Investing can be challenging, especially when choosing between a tangible asset like real estate and a liquid asset like stocks. Real estate vs stocks has been an age-old debate; both have their merits, but here are some compelling reasons why some people believe real estate could also be a part of your investment portfolio.
Tangible Asset:
When comparing real estate vs. stocks, real estate gets an edge on being a physical asset that you can see, touch, and improve upon. Unlike stocks, which are intangible digital assets and subject to market fluctuation, real estate is tangible. It offers security and stability, as you don’t have to be a market expert to understand and predict its value. With some pertinent information and the property’s appearance, you can get a rough estimate of its value.
Passive Income
Another attractive aspect of real estate when comparing real estate vs. stocks is the potential for passive income through rent from properties. Even stocks provide some passive income in the form of dividends, but they never match the income from rent. Moreover, as rents tend to increase over time, so does your income, often outpacing inflation. To make this comparison process easier, you can use the CAGR Calculator to identify the annual returns on these investments.
Diversification
Diversification is key to any investment strategy, and real estate provides an excellent opportunity to diversify your portfolio away from the stock market. This also keeps your money safe, as usually, when the stock market is down, your real estate investment can still hold its value or even appreciate it because the real estate market is not related to stocks directly.
Leverage
Real estate being tangible has another advantage in times of need it can be easily used as an asset for mortgage financing. This can significantly increase your return on investment, especially when property values are rising. Although one can pledge real estate properties as well as security holdings as collateral, they can get a larger loan amount with real estate. While a loan against can securities can provide you with up to Rs 5 crore as a loan, the same can reach as high as Rs 15 crore in the case of properties.
Tax Advantages
Real estate investors can benefit from various tax deductions, such as interest on loan, property taxes, operating expenses, depreciation, and repairs, etc. These deductions can offset income and reduce your overall tax burden. But answering real estate vs stocks, which has better tax benefits, can be difficult.
Inflation Hedge
Real estate values and rental income typically increase with inflation. As the cost of living rises, so does the value of property and the amount tenants are willing to pay in rent, making real estate a natural hedge against inflation. So, if your trading game is not strong and you are comparing real estate vs stocks, then real estate may be better option for you.
Or you can consider a Real Estate fund. These are funds that can be traded like stocks, but they invest in real estate, allowing you to have both flexibility of trading and stability of real estate. It also spares you time that you would have invested in calculating real estate vs stocks historical returns.
Appreciation Potential
When you compare real estate vs. stocks over the long term, real estate has consistently appreciated. While there are market cycles and location-specific factors to consider, well-chosen real estate investments have historically provided excellent appreciation potential. On the other hand, although the stock market fluctuates a lot in most cases, long-term investments in the stock market pay good returns.
Conclusion
While stocks are a well-known investment option, real estate offers a unique set of benefits that can enhance your investment portfolio if you have a smart real estate investment strategy. It’s a tangible asset that provides passive income, diversification, leverage opportunities, tax advantages, an inflation hedge, and appreciation potential. As with any investment, it’s essential to conduct thorough research and consider your financial situation, risk tolerance, goals, and investment style before deciding.
FAQs on Real Estate vs. Stocks
Which is better, real estate or stock?
The choice between real estate vs stocks depends on individual financial goals, risk tolerance, and investment strategy. Real estate offers tangible assets and potential for rental income, while stocks can provide higher liquidity and potential for quicker growth. Diversification in both can be beneficial.
What has the return on real estate in India in the last 10 years?
The return on real estate in India over the last decade has varied. On average, the annual growth rate for residential property prices has been around 10.1%. However, this can differ widely depending on location, type of property, and market conditions. Choosing which is better, real estate vs. stocks depends on your investment skills.
Does real estate have a future in India?
The real estate market in India is expected to continue growing, with predictions of a strong performance due to factors like increasing demand, economic growth, and urbanization. Emerging technologies and socio-economic trends are also likely to shape the future landscape of the real estate sector in India.
I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.