Real Estate vs. Stocks: Which Is a Better Investment? - Experian (2024)

In this article:

  • Investing in Stocks
  • Investing in Real Estate
  • Real Estate vs. Stocks

Real estate and stocks are the most widely held assets among investors. Along those lines, the Federal Reserve Bank of St. Louis reports that 66% of American homes are owner-occupied and 81% of employees with access to a 401(k) retirement plan participate, per Vanguard data.

Of course, there are numerous ways to invest in stocks and real estate, and both assets can help you grow your wealth. But which is a better investment for you? Stocks and real estate each have pros and cons as investments, and considering these tradeoffs could help you choose your best option.

Investing in Stocks

Between stock and real estate investing, stocks may provide the easiest path to get started. You don't need much money to start, and you can buy and sell stocks, bonds, mutual funds and exchange-traded funds (ETFs) fairly easily through a brokerage account. Before you proceed, consider these benefits and downsides to investing in stocks.

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Pros of Investing in Stocks

  • Stocks could earn more over time. Generally, stocks have proven to be more profitable than real estate. For example, U.S. housing prices have grown 5.4% year-over-year from March 1992 to June 2023, according to data analytics firm CEIC. During the same period, the S&P 500 has increased 8% in price. When adjusting for inflation, the S&P returned 7.21% annually, or 9.91% if you reinvested all dividends.
  • Stocks are highly liquid. Unlike real estate, you can quickly sell a stock if you need to. You can buy and sell stocks through your brokerage account practically in real time, whereas with real estate, you must find a buyer, negotiate a fair deal and go through the escrow and closing process.
  • Diversifying is easier with stocks. Few investors have the resources to invest in various types of real estate to achieve real diversification. However, you can build a diverse portfolio of stocks in various companies and sectors with substantially less capital. One of the easiest ways to diversify is to purchase shares in a mutual fund, index fund or ETF, all of which invest your money in a broad range of companies.
  • You can invest through tax-advantaged retirement funds. When you invest in stocks with a tax-advantaged retirement account such as a 401(k) or IRA, you can benefit from tax-deferred or tax-free growth. With a 401(k) or traditional IRA, your contributions are typically tax-deductible, and your money grows tax-deferred until you withdraw funds. On the other hand, a Roth IRA is funded with after-tax dollars, and in most cases, you may withdraw contributions tax-free if you're over age 59½ and you've held your account for at least five years.
  • You have the potential to earn dividends. Some companies pay you a portion of their profits through stock dividends. Dividend stocks that pay out regularly can provide passive income, but it's essential to understand the downsides of dividends before investing in them.

Cons of Investing in Stocks

  • Individual stocks are more volatile than real estate. Stock values can fluctuate wildly, especially in the short term. If you aren't prepared for it, this volatility can be unnerving. Before investing, consider whether you can hold your stocks long-term to weather the volatility.
  • Gains may be taxed. Typically, stock market gains are taxed whenever you sell your assets. Keep in mind, investments you hold for less than a year are taxed at your ordinary income tax rate, while assets you hold for longer than a year may incur a lower capital gains tax when you sell. Even tax-advantaged accounts like 401(k) retirement plans, individual retirement accounts (IRAs) and health savings accounts are subject to tax rules.
  • Stocks have no utility. A share of stock doesn't provide a direct use or benefit other than as an investment vehicle. By contrast, a personal residence, commercial property or other forms of real estate may offer valuable benefits, such as a place to live or do business.
  • You have no control over a stock's value. While you can invest hard work and resources to help raise the value of a real estate investment, that's generally not possible with stocks. The value of your shares depends on market trends, company performance and many other factors outside of your control.

Investing in Real Estate

Real estate investing can help you create passive income while building equity in your properties. Before proceeding, weigh the benefits and risks to determine if this type of investing suits you.

Pros of Investing in Real Estate

  • Real estate investing is less volatile. While home prices rise and fall, they generally don't experience the wide short-term fluctuations often seen in the stock market. Unless you're flipping properties, most real estate investing has longer time horizons which can help minimize short-term volatility.
  • You could earn passive income plus equity. While you must maintain your properties, they typically don't require you to work every day. In other words, you could receive monthly rent payments from your tenants with minimal work, all while growing equity in your property over time.
  • Buying on debt could be safer. Typically, you can finance the entire cost of an investment home with a down payment of 15% or more, depending on the type of mortgage you're seeking. This is a form of financing on debt. Buying stocks on debt is known as margin investing, which can be risky.
  • There's potential to reap tax benefits. Real estate investing comes with the potential for numerous tax breaks, including deductions for the cost of maintenance, depreciation, mortgage interest and property taxes, to name a few. For example, you may deduct your mortgage interest on the first $750,000 of your debt.
  • Real estate may hedge against inflation. When inflation causes the price of goods and services to rise, home prices also tend to rise. Likewise, you may increase your properties' rents to stay on pace with inflation.

