When it comes to making money, the choice of real estate vs stocks is one that dominates the mind of investors.
Both investment strategies have exploded over the last few years, with record growth levels attracting more and more people to make passive income.
You’ve likely heard many benefits of each strategy and are confused about which one is best for you, so we have put this together in the hopes of giving you some guidance about the differences between the two.
Do you want the dramatic soaring highs and lows of the stock market, or do you want the more reliable and long-term growth potential of real estate?
This debate between real estate vs stocks is something that investors have explored for many years. If you’re unsure whether investing in rental property vs stocks is the right choice, this guide is for you!
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If you’re asking, “should I invest in real estate?” “Is investing in real estate worth it?, or “should I invest in stocks?” you’ve come to the right place.
Here, you’ll find information on the basics behind property and shares, with all the benefits and risks behind property vs stocks investment.
Keep reading to learn more.
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What Are Your Goals?
Before starting this guide to real estate or stock market investment, you must consider your personal goals and preferences before investing.
Are you investing for a big retirement? Are you investing for your family’s financial future? Or do you just want more cash on the side?
Whatever your goals, each will have a significant impact on what investment strategy you choose.
Moreover, think exactly how you want to handle your investment.
This means considering your risk tolerance, considering whether you are happy to wait for long-term growth, how much money you have available, and if you want a hands-on or hands-off investment.
When choosing between real estate or stock market investment, it is crucial you consider these goals as each investment strategy is suited to different people.
Real Estate vs Stocks: What’s Right for You?
The battle of real estate vs stocks is a tricky problem to solve as it can depend so heavily on your personal goals.
Real estate investment offers more long-term potential but can command a higher entry price. On the other hand, stocks and shares can be more fruitful in the short term but have a higher risk.
So, what’s right for you?
Investing in real estate vs stocks can be hard to decide, so let’s take a deep dive into what exactly real estate investment and stock market investment involves to help you identify which method meets your investment goals.
Real Estate Investment
You may be asking, “why invest in real estate?” and wondering what real estate investment involves.
Put simply, property investment – or real estate investment – is a term used to describe the process of purchasing a property to make a profit.
You can make money from property investment in two ways, through both rental income and capital gains.
From rental income, you can earn consistently strong cash every month, with the current UK average monthly income sitting at £996 PCM.
If you’re considering retirement, capital gains are perhaps the most exciting part of real estate investment.
Capital gains refer to the rise in value of your property over time and are what makes real estate investment the ideal long-term strategy.
If you invest in an area with high growth potential, you could be in line for massive future growth.
For example, the city of Manchester has seen house prices grow by almost 380% in the last 20 years. That means you would earn a 380% profit on your initial investment!
If you’re asking, “Is real estate investment worth it?” when you consider future growth potential, it most certainly can be.
This huge growth potential doesn’t come free, however. Real estate investment can be more expensive than investing in stocks, with the current average UK property costing around £256,405, according to the UK House Price Index.
While you don’t have to pay this fee upfront due to a buy to let mortgage, and you can get property as cheap as £50,000 if you buy off-plan, it can still be far more expensive than investing in stocks.
This is important to consider, as if you don’t have a bulk of money to hand, real estate investment is unlikely to be for you.
Investing in Real Estate
There is a tonne of ways to invest in real estate, but the most popular strategy is likely buy to let.
Buy to let refers to purchasing a property with the purpose of renting it out to a tenant.
The strategy is more of a long-term venture as investors will typically buy and hold the property for a number of years before selling it.
Buy to let property investment typically refers to the investment of either residential or student properties.
However, it can also mean less traditional property types such as a hotel room, retirement home, or commercial property.
Those seeking long-term investments in the UK will normally focus on residential property investment, as this is known to provide the best rental returns, demand, and capital appreciation compared to other property types.
You can also buy a property off-plan.
Off-plan investment is where you can buy a property that hasn’t yet been completed. While this can sound risky, you can get a property far cheaper than the market value.
For instance, here at RWinvest, our Manchester off-plan apartments, Merchant’s Wharf, are valued at 55% below market value.
This method can make a property far more affordable and more accessible to investors.
If you want to learn more about the best property investment strategies, check out our guide.
Stocks and Shares
Often considered the ultimate high–risk, high reward strategy, investing in stocks and shares is when an investor buys a small part of a company hoping that it will grow in value over time.
Like property investment, there are two ways you can earn money through stocks and shares. These are through dividends or capital gains.
By purchasing fractions of a company through stocks, you essentially own a part of that company. This means you’re entitled to a cut of the profit if the company does well, which you earn through dividends.
The percentage of the company that you own depends on the number of shares you purchase.
For instance, if a company had 10,000 shares and you purchased 500 of those, you would own 5% of the company.
The price of a single stock can increase over time, allowing you to sell it for a significant profit. This is known as capital gains/ capital growth.
The problem with stocks and shares is that doing it properly isn’t easy.
While you can use investment apps like Robinhood and Acorns to help you invest and identify the best potential stocks, you will likely need the help of an expert.
Those involved with investing in shares in the UK will either hire an expert such as a stockbroker to manage their investment or select the stocks themselves.
To get the most out of stocks and shares investments, enlisting the help of a stockbroker is generally preferred as they will pick out the best shares to buy in the UK.
With enough research, you may be able to go it alone, but this isn’t recommended as a beginner, as you have a strong chance of losing out on your investment.
When in doubt about choosing between real estate investing vs stocks, be sure to speak to a financial adviser to give you personal advice on your financial situation.
Investing in stocks and shares: Mutual Funds
It’s important to note that while there are plenty of apps out there to help you get started with investing, there are also alternative methods involved with investing in stocks.
One such method is through a mutual fund.
A mutual fund is a type of financial vehicle that uses money pooled from investors to invest in stocks and bonds.
Mutual funds are seen as an ideal investment strategy because they give investors the chance to access a wildly diverse portfolio at a fairly low price.
Like more traditional stocks, you can earn income through both dividends and capital gains and can be well-suited for investors looking to start their stock investment journey without having to choose individual stocks.
