Real estate and stocks are two very different investment objectives. As investment avenues, stocks and real estate are not identical hence investing in real estate vs stock market requires us as investors to understand both in their individual capacities.
Stocks vs Real Estate
Stocks, equities, shares are names of the same thing. When companies and businesses want to scale up and want more capital to expand their business, they can either borrow money, or they can let investors like you invest some money in their company. In return you get your own portions of the company in the form of shares. Share market is a place where all the shares of all listed companies are available.
You can buy stocks for bigger companies which are less risky or smaller companies which are riskier. Remember, risk and returns is directly proportional to each other for all investment types.
Things to Keep in Mind
Low initial investment: You can buy stocks for as low as Rs 100 as well. In fact even lower. Price for one share can go as high as Rs 60,000, which are the most expensive stocks in India but still is lesser than real estate.
Know your investment profile: You should know if you are a risk averse or risk neutral investor to know which company’s share you should invest in.
Market-linked: Stocks are volatile. It can give you as high as double digit returns but can also go down.
Easy onboarding: You simply have to open a demat account and a trading account and complete your KYC in a few minutes. With new age digital platforms this can be done in a few minutes.
Real estate is basically any property you buy. It could be a building, a house, a commercial space for business and likewise In fact, even if you buy land, it comes under the larger umbrella of real estate. There are more than one ways by which you can stay invested in real estate.
Ways You Can Invest in Real Estate:
Property and land: This is certainly a more direct way of investing in real estate. You buy property, which could be a piece of land or a commercial/residential space, hold it or use it for a certain period of time and then invest it when the prices appreciate. The premium you get on selling the property or land will be the profit from your investment.
REIT: Reits are a new and upcoming concept in real estate. Reit expands to real estate investment trust. Reits work as mutual funds for real estate. Reits are companies/trusts that own real estate spaces. Reits in India invest in commercial spaces only. These companies invest in commercial spaces that yield rent. Your income from reits are rent and the money you get in maturity. It is like having to invest in real estate as opposed to actually buying a commercial space. Just like equity funds let you invest in equities without having to actually own stocks.
Things to keep in mind:
What is your objective: You need to be clear with your investment objective because there are two things here. It's one thing to want to invest in real estate directly and it is another thing to have an objective of just simply having an exposure to real estate. According to what you want from your investment, you can pick where you want to invest. Hence before you decide between investing in real estate vs stock market, have a clear idea on your objective.
Paperwork: Investing in real estate can get cumbersome for many because of the paperwork and regulations.
Real estate is highly illiquid: If you want to sell the house or office space today, as in if you decide to sell it today, you midget your money after months. Buying and selling real estate is not as easy as stocks. There is no computer that automatically looks for a buyer for you using an algorithm. Also when you are selling it and the cost ranges to crores , the buyer might want to pay back in installments.
Huge capital: You cannot buy anything in real estate that will come in a couple of lakhs, let alone be thousands. Funds required to be able to invest in real estate, at least in today;s world, go as high as crores. So if you are wondering Is it better to invest in stocks or real estate and you are a novice investor with less cash at hand, you can stay away from real estate for some time.
So in stocks vs real estate, Is real estate all bad?
Why invest in real estate: The points mentioned above are not cons of investing in real estate but things that you should keep in mind as caution points. Real estate can give you returns as high as 7-8% in a span of five years and higher if you keep it longer. Because you invest a high amount of capital in the beginning, the returns also look voluptuous at the end of the holding tenure. Hence if you are wondering why invest in real estate, be wary of the above points and make an informed decision.
Real estate vs stocks: which should you pick?
Is it better to invest in stocks or real estate? This cannot be an either/or question as they are different in nature. If you think you have enough surplus money to invest in real estates you can go ahead with it. The stress on surplus money is important. Like i mentioned real estate is illiquid. The turnaround time to get your money is high. You should not put money that you will need in real estate. It should be money that you can spare and part ways with. In case of emergency, you may not be able to get your money back from real estate soon.
Does not mean you should invest your essential money in stocks. That should be surplus money too. But the cost of investment is higher for real estate hence the point needs to be stressed upon on a higher note for real estate.
You can surely invest in both, if you can afford to.