Should You Invest in Stocks or Real Estate?

The age old question… Should you be investing in stocks or real estate?

I’d like to answer this question in a way you may not have heard before.  Using your behavior and preferences as a guide, you can uncover exactly which investment is right for you.

Before I bought my first investment property, I always had this question.  I watched video after video and most of them just left me feeling like there were pros and cons to both.  I never found a clear answer!

Here are 7 questions to ask yourself to finally figure out if you should invest in rental properties or the stock market.

Have you had a stable source of income for the past two years (Specifically from a job)?

1. Yes
2. No

If you answered yes, then it will be easier for you to qualify for a mortgage (especially now!).  A mortgage will help you buy a home by funding the majority of the purchase price, to be paid back in monthly payments over an extended period of time. If you have not had a job, that does not mean you cannot qualify for a mortgage. However, it does mean that you may have to jump through some hoops to get financing for a loan, like potentially getting someone with a job to co-sign for you. In the event that you don’t have anyone, it might be a little easier for you to just toss money into a mutual fund.

Do you make over $85,526 a year?

1. Yes
2. No

If you answered yes, you are getting taxed at least 24% of your income. Real estate investing has some of the best tax advantages out there.  Since you are losing a quarter of your income to the government, it might be smarter financially for you to invest in real estate where you will keep more of your hard earned money! If you answered no, this just means you would not benefit from the tax breaks as much, but you could still easily take advantage of it!

Are you good at networking and meeting the right people?

1. Yes
2. No

Was your answer yes? The truth is, real estate investing will require meeting new people all the time to help you find deals, financing, and quality people to help with your investments like lawyers, accountants and contractors. If you are a type of person that hates talking to new people, then it might just be better for you to start buying stocks! This way you never have to talk to anyone again.

Do you have at least $20,000 to invest?

1. Yes
2. No

If you have 20K to start investing, then likely you have enough money to get started in some markets around the United States.  With less than this, it can be challenging to start. So you will either have to keep saving, find a cheaper area to invest, get a partner, or just invest in the stock market.

I am investing:

1. Because I hate my job or working for someone else and I want to be out of my job fast!
2. So I can have a comfortable retirement because I enjoy what I do at my job

Want out of your job? Welcome to the club. 70% of people hate their job. Real estate provides a path for people to quit their job within 5-15 years depending on how aggressive you are (which  I guess  depends on how much you actually hate your job).  

Now, if you are in the minority and love your job, you can still invest in real estate to give yourself a comfortable retirement.

Would you rather:

1. Accept good returns from your investments simply by holding on to them
2. Work more hours and receive higher than average returns from your investments

If you are ok with mediocre returns and not having to do much to get them, the stock market is for you. Again, just buy stocks over time and you’ll be fine.

Now let’s say you are the type of person who does not mind putting a few extra hours of work in... then real estate investing is for you. If you spend the time to learn how to succeed in real estate, you will likely end up making much more money over the long term.

In terms of cashing out my investment, I:

1. Want to be able to get my money right away when I sell
2. Am ok with waiting a few months before receiving my money

If you don’t care about waiting, well, the truth is that real estate investments can take a few months to sell. You need to list it, show it, and receive offers. Once an offer is accepted, you need to make sure the buyer has financing. Expect 60-90 days on the lower end from wanting to sell to getting the cash.

Let’s say you want your money right away: with the stock market, you can literally open up whatever app you use, sell the stock right from your phone, and you get the cash within a few days.