxes for the area where those properties are located.

But there are also many tax advantages when it comes to owning real estate. Property owners, for example, can write off the interest they pay on their mortgage each month. If the investor decides to choose a strategy in which they are consistently buying and selling rental properties, they may be able to do so through a 1031 exchange. This type of program allows investors to cash out on a property and use that money to purchase a new property, tax-free. It can encourage a very lucrative cycle.

Property owners can also write off depreciating value on their federal tax returns. Depreciating value still provides tax benefits.

Before you invest, talk to a financial expert about what taxes you will have to pay and how you can reduce taxes within your portfolio.


As you have probably guessed by now, investing in a real estate property requires a lot more involvement than clicking on a button to buy stocks. But that is what some investors love about the real estate game. Rather than customizing a portfolio from behind a screen, they can choose the design of their investment property. For some, the frustrations of broken toilets or renovation costs are minimal compared to the joy of building and putting hard work into an investment that will eventually yield greater returns. If you are looking to get personally involved in your investment, real estate is the way to go.

Conclusion: The more time you can take to monitor your investments, research the market, and calculate the costs of your investment, the more you will get out of it. This applies to real estate and the stock market. The best investment is the one that you are willing to manage.

Best Resources for Watching Real Estate and Stocks

Remember, the best investment depends on your terms. Assess your current financial situation and create a strategy before you choose the best programs for your portfolio.

Investors who are new to the stock market or want to check their investments on the go can use a variety of apps with resources, real-time updates, and the ability to trade from your smartphone.

When you are ready to take out a mortgage loan for your first investment property, make sure you research different types of lenders and what you need to provide them in order to get loan terms that fit your real estate investment goals.

There is a lot of information out there; make sure you find a financial advisor that you trust before you start investing. Good luck!


Ben Mizes

Ben Mizes is the co-founder and CEO of Clever Real Estate, the free online service that connects you with top agents to save thousands on commission. He's an active real estate investor with 22 units in St. Louis and a licensed agent in Missouri. Ben enjoys writing about real estate, investing, personal finance, and financial freedom. He's a serial entrepreneur, having run several successful startups before Clever Real Estate. Ben's writing has been featured in Yahoo Finance, Realtor News, CNBC, and BiggerPockets.

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