Stocks vs Real Estate, which is a Better Investment?
As there are numerous investment options in the Indian financial market, it may be confusing to choose simply one investing avenue to invest your money. For beginner investors, stocks and real estate seem two ideal asset classes. However, to choose among the two is a tough choice and should be based on extensive knowledge and analysis about the two investment options. Your choice between the two largely depends on your financial goals, responsibilities, commitments, lifestyle, income. Furthermore, investment philosophy also plays a key role in your quest of choosing between the two.
To learn more about these assets, read on to find an answer to the stock vs real estate dilemma.
The Basic Differences between Investing in Stocks and Real Estate
Some of the key differences between investing in real estate and stocks in India can be categorised under certain factors. They include:
Real estate investment is hard work:
A lot of time and effort, both physical and mental, goes into real estate investments. You may identify potential properties online but cannot research the properties from the comfort of your home. Eventually, you have to physically visit the properties, look at the construction quality, seek legal guidance and ensure the property titles are legal. Furthermore, you would need to look into the developer’s credibility, the neighbourhood, the time taken to complete construction etc., while investing in real estate in India.
Investment in stocks easy:
Investing in stocks is easier than investing in real estate in India. All you need is a demat account and trading account in India that you can open for free through quality stockbrokers. The best trading account allows you to trade in real-time. With some basic research, you can effortlessly pick and invest in stocks from the comfort of your home. Technology-backed online trading platforms let you trade seamlessly on any smart device without any physical and legal hassle.
Real estate investment involves recurring costs:
Investment in real estate involves many recurring costs resulting from maintaining the property, paying taxes, tracking utility costs, etc. If you have borrowed to buy property, you have to pay an EMI and interest, driving the final price you pay for the property higher than the actual cost because of the interest accrued. You may rent out your property, but there are still some risks involved, such as prolonged unavailability of tenants and a drop in rental values.
A trading and demat account can get you going:
When it comes to investing in stocks, you just need a trading account in India and earmark some funds for your investments. There are certain charges like brokerage charges, but these charges are negligible when compared to recurring costs involved in real estate investment. With the best trading account, you also gain access to tools and research that help you make informed investment decisions. Furthermore, you can open a Demat account and trading account for free by uploading a few basic documents and following simple steps online.
Liquidity:
Real estate investments are not as liquid as stocks. If you wish to sell your property, there are multiple processes involved, including listing, waiting for the right buyer, checking market value and registration etc. On the other hand, if you wish to sell your stocks, you can do so in a matter of minutes with a trading account and a few clicks.
Dependence on market conditions:
Both real estate and stock investments are dependent on market conditions. Although stocks have exposure to market volatility, you can manage the risk by staying invested for a long time. The longer you stay invested, the more returns accrue over time as long-term stock investments fetch substantial returns. When you invest in real estate, you are still dependent on market conditions and need to wait and hold your investment until the market price increases. In both cases, impulsive selling or buying doesn’t work well.
Real estate returns scenario:
Investment in real estate often cannot beat inflationary tendencies. Estimating returns may be hard because returns depend on factors like location, guidance value and quality. Also, if you have bought property to live in it, it is not considered an investment because there are no monetary benefits. Real estate investment is also more expensive than stocks as the former involves making heavy down payments.
Dividends and sale of stocks:
Investing in stocks allows investors to earn dividend amounts where companies pass a portion of their profits to the investors. Furthermore, selling your stocks at the right time can allow you to earn substantial returns, which are not possible with real estate investments.
Summing up
Investing in stocks needs very little capital, and the returns depend on your informed choices. All you need is a Demat account and a trading account in India. The best trading account also offers tips and research advisories, ensuring that you invest online seamlessly. Real estate investments involve heavy down payments unless you invest in real estate mutual funds.
Stock market investing is also more liquid, and you can sell many times in a single day with your trading account. To sum it up, stock market investing is easy and can be done with the click of a button. Real estate investments involve a lot of time and effort, and to reap any kind of benefits, investments need to be held till market values are favourable.