There are several types of mutual funds like equity funds, fixed-income funds, index funds, balanced funds, exchange-traded funds, and more.
Be sure to research thoroughly before deciding to invest in a mutual fund. If you have any queries about finances, make sure you speak to a financial adviser.
Stocks vs Real Estate: What Has the Highest Returns
Now that you understand the basics of real estate investing vs stocks, it’s time to look at the return potential of both investment classes to help you decide between stocks or real estate.
To do this, we will compare price growth in 2020/2021 and growth over the last five, 10, and 20 years to see which investment class offers the most significant growth potential.
For comparison’s sake, we will be comparing the FTSE 100 Index and average UK property prices from official Land Registry data.
The Financial Times Stock Exchange 100 is a share index of the 100 highest market capitalisation companies on the stock exchange. It’s a good comparison point as it is often used as a gauge to show how the top businesses are performing in the UK.
Also, due to the way stock market prices fluctuate day-by-day, we have selected a “representative” day from each month/year to compare with property.
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Investing in Real Estate vs Stock Market: 2020/2021
The year 2020 and 2021 has been incredibly turbulent for investors.
With the covid-19 pandemic sweeping the globe, many global economies have been shattered by the pressures of frequent lockdown periods.
Despite this crushing economic impact, though, property prices in the UK have performed remarkably well over the past year.
In the past 12 months, UK property prices have grown at an enormous level.
According to news reports, property prices increased at their highest rate since 2004, with house prices in the UK surpassing the £250,000 mark for the first time.
This was exceptional given the circumstances and surprised many property experts in the UK.
Many attribute this growth to the tax savings available from the stamp duty holiday, along with more people than ever wanting to change homes after changing what they want in their homes after lockdown.
Regardless, 2020 and 2021 proved that property can perform exceptionally well in times of uncertainty.
Between January 2020 and March 2021 (the latest available data from the Land Registry) house prices have increased in value by 10.55%.
This is significant growth and has demonstrated a strong upwards trajectory in house prices over the years.
And with future anticipated house price growth of 21.1% by 2025, it’s clear that real estate investment is one of the most attractive prospects in the UK.
The same cannot be said for the stock market.
The stock market saw its worst crash since 1987 during 2020, with popular stocks like the Dow Jones dropping 3,000 points.
This drop in prices was also seen in the FTSE 100.
As you can see from the graph, the stock market has been incredibly uncertain over the last year.
Prices in the stock market tend to fluctuate heavily day-by-day but can particularly suffer during times of economic uncertainty, as shown in 2020 and 2021.
Between January 2020 and March 2020, FTSE 100 Index prices dropped by almost £2,100 or a percentage drop of -28.76%.
While prices recovered over the year, it wasn’t a convincing recovery, with frequent drops across the next 12 months and beyond.
If you have a high–risk tolerance, you may enjoy the highs and lows of stock market investing.
However, if you want a more stable and reliable growth trajectory, it is likely the real estate market is more for you.
If you’re asking, “should I invest in real estate?” the amount of capital growth you can expect makes the asset class incredibly tempting for many investors.
Again, though, your choice will highly depend on your own temperament and willingness to risk your investment.
This is why, if you want to know what to choose between stocks or real estate, it is essential to ask for financial advice from an expert to see which method is more suited to your situation.
Investing in Real Estate vs Stock Market: 2016 to 2021
As established, property is a more long-term strategy, and the longer you hold onto the asset, the more likely you are to make a significant profit.
With this in mind, let’s take a look at property over the last five years to see how house prices have increased year on year.
As you can see, when purchasing a rental property, you can expect strong growth.
Between 2016 and 2021, average UK house prices have increased in value by 23.47%. This is after consistent growth across the last five years, even during times of uncertainty surrounding covid-19, Brexit, and the UK government.
In comparison, there has been incredibly minimal growth in the FTSE 100 Index over the last five years.
There was initially strong growth, with prices increasing by 18.54% between 2016 and 2017.
However, after multiple drops between 2018 and 2020, growth potential was reduced, with a final five-year growth of 14.56%.
This is significantly less than property price growth, which increased consistently over the last five years.
It’s important to note also that the FTSE 100 represents some of the biggest companies in the UK.
These growth levels may vastly differ in smaller businesses, which may see massive growth like Gamestop, or may suffer even more due to economic pressures.
This is one of the main difficulties behind stocks and shares; it can be almost impossible to predict.
Investing in Real Estate vs Stocks: 10- and 20-Year Growth Rates
When comparing investing in stocks vs real estate, it is important to think long-term.
For many investors looking at retirement, long-term growth potential over a 10 and 20-year period can be key as it demonstrates how strong the capital growth potential of an asset is.
Between 2011 and 2021, the average UK property has increased in value by 54.79%.
On the other hand, FTSE 100 Index prices over the same period increased by 19.01%.
Looking back further still between 2001 and 2021, UK prices increased on average by around 175.30%.
For the FTSE 100 Index, prices increased in the last 20 years by just 20.14%.
It’s clear when it comes to long-term capital growth that real estate performs far better than the stock market.
It’s important to note, though, that many investors don’t use stocks for long-term capital growth the same as property.
In fact, many investors choose to buy low and sell high at the opportune time and then often reinvest into another stock.
While this can certainly be used to describe property investors, it’s essential to consider that huge growth can happen day by day in the stock market.
Let’s take 2020 as an example.
A stock market investor could have bought some stocks when the price dropped in March 2020 at £5,190.
In just over four months, they could have sold the stocks for a 21.18% profit.
This is why investment goals matter so much when deciding between property vs stocks. If you have the nerve to risk your investment and take the chance prices will rise again, you could opt for a stock.
On the other hand, if you want a safety net and want a more secure and long-term investment, then property is the obvious choice.
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Vantage Point
Unique and High-Quality Residential Accommodation
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Limited Time Property Investment Deals
Deals of the Week
Limited Time Property Investment Deals
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Prices from £124,950
High Assured Rental Income
Exclusive deals of the week
External Works Progressing Fast
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Luxury Waterfront Apartments
Manchester
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Up to 6.5% Projected Rental Return
Secure a Unit With as Little as £62,732
Investing in Stocks versus Real Estate: The Risks
Like any investment, there is going to be risk involved when considering stocks versus real estate.
