It is a dilemma that has always accompanied many investors and which often leads the defenders of the two categories to clash: is it better to choose a real estate investment or a stock one?
Very roughly, it is customary to resolve the issue by looking at the historical returns of the two sectors over time to establish whether it will be more profitable to invest in real estate or in shares in the future as well. But this approach is incorrect: real estate and shares are – obviously – two very different types of investments, each with its own advantages and disadvantages, which make them absolutely unique.
Knowing which of the two has achieved the greatest returns in the past is therefore not sufficient to answer our initial question. For this reason, only after fully understanding all the positive and negative aspects of these two types of investments, you will be able to draw your own conclusions and decide which one to choose between two.
As already mentioned, real estate and equity investments are profoundly different from each other, which means that their comparison to analyze the main differences is easier to carry out. We have identified 7 crucial variables that will allow you to understand the main characteristics and differences between a real estate investment and a stock one.
Having shares in your portfolio means becoming a shareholder in a large company and investing in its growth. However, the share we hold with respect to the total equity of the company does not give us the feeling of being an active and decisive part within it. On the contrary, the possession of a tangible asset such as a Rudn Enclave housing society makes us fully aware of being its sole owners, of being able to use it (for example to live there) and of being able to inherit it one day to our children. So, from a psychological point of view related to ownership, real estate investing beats stock investing.
Nowadays you can invest in shares at very low costs: you can buy and sell €100,000 of shares while also paying 3 or 4 euros in trading commissions, depending on the broker you use. A real estate sale, on the other hand, can generate prohibitive costs between notary fees, agency costs, administrative costs, etc.
The custody of shares is now offered free of charge by the main brokers, where a property can present us with a steep bill for maintenance over the years, renovations and necessary works, utilities and condominium expenses. Stock investing beats real estate investing.
Liquid Assets ( A Term )
When you own shares, they can be sold in moments through your bank or online brokerage, simply by placing a sell order on the exchange. An equity investment is therefore extremely liquid. A property, on the other hand, is a tangible and unique asset which can take months if not years to be sold for supply and demand to meet, making it very little liquid. Stock investing beats real estate investing.
Stock markets tend to be more volatile than real estate markets. If it is true that higher returns can be obtained in the first, it is also true that there is a risk of losing all the invested capital. Furthermore, in cases of high volatility, many psychological factors take over that could catch the shareholder unprepared, pushing him to make irrational decisions that will damage his investment.
The real estate markets, on the other hand, have recorded constant albeit limited growth over time. However, it should be noted that the 2008 crisis marked the beginning of a contraction in the real estate market: the constant but slow growth recorded in the past is not guaranteed for the future. Real estate investing beats stock investing.
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Looking at taxation in online trading, an equity investment involves the payment of stamp duty (or IVAFE) equal to 0.2% of the portfolio value and the payment of 26% both on realized capital gains and on collected dividends. Capital losses can be offset against future capital gains for the next four tax periods.
With a real estate investment we will have to pay some taxes such as IMU, TARSU, IRPEF. The capital gain realized on the sale of a property can be taxed at 20% through the “dry coupon”. Current legislation also allows you to obtain various incentives and tax deductions. In this latter respect, real estate investment beats equity investment.
Building a diversified stock portfolio is undoubtedly simple: even a few hundred euros a month are enough, to be allocated to ETFs or investment funds that replicate the performance of a stock index, so as to be able to invest following the principle of diversification. In this way you can invest in many different companies located in different areas, in order to avoid concentrating the risk in a single market or sector.
To diversify in the real estate market, on the other hand, it is necessary to have substantial assets that allow the purchase of different types of properties and preferably in different geographical areas. Only a few investors will therefore be able to put these precautions into practice. Stock investing beats real estate investing.
Equity investment can follow a passive approach (for example through robo-advisors such as Moneyfarm), in which the investor simply buys the securities and “parks” them in the portfolio for a long time, worrying only about monitoring the performance of from time to time and to collect dividends. Purchasing a property requires much more time and constant efforts over time to keep it from depreciating.
Gathering information about the company behind the stock is also less challenging than finding information about which property to buy in which location, assessing its current condition, etc. Stock investing beats real estate investing.
Research the fair value of the assets
For you to be sure that you may pay a fair price for your property, it is essential to conduct a comprehensive survey. Try this a few of the most commercialized and just like what you need in the chosen place. With the average price recognized, it’s miles possible to understand if the asset you want is valued for greater and to barter a discount, reaching the rate this is honest.
In the light of the above, choosing between a stock investment and a real estate investment depends on various factors, in which each of the two investments has its pros and cons: each person will be able to give greater importance to some factors rather than others and independently decide which investment address. Buying a property allows you to obtain land or tangible property, which you can also use for your daily needs. However, this is an investment that has different costs and requires a lot of dedication throughout the life of the investment.
Investing in stocks requires less effort and can be liquidated quickly and easily. In the case of volatile markets, it is necessary to have a minimum of experience. o prevent the realization of losses caused by irrational choices (for example by selling the shares in panic selling phases).
In conclusion, from a purely speculative point of view. The equity investment is most likely to be preferred to a real estate investment.