Real Estate vs. Stocks: Which is better?

Real Estate vs. Stocks: Which is better? Both have pros and cons you need to understand.

Real estate can be broken down in two broad categories: residential real estate and commercial real estate. Stocks, broadly speaking, can be segmented into domestic, international, and emerging markets. So, which should you invest in to grow your wealth and generate income down the road?

Here we discuss three crucial points:

1. Liquidity

2. Tax benefits

Bonus: You can get exposure to real estate without dealing with tenants or other complexities by investing in REITs


Real Estate vs. Stocks: Which is Better?       

Anthony Saffer CFP®, CKA® and Alex Okugawa CFP®, CKA®, CEPA®

Full Transcript:

Alex: Hi there and welcome to One Degree advisors where we help families cut through the noise to make confident financial decisions. Anthony, today we’re talking about Investing in stocks or investing in real estate and I know it’s a question that comes up a lot with both prospects and clients should I invest in stocks or should I invest in real estate? Which is better? So today we’re going to go through three considerations, there are three things you need to think about when trying to choose between these two investment options and one of those things is Liquidity. Anthony, can you tell us a bit about liquidity of the topic when we’re discussing these two?


Anthony: Yeah so liquidity is really just the availability of your money and in real estate, you know, if you go out and buy, let’s say is a multi-family complex of units or single family residence you it takes a while to sell it. So generally real estate is considered illiquid. Now with Stocks they can typically be sold in a given day money can be received. And that can be viewed as a good thing. In terms of stocks, but it can also be viewed as a bad thing because stocks should be viewed as a long-term investment.


Alex: So  there is some give-and-take between those two things. Yeah and I know for many people one of the things I always bring up when I talk to people about this is I say look, you know, let’s say You know, you purchased a piece of real estate and you’re planning on holding it for the next several years 10 plus years on. Well on any given day you’re not thinking about, you know, the price of that piece of real estate. You’re not thinking about “Oh my gosh. It’s fluctuated up and down this way.” You have a long-term mindset. You’re holding it on if you’re holding on to it for a long period of time. So you don’t see those fluctuations. When you eventually do go to sell you go oh my gosh, look how much this piece of property appreciated and I didn’t experience any volatility along the way what a great investment!

The same thing can be true if you think about it in like a diversified stock portfolio where If you invest in it and you’re not paying attention to it on a daily basis. You look over in a long period of time. You’re likely to see those assets appreciate. So liquidity can be both a pro and a con in investing.  The second thing we’re going to talk about here is Tax Benefits and I know it’s really hot topic when investing in real estate.


Anthony: And there can be some tax benefits of investing in real estate writing off losses writing off, you know certain expenses against the income that you may be receiving. But it is it does get more complex than that. And that’s where there needs to be some tax planning that’s involved for a real estate investor to have a good CPA, because sometimes losses depending on the level of income that they’re making may not be able to be written off. And then with stocks where they can be traded in they are more liquid

There is the ability to sometimes take losses and buy something else. So there’s some tax planning involved there as well


Alex: I do know for some folks, you know I’ll be meeting with a Prospect and we’ll be  talking about their real estate and they’ll go “Ah well, ya know, I have a bunch of expenses on there. So, I just realize losses and I get to deduct all those.” On the surface it seemed correct when you actually dig down, exactly to your point Anthony. Unfortunately, most people, especially in California in San Diego. They just make too much money. So, they can’t actually deduct many of those expenses and in several cases they kind of seemed surprised at that.

So again, working with a good adviser can help you see these things and just again. Not to say, investing in real estate is a good or bad decision, but at least we can help expose some of these common areas people might be skipping over. Alright and the third and last thing we have here is Diversification.


Anthony: Diversification is very important in just spreading your risk. And that’s actually why we don’t think real estate or stocks is the right question. It can be that there can be a combination of both and this goes really be beyond your home and there are different ways to invest in real estate. So, somebody that really doesn’t want to be a landlord we have a lot of clients that are at that. That time of their live where maybe they had a rental property for a number of years and they just don’t like being a landlord.


Alex: You know like getting a call at 2 a.m. that there is a leak.


Anthony: Yeah, or they don’t want to pay a property manager to do it and that’s reasonable as well. It’s an option but real estate can be a good diversification tool because sometimes when stocks are zigging and real estate is zagging, and it can provide some good diversification there


Alex: Awesome. Well again I hope you found those three points valuable again thinking about investing in stocks or real estate in regard to liquidity, the tax benefits, and diversification can provide a good framework when you’re evaluating these investment options. If you would like help, you know going through a Financial plan and really thinking about your investment plan holistically. Taking a look at not just my allocation to stocks, not just my allocation to bonds, but how does my physical real estate over here play a part in my whole portfolio. How does that tie into my entire financial planning how to move forward from here.

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