The last 20 years have delivered some of the most uncertain economic times the UK has ever seen, with the 2008 banking crisis, Brexit, Covid-19, and more causing severe issues.
With such economic frailties in the background, it’s important to try and find an investment strategy that delivers fewer risks out of stocks vs real estate.
Real Estate
As we have seen from past statistics, the UK market has performed incredibly well over the last two decades despite economic pressures, but that doesn’t mean it doesn’t come with risks.
If you invest in an area with low growth potential and low rental demand, you could be in line for a disaster investment with you seeing very little return on your investment.
Thankfully, it can be simple to avoid these risks by doing research.
Research is the singular most important aspect of property investment. You cannot enter the real estate market casually without a plan and expect strong returns.
You need to evaluate the strength of an area’s real estate market and question if that area is suitable for your goals.
The factors you need to consider are affordability, rental yields, growth potential, and rental demand.
By ensuring a city or location features all these attributes, you vastly increase your chances of having a successful investment.
If you want to learn more about buying a rental property and find out the best places to invest, be sure to read our in-depth guide.
Another risk is choosing to invest with an unreliable investment company and developer when buying off–plan.
Off-plan is one of the best ways to invest in real estate as it ensures far lower prices than you would usually get. However, the issue is that if you invest with an unreliable company, the project may see delays or even collapse.
While there’s a small chance of this happening, you must do your due diligence before investing. This means checking out reviews on third-party websites like Trustpilot and looking at the company’s track record of delivering properties.
Finally, you may encounter financial issues if you buy to sell or house flip. House flipping is a property strategy where you buy a property, fix it up, and then sell it quickly for a profit.
This strategy isn’t recommended for beginners as it comes with a tonne of risks. While overseeing repairs, things can quickly go wrong and set you back thousands of pounds if you aren’t careful.
If you want the easiest way to invest in property, it is best to avoid methods like this and instead opt for buy to let investment through a property investment company for the best results.
Stocks
When it comes to risks, there are few investment methods as volatile as stocks.
While you can carefully select what stocks you invest in, the reality is there are so many outside factors that can cause a stock to crash that you are powerless to control.
This includes geopolitical issues and economic pressures, with stocks sometimes forcibly inflated, as seen in the GameStop stock debacle.
If you invest in stock from overseas, you could be affected by a tonne of factors, including new monetary policies, taxes and regulations, and a change of interest rates. This could result in stock prices plummeting without warning.
To avoid this, it is best to diversify your portfolio. This means buying multiple stocks in different companies to avoid impact from a single stock crashing.
Overall, stocks can be incredibly risky. If you have a low–risk threshold, it is best to avoid investing too much money into the market.
This is why when comparing stocks versus real estate, it is vital to consider your own personal preferences when choosing how to invest.
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Real Estate vs Stock Market Returns
The final aspect we need to consider when comparing real estate vs stocks is the potential return on investment.
For real estate, return on investment can be calculated using rental yield.
Here, you can work out how much return on investment you earn every month through rent. It essentially shows how real estate investment can pay for itself in the long run.
It is calculated by dividing your yearly rental income by the original purchase price and multiplying by 100 for a percentage.
Let’s use the average UK property as an example.
According to Homelet, the average UK rental income per year will be around £11,952.
This means the average rental yield in the UK is 4.66%.
That means every year, you will see a 4.66% return on your investment just through rental income.
Of course, rental yields in the UK can change drastically depending on the entry price and average rent.
For instance, some cities like Manchester and Liverpool, which are widely considered two of the best areas to invest in property, can generate yields upwards of 8%.
Comparing return on investment to stocks, however, can be more difficult.
In many circumstances, the comparison between real estate and stocks can be apples to oranges, with each seeing very different returns.
For stocks, you can calculate return on investment by taking away the ending value of an investment by the initial entry cost and then dividing it by the initial entry cost.
Most stock investors would deem a good annual return of investment to be around 10%.
This can, of course, heavily differ depending on the year and can feature negative returns depending on what happens.
For instance, the S&P 500 Stock Index entered negative territory twice in the past 10 years, with another year seeing a 0% return.
The bottom line is that real estate vs stock market returns can both be very high. It is incredibly hard to directly compare return potential when investing in stocks vs real estate, and you should decide which option you opt for based on your risk tolerance.
The Pros of Property Investment
So, should you invest in real estate?
Many people wonder, “is real estate investing worth it?” and there are plenty of reasons why you should consider property as the ultimate investment strategy.
The Pros are:
- It’s a tangible asset
- It’s easy to get started
- The UK property market is performing well
- You have more control
- Can be completely hands-off and generate passive income
One of the main advantages of property when considering the housing market vs stock market is the fact that property is a tangible asset.
This means that unlike when investing in shares, UK investors who purchase an investment property benefit from owning something they can physically see and touch.
For many people, this provides a sense of security as you can see where your money is going.
Tangible assets are often considered the best type of investment for many reasons.
One reason is the fact that tangible assets are seen as a ‘hedge’ against inflation.
This means that when the cost of living increases, so do property market prices.
This is beneficial for those who have invested in a rental property as it allows them to start earning a higher amount of rental income.
With the stock market, however, inflation can negatively affect your investment.
Compared to investing in shares, UK property investment is relatively easy to get involved with as a beginner.
There’s a lot of helpful information out there on all things related to property investment, allowing first-time investors to learn more about the industry and access property investment tips and advice before beginning their venture.
A quick internet search and investors can access a range of information on everything from expected tax payments, interest rates, potential income gains, the best areas to invest in, and more.
Once research has been done, investors can get started with their investment and often don’t necessarily need to seek professional advice.
This is one of the biggest advantages of property vs shares for those who wish to immerse themselves in the investment and soak up more knowledge, as with stocks and shares, investors will normally hire a stockbroker to make all of the related decisions.
For those hoping for the best investment returns, UK property investment may well be the answer.
The property market in the UK is currently performing highly, with property price growth and increased rental demand seen across the country’s top cities.
