Real Estate vs. Stock Market: Where Should You Invest.

In the Indian financial market, there are so many investment opportunities. Putting money into financial assets has been a common method for people to increase their wealth. It could be clearer and easier to decide which is the best option to invest your money. It is very necessary to examine essential aspects of investment, such as return on investment (ROI), the liquidation process, tax benefits, flexibility, emotional connection, control, risk factors in the investment of assets, and growth potential.

Stock Market vs. Real Estate.

The primary investment options are the stock market, real estate, Gold & Fixed deposit. Most investors find stocks and real estate the perfect asset types for investing money. However, selecting between the two is difficult, as each has unique advantages and disadvantages. So, it’s necessary for you to rely on thorough understanding and evaluation of both investment options. Your decision between the two mainly depends upon your financial objectives, obligations, commitments, way of life, and earnings. Therefore, you must compare real estate investment versus stock market investment.

What is the stock market?

The stock market serves as an important part of contemporary economies, as it is a platform through which companies gather huge amounts to boost new start-ups, grow current enterprises, streamline operations and settle debts. Stocks are purchased by institutional investors and rich individuals. But at the same time it can also be purchased by those who have small financial resources and seek income from profit-sharing. Some of the investors plan for long duration and sell the stock later at a higher price.

Investing in the stock market can be challenging, specially for those who are newcomers to this field of investment. No doubt, the investment process has become easy nowadays since people can invest their money in stocks via different online platforms. But you should be fully aware of the process.

The stock market can yield greater returns and supply dividends and capital gains. However, there may also be a decline in investment because the stock market has unpredictable volatility.

Advantages of investing in the stock market.

There are many advantages to making investments in the stock market, provided you are well aware of the strategies of this type of investment. The main benefits of making  investment in stock market are:

• Greater returns as compared to investment in real estate: By investing in the stock market, you can earn good profit in a short period. But it carries some risk. While investments in real estate carry low risk, the returns are also not so high.
• Dividends: If you invest in the stock market, you can avail yourself of the monetary benefit in the form of a dividend. The dividend on your investment is distributed when the stocks in which you have invested are in profit.
• Shielding from inflation: The stock prices initially go down when inflation increases. The stocks eventually recalibrate and the price of stocks gradually increases for safeguarding wealth from the damaging impacts of rising prices.
• Liquidity: Stocks can be easily bought and sold and it also provides greater liquidity than real estate. Unlike property, the stocks can be sold fast at the current market price at any time. Real estate is frequently utilized as an investment because its value increases as time passes.
• Minor and selective expenses: In contrast to real estate, you’re not obligated to make a significant payment at one time. You can invest smaller amount as per your choice and financial capacity. While at the time of dealing with property and mortgages, it is required that you pay the complete value of the investment in advance.
• Tax advantages: You can receive tax benefits by investing money in stocks via retirement accounts such as EPF, PPF or NPS. You can gain tax advantages and benefit from compounding growth over the years. 
• Transaction Fees for Stocks Are Typically Fewer: In comparison to real estate, the fees associated with buying and selling stocks are usually very nominal, while in real estate investment, there are many types of high charges are required to pay.

The Drawbacks.

The stock market investment has so many advantages but at the same time it has some reasons to not proceed in this type of investment. The reasons are:

1. Stock Market Prices Exhibit Greater Volatility Compared to Real Estate: Prices of the stock in the stock market can change suddenly within a brief period, which ultimately increases the volatility. But in real estate it does not happen that all of a sudden the prices of the property go high or go down. It happens gradually.
2. Stocks can disturb emotions: The price going high or price going low can give an emotional shock. The fluctuations in the market give a panic attack. When the prices go low, the investor becomes panicked to sell the stock to save his money which can potentially affect the returns.
3. Investing in stocks may be difficult because of some more reasons: When you sell the shares with capital gains, you need to pay taxes which reduces your overall returns. So, achieving successful investments frequently necessitates thorough research and technical analysis, which can be intricate and time-consuming. Market volatility brings considerable risk, since stock prices may swing wildly because of numerous economic and geopolitical influences, which could result in major financial losses.

