Pros and Cons of Stocks vs Real Estate: Is one better than the other?

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So which is the “better” investment…stocks or real estate? In this video, I do my best to break down the pros and cons of each option and weigh the results against the potential return one could possibly expect to achieve. Since picking individual stocks can vary so widely in price, as would flipping a house, I’m comparing long term rental real estate to an total stock market index fund.

It’s a hard question to answer, and a lot comes down to personal preference, but these are some things to take into consideration before we break down the numbers. Just for clarification – picking individual stocks, day trading, or swing trading is NOT included – you could achieve much higher returns and many people do this. However, since you could also invest and flip real estate, I felt this would be an unfair comparison with too many variables – which is why index funds vs rental properties were used.

Each have their upsides and downsides…

Pros for index fund investing:
-It’s completely passive. Once you spend a few minutes going to a website and buying a stock, you’re done.
-You don’t need tens of thousands, or hundreds of thousands of dollars like you generally need with rental real estate.
-There are no hassles of working with tenants, fixing items, or maintenance.
-You can buy index funds within a tax advantaged account such as an IRA or 401k.
-Stocks are fairly liquid and you can cash out quickly when you want to sell.

Pros for real estate investing:
-You have total control over what you buy and at what price
-You can take advantage of undervalued properties and areas
-You can add square footage, remodel, and gain quick equity and increase cash flow
-You can leverage your money and achieve potentially higher returns
-You can receive consistent rental income

In terms of the raw returns, generally real estate CAN yield a higher return, usually if you leverage your money – HOWEVER, the higher return is balanced by the amount of work, skill, and knowledge needed to find the right deal and close on the right price. Real estate is also not an entirely passive investment, so even though you can make significantly more, it also comes with more work. If you’re looking for something entirely passive, stocks will likely yield a little less but it comes with the ease of not having any responsibilities or obligations. So much of it comes down to personal preference. My recommendation is to do both 🙂

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Suggested reading:
The Millionaire Real Estate Agent: http://goo.gl/TPTSVC
Your money or your life: https://goo.gl/fmlaJR
The Millionaire Real Estate Investor: https://goo.gl/sV9xtl
How to Win Friends and Influence People: https://goo.gl/1f3Meq
Think and grow rich: https://goo.gl/SSKlyu
Awaken the giant within: https://goo.gl/niIAEI
The Book on Rental Property Investing: https://goo.gl/qtJqFq

20 COMMENTS

  1. Thanks so much for watching! I apologize for the lack of uploads lately – I’ve had a LOT going on and I’m in the middle of trying to buy a property for myself, so things have been somewhat crazy. I’ll still do my best do upload as much as I can. Once things settle down I’ll be back to sticking with a more regular schedule 🙂

  2. Huge volume of phenomenal and genuine videos, I've watched several hours in just the past 3 days since I'm on break. Have you considered taking the disadvantage of large cost of entry away from real estate investment? Someone with your skill set, if you desired, could create an investment company that used money from several people to invest in a single property and you could split the profits between yourself and the investors. Edit: It would also take the time intensity disadvantage away from the investors.

  3. Hey Graham. I have 1 rental property I bought when I was 21 (back in 2014). The price/rent ratio on it is 9.46. I bought it for $159,000 (put 20% down) and rent it for $1,400, with a mortgage of $910. Should I buy a second property with similar numbers? Or should I put my money elsewhere?

  4. Disagree Graham ! You cant compare sp500 towards real estate investing! If you can pick good stocks, then the return can be much greater then the sp500! I think good trader/investors can get a 50-100% return each year, bad years maybe 15-30%! So if you have 100k, its a completely different scenario.

  5. Like that jacket Graham. Its rare to come across real estate/investing videos on youtube with so much valuable info packed into it, keep up the great content.

  6. Too busy with my highly technical 9-5 job. So I went for stocks. I love how money pops out with 0 effort.
    And it's one the source of income from the wealthiest man in the world.. So why not?

    But if you have the knack for real estate.. Why not??

  7. Graham i'm 18 years old and i'm trading stocks but i also want to invest in real estate can i save money from stocks and invest in real estate for long term what would you recommend?

  8. GRAHM do you have a roth ira or regular IRA? The reason i am asking i am a real estate agent in miami, so we don't get a 401k. What do you recommend?

  9. Hey Graham actual stock trader here;
    well Forex trader, because it's more diversified and liquid, with a greater control of expositor on a position to position basis, but same difference.
    The long term stock investment you are referring to is called Dow-Theory, despite being preformed with the S&P500 rather than DOJ now, keep in mind it is just a theory; most of the data that comprises Dow-theory was recorded in the US following WWll when the US had a distinct advantage in the global economy due to most other developed nations lacking infrastructure due to a shit ton of bombing. This is NOT a liquid investment as Dow-theory is ONLY valid over a 30 year period, statistics show that nearly 80% of people who invest using Dow-Theory will not achieve 7% returns because they will withdraw from the account due to unforeseen expenses, midlife crisis's, or just because they believe they have some innate understanding of market trends based on little to nothing, because they're special. (They are not special) A tax advantaged add to this problem that most people face given their sharp fines for early withdraws. It's not as easy to tell somebody to not do something irresponsible with their money, it's more about letting the masses do what they do and giving advice to manage the risk of what ever trouble they get themselves into. Stock/Commodities/Forex (not cyprtocurrencies) traders with small accounts relative to the liquidity of the markets they trade (usually maxes out around 3 Million dollars) can make an average of 20% a week. I know this from personal experience and from Trading contests were top traders compete to achieve the highest returns with real capital then donate all proceedes to charity. You must be thinking, "With compounding that's an assload" and yes it is an assload, that's why investment bankers buy out stripclubs and drive irresponsible automobiles, not nearly 90% (that's just a common saying I don't have the numbers to back it up, but most traders don't make siginfagent returns) Going into stocks (FOREX!!) is by far more lucrative than real-estate but as Ed Seykota said everybody gets what they want and even active trading is a very low commitment job. You seem like you want something with lots of little weekly puzzles to fill you're time, so retail is a perfect fit for you. Take it from a man with a lot of money what you do shouldn't be about the money, a brand new Hurricane will only make you happy for a week. Dressing up and doing the thing you learned how to do better than everybody else will make you happy for much longer. Also get wr3ck3d u br0ke @ss p1nk C0ll@r s@lesm3n n00b I have more money than than you so I win at this competitive game. Did I mention I'm competitive? I'm very competitive that's what keeps me going. winning.

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