Difference Between Real Estate and Stock Investment
Real Estate investment refers to investing in a property or tangible and real assets which are often for the long term which is lengthy process and illiquid whereas Stock investment refers to investing money in a company by purchasing its share of stock and earning profit by selling the shares at good price which is easy, quick and liquid whereas
Stock refers to share in the ownership of the company which represents a claim on the assets and earnings of the company.
Real estate refers to property made up of land and buildings on it including the natural resources and associated components such as water and minerals. This can further include residential, industrial and commercial real estate.
Stock vs Real Estate Investment Infographics
Let’s see the top differences between stock vs real estate investment.
- A stock represents a share in the earnings of a companyEarnings Of A CompanyEarnings Per Share (EPS) is a key financial metric that investors use to assess a company's performance and profitability before investing. It is calculated by dividing total earnings or total net income by the total number of outstanding shares. The higher the earnings per share (EPS), the more profitable the company is. whereas real estate is a property over a piece of land that has been purchased for either personal use or further monetary gains.
- Stock does not cost much and depends on the investment objective of the buyer. The prices of stocks are volatile and the fundamentals and financial performance of a company also have a direct impact on the price of the stock. A real estate is normally a one-time investment and depends on factors such as the Investment ability of the buyer, the size of the real property, location, ROEROEReturn on Equity (ROE) represents financial performance of a company. It is calculated as the net income divided by the shareholders equity. ROE signifies the efficiency in which the company is using assets to make profit. from the property, etc.
- A stock is generally a short-term objective depending on the portfolio requirement. However, real estate is a very long-term objective and can spread over the decades.
- Stocks are highly liquid and can be sold relatively easily but real estate is comparatively less liquid and can require a lot of time since multiple factors are involved such as legal hurdles, appropriate price, etc.
- Stocks will generate dividends depending on the financial performance of the company which may or may not be on a regular basis. Real estate does not generate dividend but if the real estate is leasedLeasedLeasing is an arrangement in which the asset's right is transferred to another person without transferring the ownership. In simple terms, it means giving the asset on hire or rent. The person who gives the asset is “Lessor,” the person who takes the asset on rent is “Lessee.” out, it shall generate a sufficient amount of rent on a periodical basis.
- Bank loan facility is generally not available for the stock transaction but the purchase of real estate generally requires the aid of a bank loan.
- The price of a stock can change at every millisecond and every penny can make a difference since these can be purchased in bulk. However, prices of real estate change on a gradual basis and is directly influenced by various macroeconomic factorsVarious Macroeconomic FactorsMacroeconomic factors are those that have a broad impact on the national economy, such as population, income, unemployment, investments, savings, and the rate of inflation, and are monitored by highly professional teams governed by the government or other economists.. The variations in the price of real estate define the condition of the economy. If prices are rising on a gradual basis, it is an indication of the progressive economy and vice-versa.
- A stock makes the holder an owner in terms of getting voting rights on various matters but cannot take decisions involving senior management. However, owners of real estate are responsible for all decisions which have a direct impact on the existence of the property.
- Stocks can be bought backStocks Can Be Bought BackShare buyback refers to the repurchase of the company’s own outstanding shares from the open market using the accumulated funds of the company to decrease the outstanding shares in the company’s balance sheet. This is done either to increase the value of the existing shares or to prevent various shareholders from controlling the company. by the company if the need arises, however, real estate cannot be brought back once sold.
Stock vs Real Estate Comparative Table
|Basis of Comparison||Stock||Real Estate|
|Meaning||Share in the earnings of a company.||Property on a piece of land utilized for further expansion.|
|Ownership||StockholdersStockholdersA stockholder is a person, company, or institution who owns one or more shares of a company. They are the company's owners, but their liability is limited to the value of their shares. are owners on paper but technically cannot own the company.||One can be the complete owner of the property.|
|Liquidity||Highly liquid.||Less liquid in comparison and can take time depending on a case to case basis.|
|Maintenance||No maintenance charges have to be paid.||Regular maintenance has to be executed for ensuring the property is in good condition.|
|Risk Level||Generally volatile.||Relatively stable.|
One should assess that the performance of the overall stock market and the real estate market gives an indication of how the country is economically performing. If the stock market is rising, it is an indication that all the sectors are performing well and hence overall performance is improving.
On the other hand, the general price rise of real estate needs to be assessed. Generally, it indicates growing prosperity but factors such as real estate providers need to be studied. The real estate provider must have spent a very heavy amount in constructing/purchasing the property and stocks and real estate may want to clear their debts. The base of the 2008 Global Financial crisisFinancial CrisisThe term "financial crisis" refers to a situation in which the market's key financial assets experience a sharp decline in market value over a relatively short period of time, or when leading businesses are unable to pay their enormous debt, or when financing institutions face a liquidity crunch and are unable to return money to depositors, all of which cause panic in the capital markets and among investors. was due to inflating prices of real estate and ultimately non-payment of dues led to the crash.
Both Real Estate and Stocks are used as an investment avenue by investors. Though real estate can be used as a twin objective for personal residence and by allowing the value of the real estate to increase, stocks are generally used for parking excess income and allowing it to grow depending on the objectives and risk appetiteRisk AppetiteRisk appetite refers to the amount, rate, or percentage of risk that an individual or organization (as determined by the Board of Directors or management) is willing to accept in exchange for its plan, objectives, and innovation. of the investors.
Hence, stock or real estate will continue to exist but the selection and the quantity of the same will depend on the investor/pool of investors.
This has been a guide to Real Estate vs Stock Investment. Here we discuss the top differences between them along with infographics and comparison table. You may also have a look at the following articles –