One of the main concerns for those choosing between investing in rental property vs stocks is whether or not they will make a significant return on investment.
When owning a rental property, high rental yields are a big factor to look out for.
If a property investment opportunity comes with high yields, you can expect to generate some significant returns.
When you look at rental yields in the UK, you’ll find that a number of areas offer some lucrative buy to let options.
Liverpool, for example, boasts a total of six postcodes that make the list of Totally Money’s best rental yield areas.
Most notably, the L1 postcode offers rental yields of up to 10% – the highest in the UK!
This means that property investors who purchase a rental property in this postcode can benefit from lucrative returns on a regular basis.
Many other cities in the UK are also known to offer high yields, including other Northern cities like Manchester.
Along with rental yields, capital growth is a key factor to keep in mind when deciding between stock market or rental property investments.
If a property is based in an area with a slow-growing market, those who invest in it are likely to see low returns from capital growth, or no returns at all.
Luckily, the UK property market has shown signs of strong growth over recent months, with predictions for even further rises in many key property hotspot areas.
As a whole, the UK property market in 2020 was seen to have risen at its fastest rate since 2004.
This growth has continued in 2021, with property prices in areas like Liverpool 18.09% higher than a year prior, as of March.
Similar growth was seen in Manchester with a 16.23% growth over the same period. By 2025, the North West region is expected to have risen in value by 28.8% making investment potential some of the highest you will find in all of Europe.
Those wondering ‘should I invest in real estate or stocks?’ need to think about the level of control they wish to have over their investment.
When investing in a rental property, you’re given a much higher level of control and freedom than you would have if you purchased stocks and shares.
Right from initial purchase, investors are offered total control of their investment, being able to research the best buy to let locations and select their property of choice.
Many real estate investors who want to earn passive income with a hassle-free investment will choose to hire a property manager to take care of any landlord duties and the general upkeep of the property.
However, those who don’t wish to use a property management company to find tenants and carry out landlord duties also have the choice of managing the property themselves.
This can be a good option for those who have more free time on their hands, such as those who are retired or looking for an extra project to manage alongside their main career.
Another area you have control over when investing in a rental property is when and how you plan to sell the property.
Savvy investors will research the UK property market to find out the best possible time to consider exiting their investment.
This would typically be when the property market is likely to be at its strongest. Investors have freedom over the amount they wish to sell the property for.
Of course, it’s always recommended to seek a professional valuation or do thorough research before reaching a final listing price.
If your property is listed too high above value, it may be more difficult to sell.
Alternatively, if you go for a property price that’s too low, you could miss out on the chance to make larger returns on your investment.
Perhaps one of the best benefits to real estate investment is the ability to have a completely hands-off investment while generating pure passive income.
While many buy to let investors choose to become landlords, this isn’t a choice you need to make.
Instead, you can use the services of a property management company.
If you live away from your property, whether that be in another city or another country, it will be incredibly difficult to deal with the day-to-day needs of managing a property.
Thankfully, through the services of a property management company, the company can deal with all landlord roles like finding tenants, dealing with their issues, and collecting rent.
While they charge a fee for this service, it does mean you can simply sit back and relax while your property generates frequent passive income.
Overall, if you’re wondering should you invest in real estate, there are plenty of reasons why you should.
It’s a Tangible Asset
One of the main advantages of property when considering the housing market vs stock market is the fact that property is a tangible asset.
This means that unlike when investing in shares, UK investors who purchase an investment property benefit from owning something they can physically see and touch.
For many people, this provides a sense of security as you can see where your money is going.
Tangible assets are often considered the best type of investment for many reasons.
One reason is the fact that tangible assets are seen as a ‘hedge’ against inflation.
This means that when the cost of living increases, so do property market prices.
This is beneficial for those who have invested in a rental property as it allows them to start earning a higher amount of rental income.
With the stock market, however, inflation can negatively affect your investment.
It’s Easy to Get Into
Compared to investing in shares, UK property investment is relatively easy to get involved with as a beginner.
There’s a lot of helpful information out there on all things related to property investment, allowing first-time investors to learn more about the industry and access property investment tips and advice before beginning their venture.
A quick internet search and investors can access a range of information on everything from expected tax payments, interest rates, potential income gains, the best areas to invest in, and more.
Once research has been done, investors can get started with their investment and often don’t necessarily need to seek professional advice.
This is one of the biggest advantages of property vs shares for those who wish to immerse themselves in the investment and soak up more knowledge, as with stocks and shares, investors will normally hire a stockbroker to make all of the related decisions.
The UK Property Market Is Performing Well - Part I
For those hoping for the best investment returns, UK property investment may well be the answer.
The property market in the UK is currently performing highly, with property price growth and increased rental demand seen across the country’s top cities.
One of the main concerns for those choosing between investing in rental property vs stocks is whether or not they will make a significant return on investment.
When owning a rental property, high rental yields are a big factor to look out for.
If a property investment opportunity comes with high yields, you can expect to generate some significant returns.
When you look at rental yields in the UK, you’ll find that a number of areas offer some lucrative buy to let options.
Liverpool, for example, boasts a total of six postcodes that make the list of Totally Money’s best rental yield areas.
Most notably, the L1 postcode offers rental yields of up to 10% – the highest in the UK!
This means that property investors who purchase a rental property in this postcode can benefit from lucrative returns on a regular basis.
The UK Property Market Is Performing Well - Part II
Many other cities in the UK are also known to offer high yields, including other Northern cities like Manchester.
Along with rental yields, capital growth is a key factor to keep in mind when deciding between stock market or rental property investments.
If a property is based in an area with a slow-growing market, those who invest in it are likely to see low returns from capital growth, or no returns at all.
Luckily, the UK property market has shown signs of strong growth over recent months, with predictions for even further rises in many key property hotspot areas.
As a whole, the UK property market in 2020 was seen to have risen at its fastest rate since 2004.
This growth has continued in 2021, with property prices in areas like Liverpool 18.09% higher than a year prior, as of March.
Similar growth was seen in Manchester with a 16.23% growth over the same period. By 2025, the North West region is expected to have risen in value by 28.8% making investment potential some of the highest you will find in all of Europe.
