If one question has divided the minds of the financial world for years, it is about the winner of the duel between stocks and real estate. Read about which form of investment is really better for you as an investor.
Shares or real estate – an eternal duel
When it comes to long-term investments, the discussion between proponents of stocks and real estate is a long-running issue. Some consider the real estate yield to be small, while others want nothing to do with price fluctuations on the stock market. But is it so easy to determine which form of investment is really better?
In order to answer this question, we will compare stocks and real estate in the following from the main points of view: the entry and the effort as well as the costs and the return.
Real estate vs. Shares in comparison – point 1: entry & effort
Once you have opened a securities account with an online broker, you can purchase any number of shares with just a few clicks of the mouse. That’s at least in theory. Because the actual investment usually requires a few hours of work in stock trading: you should not only be familiar with the market in general, but ideally also deal extensively with the respective companies whose stocks you want to acquire.
The same applies to real estate and so investors also have to consider numerous factors. The most important factor for investment properties is still the location of a property. The rental income as well as the future increase in value are heavily dependent on the location of the property. Above all, the macro location, i.e. the region or the city, and the micro location, i.e. the district or the immediate vicinity, are decisive factors.
This shows that the search for suitable investments in both the real estate and stock markets takes a lot of time and effort. But of course there are also alternatives: For example, stock lovers invest with less effort in ETFs – listed funds that track the performance of an index (such as the DAX).
And as a real estate investor, you can to a certain extent bypass the fact that you have high equity capital and the search for the perfect location with real estate crowdinvesting. As a private person, you can participate in the real estate boom by investing in promising real estate projects.
Real estate vs. A comparison of stocks – point 2: return & costs
Profits should be generated with every investment. And so in the duel between stocks and real estate, the expected return is the focus of the decision. The key word “expectation” is important here, because it is not possible to precisely predict the profits of either real estate or stocks.
The latter are strongly linked to price fluctuations. Everyone who buys shares participates in a company, so to speak: if it goes up, you profit from profits. Likewise, your shares suffer fully in a downturn.
Even with real estate, certain uncertainty factors can hardly be included in calculations or formulas. Who knows, for example, whether the location of a property will continue to develop positively in the coming years? Or what if there are suddenly high repair costs or loss of rent? You must be prepared for this with the appropriate capital reserves.
But real estate has an advantage from this point of view, because with a view to the profits you can determine a decisive value relatively precisely: You can calculate the real estate return. Basically, income and expenses are compared to determine the profitability of a property.
And on paper, too, the return on real estate is higher than on stocks. This is what the economists at the University of Bonn found out in a long-term study of the development of returns in 16 industrialized countries. The result: Real estate is not only more lucrative (8.7 percent return), but also shows significantly fewer fluctuations compared to stocks (7.8 percent return) – one of the many advantages of real estate investments.
Nonetheless, this result shows that an attractive return can be achieved with both stocks and real estate. After all, both types of investment basically reflect the positive development of the global economy: In the long term, share prices rise, while concrete gold yields slightly more returns and continues to gain in value (at least that’s the theory).
read more: Real estate consultancy
Whether real estate or shares – your own preferences
But if both asset classes are profitable, what should you as an investor refer to? Very simple: It depends on your personal situation and your own preferences.
If you are nervous about price fluctuations and you can also cope with it when your prices drop from time to time, you can invest in stocks with a clear conscience. If, on the other hand, you prefer the stable-value concrete gold and if you like to take care of the rental yourself, then you are well advised with real estate.
In any case, a balanced portfolio is always recommended for investors: You should therefore not tie up all of your capital to one asset class. An example mix: Put your capital reserves in a call money account, buy real estate with part of your assets and invest the remaining part in shares.
Finally, we will summarize three arguments in favor of real estate or stocks:
Three reasons stocks are better than real estate
• An equity fund is less work than a managed property
• Shares can be easily diversified and – unlike houses – do not cause a ‘cluster risk’
• Entry into stock trading is possible with a small amount of money
Three reasons real estate is better than stocks
• Real estate fluctuates less in value and is (at least) stable in value
• Financing of real estate is currently possible with very low interest rates
• Real estate enables personal use or profits from renting
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