For many investors, real estate is more authentic than stocks and other types of investments due to the fact that it is tangible-- you can physically touch it. However, real estate investing is not black and white. As stated in the articles below, there are several ways to earn returns on a real estate investment, such as flipping a house or renting out an income property. Typically, a down payment is made and the rest is financed, creating leverage. With leverage it is possible to invest in more properties with less money down and capitalize on your investment. Similar to with returns on other securities, it is also possible to incur a loss if leverage is used incorrectly.
Unlike stocks and bonds, real estate is relatively illiquid, meaning it is difficult to quickly convert to cash. See the graph below. In the long run, real estate values generally increase at a steady pace. Stocks tend to be more volatile than real estate, but over the long run seem to have delivered much better returns. When investing in real estate, stocks, bonds, and other types of securities, there is an initial outlay of funds with hopes that their values will increase over time. Stocks are also more flexible and can be reallocated into different accounts. In many ways, stocks seem to be the better investment. It is often difficult to be diversified if investing in real estate. Investing in stocks allows you to own a piece of many different industries economy-wide. However, real estate does seem to be advantageous when it comes to stability and tax advantages. Real estate investment trusts can be used to combine some of the benefits of stocks with some of the benefits of real estate and assist in diversifying your portfolio.
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