You Have More Control
Those wondering ‘should I invest in real estate or stocks?’ need to think about the level of control they wish to have over their investment.
When investing in a rental property, you’re given a much higher level of control and freedom than you would have if you purchased stocks and shares.
Right from initial purchase, investors are offered total control of their investment, being able to research the best buy to let locations and select their property of choice.
Many real estate investors who want to earn passive income with a hassle-free investment will choose to hire a property manager to take care of any landlord duties and the general upkeep of the property.
However, those who don’t wish to use a property management company to find tenants and carry out landlord duties also have the choice of managing the property themselves.
This can be a good option for those who have more free time on their hands, such as those who are retired or looking for an extra project to manage alongside their main career.
Another area you have control over when investing in a rental property is when and how you plan to sell the property.
Savvy investors will research the UK property market to find out the best possible time to consider exiting their investment.
This would typically be when the property market is likely to be at its strongest. Investors have freedom over the amount they wish to sell the property for.
Of course, it’s always recommended to seek a professional valuation or do thorough research before reaching a final listing price.
If your property is listed too high above value, it may be more difficult to sell.
Alternatively, if you go for a property price that’s too low, you could miss out on the chance to make larger returns on your investment.
Hands-off Allowing You to Generate Passive Income
Perhaps one of the best benefits to real estate investment is the ability to have a completely hands-off investment while generating pure passive income.
While many buy to let investors choose to become landlords, this isn’t a choice you need to make.
Instead, you can use the services of a property management company.
If you live away from your property, whether that be in another city or another country, it will be incredibly difficult to deal with the day-to-day needs of managing a property.
Thankfully, through the services of a property management company, the company can deal with all landlord roles like finding tenants, dealing with their issues, and collecting rent.
While they charge a fee for this service, it does mean you can simply sit back and relax while your property generates frequent passive income.
Overall, if you’re wondering should you invest in real estate, there are plenty of reasons why you should.
In 2021, all the latest market data is suggesting real estate investment is the best way to maximise returns.
Daniel Williams, RWinvestThe Cons of Property Investment
Many people ask, “is real estate investing worth it?” and with so many benefits involved, it may be an obvious answer that real estate investment is a strong choice for investors.
However, while property investment can be incredibly beneficial when done right, it doesn’t mean there are no potential drawbacks.
The cons:
- Property could decrease in value
- Potential void periods
- Not as liquid as other investment classes
While property investment can be a worthwhile venture and offer some of the best investment returns in the UK, there are some things to be aware of.
One of the biggest downsides of investing in a rental property lies with property market fluctuations and the fact that your property is at risk of decreasing in value if you make the wrong investment.
This is only likely if you purchase a property in an area with a declining market, which is why it’s so essential to carry out adequate market research.
An example of where many investors go wrong with their property venture is by investing in London’s property market.
While London would certainly be the first choice for many investors, particularly those from overseas, the reality is that the property market in London is not performing well in a number of postcodes.
Two London postcodes appear in the Totally Money list of the worst buy to let postcodes in the UK due to their low rental yields. London, as a whole, is seeing property prices decline.
From September 2018 – 2019, it was recorded that London house prices fell faster than anywhere else in the country.
While some London boroughs such as Newham and Hillingdon have seen a level of growth, investors should be savvy enough to research and recognise the UK areas to invest in and the areas to avoid.
As mentioned above, Liverpool and Manchester in the North West region are likely your best bet if you’re deciding whether to invest in property or shares and are seeking the best possible returns from buy to let.
Here, property prices have a track record of growth and are expected to rise significantly over the coming years.
If you’re not familiar with the term, void periods are when a rental property goes without a tenant for a certain length of time.
When an investor encounters void periods, they’re losing income that they could otherwise be getting from rental payments.
This is particularly problematic for those using a buy to let mortgage to pay for their investment, as you still need to keep up with mortgage payments even if you’re not making any money from the property.
Like decreasing property prices, this can be avoided with the right market research. Void periods typically happen if an investor has purchased a property in an area with a low level of demand.
Alternatively, this may happen if you purchase a property that is considered undesirable and doesn’t instantly attract tenants.
Areas with low demand tend to be those with small populations of younger tenants.
While other tenant groups like families or retirees do also seek out rental properties, young professionals and students make up the majority of the UK rental market.
With this in mind, it comes as no surprise that cities like Manchester generate such high rental demand for investors, due to the city having one of the UK’s youngest populations.
Young professional and student tenants tend to favour a certain type of property.
Properties that feature old and outdated designs, fixtures, and furnishings aren’t likely to bring in a lot of demand.
Investors who hope to avoid losing income through void periods should aim to invest in a new build property with a modern and stylish design.
As of late, with more people working from home due to the Covid-19 pandemic, demand has risen for rental properties with features like a balcony or garden and high-speed internet.
Location also plays a big part in how much demand you attract.
Those who purchase a property which is close to the city centre and transport connections are sure to bring in a lot of tenant interest.
By following these guidelines and carrying out property research, you can avoid some of the possible downsides of property investment if you opt for property over shares.
One of the more prominent risks of property investment is the asset class cannot be easily liquidated.
This mean it can be incredibly difficult to cash in on a property quickly if an investment goes wrong.
When comparing stocks vs real estate, when things go wrong on the stock market, you can quickly sell your assets and cut your losses.
For property, though, it may take months for you to sell your property, all while being stuck with mortgage payments if the property isn’t currently generating money.
Again, this is why research is so vital so you can avoid making a bad investment. As long as you invest in a high-performing area that is predicted to see property market growth, you should have a successful property investment venture.
Your Property Could Decrease in Value
While property investment can be a worthwhile venture and offer some of the best investment returns in the UK, there are some things to be aware of.
One of the biggest downsides of investing in a rental property lies with property market fluctuations and the fact that your property is at risk of decreasing in value if you make the wrong investment.
This is only likely if you purchase a property in an area with a declining market, which is why it’s so essential to carry out adequate market research.
An example of where many investors go wrong with their property venture is by investing in London’s property market.