What is real estate?

Investing in real estate means to putting your money into properties for producing income. You can invest money in property for self-use, as this type of investment saves the rent amount to be paid by you. You can also invest in property to make an asset and receive the rent in return for giving your property on lease. Investors often possess several real estate properties, with one acting as their main home while the other property is for earning rental income. This investment also gives a benefit by price rise of property over the time. The taxation rates for investment in commercial properties are different from those for residential properties. Liquidity of money in real estate is not so good as compared to stocks. Selling a property can be time-consuming, and it also needs various legal intricacies. But if you have put your money into an appropriate property, it will not be affected by a declining market. There are very few chances of loss in real estate investment.

Putting money into real estate needs a significant financial investment. You need a good amount of money for real estate investment. This is why investors sometimes drop the idea of purchasing property. However, these days the scenario has changed and having a large sum of money for that purpose is not required.

Advantages of investing in real estate.

Some investors prefer to invest their funds into real estate rather than financial securities like stocks or bonds. The advantages of putting money into real estate are many but they are based on the investor’s objectives and the amount of money which he has for investment. The amount of money to invest in real estate can vary. It all depends on the amount of money which you have for investment. There are two main advantages of investing in real estate, whether in residential or commercial:

• Value Increase: Making investments in properties helps in generating capital gains for investors as the prices of properties are rising day by day. You avail a profit through real estate investment, as in most of the cases, there is a huge disparity between the initial purchase price and the selling price of the asset. But there is no fixed profit; the investors can only assess the capital gain at the time of selling the property. Undoubtedly, the costs of property have surged significantly in the past few decades due to the rising demand for housing. Both supply and demand contribute to generating capital gains from real estate. When there are fewer properties available in an area and the demand for the property is high, property values usually rise.
• Income from Rentals: There are many investors who invest in real estate for the consistent flow of income it generates. Regardless of whether it’s a residential or commercial property, tenants or occupants are needed to pay rent to the owner on a monthly basis until the lease or rental agreement concludes. This revenue source can provide consistent earnings for retired people or anyone seeking an extra income from holding investments in assets.
• Real estate investing is simple to grasp: Real estate is a physical asset, which helps many individuals to engage in this investment. It is simple to invest in real estate as it does not have any intricacies, which are difficult to understand.
• Investing with debt is safer in real estate: Making investments in real estate can be more secure than investing in the stock market. You can take out a loan for investing in real estate assets which can produce rental income to pay off loans, and you have the asset whose value usually increases with time.
• Real estate investments can act as a shield against inflation: The values of real estate and rental revenues generally rise with inflation. It offers protection against the damaging impacts of inflation on your investment.
• Owning property may offer tax benefits: Real estate investors might gain from tax deductions on mortgaged property for which they take out loans. For making an investment, if you take a loan and mortgage your property, it lowers your total tax liability as you need to pay the EMIs of the loan.

The Drawbacks.

There are many benefits to investing in property, but there are some reasons which discourage you from going ahead with investing in property:

• Real estate investments may require more effort than stocks: After purchasing properties, you need to take care of them for maintenance and handling tenants is also necessary. Sometimes legal matters are also to be looked after.
• Real estate is costly and takes considerable time: Acquiring and disposing of property demands substantial financial resources and time which makes it less liquid compared to stocks, which can be traded swiftly.
• Real estate involves high transaction expenses: Expenses like brokerage commissions, stamp duty and legal fees make real estate transactions costly.
• Diversifying your investments with real estate is harder than with stocks: It is difficult to diversify your investment in various properties as a very high capital is required for diversification across various property types or areas.

Bottom Line.

Real estate is typically viewed as a less risky investment than the stock market. Real estate values are generally more consistent over extended periods and this gives a feeling of safety.

Both equities and real estate carry risks yet provide different chances for gains. Stocks are volatile in the short term, affected by market trends and corporate results. Contrary to this, real estate is specifically more stable, offering prospects for value increase and rental income.

FAQs.