Cons of Investing in Real Estate

  • Real estate is illiquid. While you can buy and sell stocks quickly on your computer or smartphone, the process of selling a home and receiving the proceeds is significantly more time-intensive. Also, you can buy stocks with minimal investment compared to a real estate purchase, which requires a substantial upfront investment. One exception is investing in a real estate investment trust (more below).
  • There's potential to lose money. Ideally, you'll receive enough money in rent each month to cover your expenses, but that's not always the case. You can experience negative cash flow for several reasons, including high mortgage payments, costly repairs and expensive property taxes. Additionally, property values can experience downturns, which can significantly lower the value of your property and take several years to recover.
  • It requires more work. Whether you maintain properties yourself or hire a property manager, the responsibility of repairs and upkeep falls on you. Repairs can range from minor tasks like fixing a leaky faucet to major undertakings like restoring a kitchen after a stove fire.
  • Tenants can cost you time and money. Bad tenants can cost you money in unpaid rent and property damage repairs. You may be able to recover losses through the court system, but that requires you to invest more time and money in court proceedings and legal fees.

Real Estate vs. Stocks

Consider the following factors to help you gauge whether real estate or stocks are the best investment option for you.


Stocks and real estate, like other investment classes, come with a degree of risk. If your stocks perform poorly, your portfolio could lose value. In a worst-case scenario, such as a stock market collapse, you could even lose it all. However, you'll only realize a loss if you sell the stocks for less than what you paid. If you hold on to the stocks, there's a chance they can recover their value over time.

Similarly, your property could lose value amid a slumping economy or a real estate market crash. In this case, you still have to make your monthly mortgage payments. That could be challenging if you don't have tenants and rely on the rental income to pay for the costs of ownership. If you fail to pay your mortgage, your lender could foreclose on your property. Plus, there's always the risk your property will need expensive repairs like heating or plumbing system fixes, which can cost thousands of dollars.

Capital Requirements

Stock investments generally require less upfront capital than real estate investments. You can purchase a share or fractional share of a stock for as little as $1 to $5. Unless you're trading on margin, when you purchase a stock, mutual fund or other security, the amount you pay—minus any fees—is the amount invested. You may have to pay a commission ranging from $5 to $30 through an online brokerage, but most mobile apps allow you to trade stocks without fees.

By contrast, you'll typically need to come up with a substantial initial investment to buy real estate. Down payments for investment properties can range from 15% to 25%, and the loan's interest rate may be higher than with your primary mortgage. You also must account for closing costs, typically 2% to 5% of the purchase amount. However, real estate gives you more leverage since you can purchase a property worth a substantial amount by making a significantly smaller down payment.

One investment vehicle that allows you to take advantage of real estate investing without the cost of buying properties on your own is a real estate investment trust (REIT). REITs typically hold a number of investment properties, such as apartment buildings, office buildings and hotels, and shareholders receive dividends based on the REIT's rental earnings.


As mentioned above, stocks generally perform better than real estate, with the S&P 500 providing an 8% return over the last 30 years compared with a 5.4% return in the housing market. Still, real estate investors could see additional rental income and tax benefits, which push their earnings higher.
It's also worth noting that with real estate, you typically purchase a property with leverage, which can increase your earnings. For example, let's say you purchase a $200,000 property with a 20% down payment ($40,000) and the property appreciates 3% ($6,000). In this case, you would effectively earn 15% on your initial down payment (6,000 ÷ 40,000 = .15 x 100 = 15%). You can also buy stocks with borrowed money through margin trading, but experts usually advise only experienced investors do this due to its greater risk.


Diversifying your portfolio with stocks is relatively simple, and you can do it with a few mouse clicks or finger taps. To build a diversified portfolio, you simply purchase equities from numerous companies across several industries. Even buying into a single mutual fund, index fund or ETF could provide diversification if the fund invests in a broad array of companies and industries.

Building a diversified real estate portfolio is much more time-consuming and cost-prohibitive because you typically need more upfront money than is available for most investors. Real estate may be better viewed as an asset to diversify a portfolio that includes stocks, bonds and other assets. Many investors use real estate to help balance their portfolios since it doesn't directly correlate to the stock market. In other words, when stocks are underperforming, your property might hold its value or even increase, or vice-versa.

The Bottom Line

You can grow your wealth through both real estate and stock market investments or even a combination of both. Choosing which route to take may come down to your risk tolerance level, comfort level with each asset and how you want to spend your time. Real estate investing may make sense if you want to own tangible assets and are willing to manage property. But if you prefer a more hands-off approach with more liquidity, stock market investing may be a better option.

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Real Estate vs. Stocks: Which Is a Better Investment? - Experian (2024)
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