While London would certainly be the first choice for many investors, particularly those from overseas, the reality is that the property market in London is not performing well in a number of postcodes.
Two London postcodes appear in the Totally Money list of the worst buy to let postcodes in the UK due to their low rental yields. London, as a whole, is seeing property prices decline.
From September 2018 – 2019, it was recorded that London house prices fell faster than anywhere else in the country.
While some London boroughs such as Newham and Hillingdon have seen a level of growth, investors should be savvy enough to research and recognise the UK areas to invest in and the areas to avoid.
As mentioned above, Liverpool and Manchester in the North West region are likely your best bet if you’re deciding whether to invest in property or shares and are seeking the best possible returns from buy to let.
Here, property prices have a track record of growth and are expected to rise significantly over the coming years.
You Could Suffer Void Periods
If you’re not familiar with the term, void periods are when a rental property goes without a tenant for a certain length of time.
When an investor encounters void periods, they’re losing income that they could otherwise be getting from rental payments.
This is particularly problematic for those using a buy to let mortgage to pay for their investment, as you still need to keep up with mortgage payments even if you’re not making any money from the property.
Like decreasing property prices, this can be avoided with the right market research. Void periods typically happen if an investor has purchased a property in an area with a low level of demand.
Alternatively, this may happen if you purchase a property that is considered undesirable and doesn’t instantly attract tenants.
Areas with low demand tend to be those with small populations of younger tenants.
While other tenant groups like families or retirees do also seek out rental properties, young professionals and students make up the majority of the UK rental market.
With this in mind, it comes as no surprise that cities like Manchester generate such high rental demand for investors, due to the city having one of the UK’s youngest populations.
Young professional and student tenants tend to favour a certain type of property.
Properties that feature old and outdated designs, fixtures, and furnishings aren’t likely to bring in a lot of demand.
Investors who hope to avoid losing income through void periods should aim to invest in a new build property with a modern and stylish design.
As of late, with more people working from home due to the Covid-19 pandemic, demand has risen for rental properties with features like a balcony or garden and high-speed internet.
Location also plays a big part in how much demand you attract.
Those who purchase a property which is close to the city centre and transport connections are sure to bring in a lot of tenant interest.
By following these guidelines and carrying out property research, you can avoid some of the possible downsides of property investment if you opt for property over shares.
Not Liquid
One of the more prominent risks of property investment is the asset class cannot be easily liquidated.
This mean it can be incredibly difficult to cash in on a property quickly if an investment goes wrong.
When comparing stocks vs real estate, when things go wrong on the stock market, you can quickly sell your assets and cut your losses.
For property, though, it may take months for you to sell your property, all while being stuck with mortgage payments if the property isn’t currently generating money.
Again, this is why research is so vital so you can avoid making a bad investment. As long as you invest in a high-performing area that is predicted to see property market growth, you should have a successful property investment venture.
The Pros of Investing in Stocks and Shares
You may be wondering, “should I invest in stocks?” and the truth is the stock market can be incredibly fruitful.
With billionaires like Warren Buffet making a lot of their cash through stocks and shares, it’s clear that if done right, the stock market can be fantastic for investing.
The pros:
- Hands-off investment
- Easily diversify
- Can be more affordable than property
- More liquid than property
It’s a Hands-Off Investment
Through the use of the services of a stockbroker, investing in stocks can be an incredibly hands-off investment experience.
This allows investors to be able to make returns alongside their usual day to day commitments such as their full-time job.
It’s important to note, though, that many stock market investors have started to go solo and not use the help of an expert.
This is when stock market investing becomes incredibly hands-on. Not only do you have to identify the stocks you want to buy, but you will also need to constantly monitor the market to keep on top of any crashes that may occur.
If you do decide to go down this route, it’s important to keep in mind that if you’re considering the stock market vs real estate, you should still take time to research the market and gain some first-hand knowledge.
It’s advised that anyone looking for information on which share to buy and how to invest in shares in the UK should seek out some professional advice before getting started.
This way, you’ll get a better idea of the best investment portfolio for your needs.
You could even find that after research and advice, investing in stocks and shares isn’t the right option for you.
The Ability to Easily Diversify Your Portfolio
All good investors should understand the importance of a diverse portfolio, especially when comparing the stock market vs real estate.
Diversification is essential whatever investment strategy you take, as it ensures you’re spreading your risk across different avenues.
If you don’t have a lot of money available when you begin investing, it can be easier to build a diverse portfolio when you invest in stocks in the UK.
This is because unlike property which tends to be higher priced, it’s possible to begin investing in stocks with less money than you would typically need to purchase a rental property.
However, it’s important to keep in mind that you’re not likely to see a significant return on your investment through stock investment in the UK without taking more risk with your money.
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Vantage Point
Unique and High-Quality Residential Accommodation
Manchester
Prices from £132,950
7% Assured Rental Yields
North West Regeneration Hotspot
Limited Time Property Investment Deals
Deals of the Week
Limited Time Property Investment Deals
UK
Prices from £124,950
High Assured Rental Income
Exclusive deals of the week
External Works Progressing Fast
Merchant's Wharf
Luxury Waterfront Apartments
Manchester
Prices from £249,950
Up to 6.5% Projected Rental Return
Secure a Unit With as Little as £62,732
The Cons of Investing in Stocks and Shares
While there are plenty of good reasons to answer the question “should I invest in stocks?” it can also be incredibly risky.
While there are thousands of success stories on the stock market, there are also a million failures.
The cons:
- High risk and more volatile
- Can take a while to see returns
- Can be emotionally-driven
It’s High Risk and More Volatile
The tricky thing with stock investment in the UK is that while taking more risk and investing larger amounts of money is often the recipe to success, you also risk losing everything.
Stocks and shares are known to be the riskiest asset class out there, which is important to consider when comparing investing in rental property vs stocks.
Stock prices can rise and fall at a moments notice, with stock prices changing minute-to-minute and day-to-day.
This volatility can be incredibly difficult to manage, and will often require strong guts to stay in your investment if a crash does occur.
This is why property investment is relatively low risk compared to the stock market.
If you’re not prepared to lose all of your money, then investing in stocks and shares may not be right for you.
With property, you’ll have much better peace of mind that your money should be safe, and you have the potential to make returns on your investment without the added risk.
It Can Take a While to See Returns
Stocks and shares are more ideally suited to those looking for long-term investment options in the UK.
While property investment can definitely also be considered a long-term investment, it can take a long time before you see a return on your investment with stocks.
When comparing investing in rental property vs stocks, this is one of the biggest cons of stocks and shares to keep in mind.
With buy to let investment, you’re able to see returns through both rental income and capital growth further down the line.
Say you purchased a rental property today which was completed, in high demand, and attracted a tenant quickly.
You would be able to start generating rental returns right away, with higher returns on an investment with a strong rental yield.
Then, after years of making rental income, you could find that the property market has experienced a sudden rise which is well above usual growth rates.
This would allow you to then sell your property for a much higher amount than you initially purchased it for, generating significant capital growth returns.
With stocks and shares investments, on the other hand, year-on-year stock market fluctuations mean that it’s usually wise to keep your money tied up for longer periods.
This is, of course, a problem for those who aren’t comfortable with not having access to any return on investment for this length of time.
Can Be Emotionally Driven
One of the main factors behind failure in the stock market is the emotionally driven nature of the investment.
What we mean by this is if stocks fall or rise, you may let your emotions take over and dictate what you do.
This could either be selling early, or overestimating the stock rises and selling too late, which can both dramatically impact your investment success.
To succeed with stocks, you need to remain calm and collected, which can obviously be difficult if you have a large amount of money placed into a company.
Whether you decide to invest in real estate or stocks, it is vital you match the investment strategy to your goals.
This is why you need the right temperament if you want to invest in the stock market. If you don’t like risks, it is best to avoid placing too much money into stocks and shares.
Investing in Property or Shares: Key Factors to Consider
Now that we’ve weighed up the pros and cons of both investing in rental properties and investing in stocks and shares, here are four important questions you should ask yourself if you’re still tied between shares vs property as an investment strategy.
How Much Are You Willing to Invest?
What kind of budget do you have for your investment?
If you’ve spent a long time saving funds to use for an investment, the high risk associated with stocks and shares means that you could end up losing everything you’ve worked so hard to save.
Lower budgets are typically better suited to property investment, as investing in rental properties gives you the option to use a buy to let mortgage, pay in instalments, and generally spend less money to see large returns compared to stocks and shares.
What Income Do You Expect to Make and How Quickly?
Think about the amount of money you hope to generate as a return on investment, and how quickly you want this to happen.
As mentioned above, investing in stocks and shares can mean it takes a little longer to see any return on investment, while investing in rental properties allows the investor to see regular rental income as soon as a tenancy begins.
While both strategies are certainly capable of generating a large return on investment, research often points at property being a more lucrative option.
According to Halifax house price data for the period between 2000 to 2014, £100,000 invested into property generated a return of 132%, while the same amount invested into UK equities made an 83% return.
How Much Do You Want to be Involved in the Investment?
Whether or not you want to make a hands-on or hands-off investment, you still need to think about the level of involvement you want to have with your investment.
Some investors, for instance, may prefer to find their investment themselves after researching the market, but don’t have the time to manage the investment due to other commitments.
In this case, investing in rental properties is the best option as you’re able to have a level of control over your investment while also using a rental management company to oversee day-to-day duties.
On the other hand, if you simply want to put your money into an investment without having any say or knowledge on the asset, then you may be better suited for investing in shares.
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Investing in Real Estate vs Stocks - Frequently Asked Questions
So, is rental property a better investment than stocks?
There are pros and cons to both real estate and stocks. In order to decide whether investing in rental property vs stocks is best for you, you need to do your research and think about your personal goals and requirements.
For instance, if you don’t want to risk losing your money, then property is the best investment to make.
While it is possible to make a lot of money by investing in stocks, property is a stable and tangible asset that can offer some of the best investment returns UK investors can make.
If you do decide that you’d rather invest in shares, be sure to seek out the advice of a trusted financial advisor who is experienced in personal finance matters and can walk you through your options.
If you have a budget of £100k, real estate is your best option.
Many property investment opportunities in the UK are highly affordable and offer fantastic returns.
With a £100k budget, you could split your funds across different properties and build a diverse portfolio.
Stocks, on the other hand, have a much higher level of risk.
While investing £100k into the stock market can be lucrative, it can also cause you to lose everything you invest.
If the money you plan to invest is important to you, such as your savings, then property is a better choice when deciding between real estate or stocks.
The year 2020 was a very uncertain time for the economy.
Back in March 2020, the Covid-19 crisis was officially announced as a pandemic, and many countries around the world went into lockdown, wreaking havoc on businesses both large and small.
During this time, a lot of investors were fearful that their ventures would be negatively affected by the resulting recession of the coronavirus pandemic.
But how did investments in rental property vs stocks compare during this time?
On March 12th, the stock market experienced a crash.
The Dow Jones saw stock and share prices drop by 10%, which was the highest fall since the stock market crash of 1987.
Following this period of stock market volatility, many investors started investing in rental property instead of stocks.
With property being a more physical and tangible asset than the stock market, many people prefer property when it comes to investing in a rental property vs stock market investment.
While the UK property market did experience a downturn in activity and a lull in property prices, as of October, UK property prices rose by 5.8% which was the highest annual growth rate seen in four years.
This shows that in times of economic trouble, investing in a rental property is a strong option compared to the stock market.
For those looking to invest during a recession and wondering if they should invest in real estate or stocks, it’s evident that real estate investments are more of a reliable asset.
Both real estate investing and stock investing come with their own taxes that investors will need to pay.
Property taxes include stamp duty tax, income tax for rental income, and capital gains tax upon sale of the property.
With a stocks and shares investment, you also need to pay capital gains tax and income tax if your profits go over a certain amount.
All people investing in a rental property or stocks will need to pay capital gains tax upon sale of their asset, with the exception being for those who hold funds in a stocks and shares ISA.
Those investing in a stocks and shares ISA are able to make a tax-free investment, although potential cash flow can be limited with this type of investment.
So, is there any way for either property investors or those pursuing stock investing to make tax savings, and are there any tax benefits for investors to be aware of?
For the 2020/21 tax year, investors can make £12,300 in capital gains before capital gains tax is required. This applies to both rental properties and shares.
One tax benefit which was introduced in 2020 is the stamp duty land tax holiday, which launched in July and is set to last until June 2021.
While the stamp duty tax holiday doesn’t allow completely tax-free buy to let investments, it lets property investors save up to £15,000 depending on the price of the property.
For those who are interested in the property market but want to know how to invest in shares and stocks instead of buying property, property shares are a popular option.
To invest in property shares is to buy stocks and shares in a property-focused company such as a real estate investment trust.
This way, the investor is still involved in the property market in some way without actually investing in property itself.
Those who buy shares in property do so for the same reasons that many investors invest in stocks and shares instead of property.
However, if you’re keen to get involved with the property market as an investor, purchasing a buy to let property is often the better choice as this offers you more lucrative returns when done right, and more control of your investment choices.
In times of economic uncertainty in the UK, the property market has remained resilient compared to the stock market.
Property prices in the UK are rising significantly following Brexit in January 2019, and are only expected to grow stronger over time.
Due to the high level that the UK property market is currently performing at, the market is attracting interest from those overseas.
By investing in British bricks and mortar, you give yourself the chance to make large returns through both regular rental payments and capital gains while owning a valuable asset.
If you’re asking is it a good time to invest in real estate, and is real estate a good investment right now, then yes, it is an excellent time to invest in real estate.
House prices are set to rise by 21.1% by 2025 according to Savills, with house prices already seeing huge growth in 2020 and 2021. Rental income is also set to increase by 17% in the UK, making it the ideal time to invest to capitalise on the future growth potential of the country.
Is it Better to Invest in Real Estate or Stocks?
So, is rental property a better investment than stocks?
There are pros and cons to both real estate and stocks. In order to decide whether investing in rental property vs stocks is best for you, you need to do your research and think about your personal goals and requirements.
For instance, if you don’t want to risk losing your money, then property is the best investment to make.
While it is possible to make a lot of money by investing in stocks, property is a stable and tangible asset that can offer some of the best investment returns UK investors can make.
If you do decide that you’d rather invest in shares, be sure to seek out the advice of a trusted financial advisor who is experienced in personal finance matters and can walk you through your options.
I Have a Budget of £100k, Should I Invest in Real Estate or Stocks?
If you have a budget of £100k, real estate is your best option.
Many property investment opportunities in the UK are highly affordable and offer fantastic returns.
With a £100k budget, you could split your funds across different properties and build a diverse portfolio.
Stocks, on the other hand, have a much higher level of risk.
While investing £100k into the stock market can be lucrative, it can also cause you to lose everything you invest.
If the money you plan to invest is important to you, such as your savings, then property is a better choice when deciding between real estate or stocks.
What’s the Best Asset to Invest in During a Recession - Rental Property or Stocks?
The year 2020 was a very uncertain time for the economy.
Back in March 2020, the Covid-19 crisis was officially announced as a pandemic, and many countries around the world went into lockdown, wreaking havoc on businesses both large and small.
During this time, a lot of investors were fearful that their ventures would be negatively affected by the resulting recession of the coronavirus pandemic.
But how did investments in rental property vs stocks compare during this time?
On March 12th, the stock market experienced a crash.
The Dow Jones saw stock and share prices drop by 10%, which was the highest fall since the stock market crash of 1987.
Following this period of stock market volatility, many investors started investing in rental property instead of stocks.
With property being a more physical and tangible asset than the stock market, many people prefer property when it comes to investing in a rental property vs stock market investment.
While the UK property market did experience a downturn in activity and a lull in property prices, as of October, UK property prices rose by 5.8% which was the highest annual growth rate seen in four years.
This shows that in times of economic trouble, investing in a rental property is a strong option compared to the stock market.
For those looking to invest during a recession and wondering if they should invest in real estate or stocks, it’s evident that real estate investments are more of a reliable asset.
Are There Any Tax Differences Between Real Estate vs Stocks?
Both real estate investing and stock investing come with their own taxes that investors will need to pay.
Property taxes include stamp duty tax, income tax for rental income, and capital gains tax upon sale of the property.
With a stocks and shares investment, you also need to pay capital gains tax and income tax if your profits go over a certain amount.
All people investing in a rental property or stocks will need to pay capital gains tax upon sale of their asset, with the exception being for those who hold funds in a stocks and shares ISA.
Those investing in a stocks and shares ISA are able to make a tax-free investment, although potential cash flow can be limited with this type of investment.
So, is there any way for either property investors or those pursuing stock investing to make tax savings, and are there any tax benefits for investors to be aware of?
For the 2020/21 tax year, investors can make £12,300 in capital gains before capital gains tax is required. This applies to both rental properties and shares.
One tax benefit which was introduced in 2020 is the stamp duty land tax holiday, which launched in July and is set to last until June 2021.
While the stamp duty tax holiday doesn’t allow completely tax-free buy to let investments, it lets property investors save up to £15,000 depending on the price of the property.
What Are Property Shares? Are They a Good Investment?
For those who are interested in the property market but want to know how to invest in shares and stocks instead of buying property, property shares are a popular option.
To invest in property shares is to buy stocks and shares in a property-focused company such as a real estate investment trust.
This way, the investor is still involved in the property market in some way without actually investing in property itself.
Those who buy shares in property do so for the same reasons that many investors invest in stocks and shares instead of property.
However, if you’re keen to get involved with the property market as an investor, purchasing a buy to let property is often the better choice as this offers you more lucrative returns when done right, and more control of your investment choices.
I’m an Overseas Investor, Should I Invest in Property or Shares in the UK?
In times of economic uncertainty in the UK, the property market has remained resilient compared to the stock market.
Property prices in the UK are rising significantly following Brexit in January 2019, and are only expected to grow stronger over time.
Due to the high level that the UK property market is currently performing at, the market is attracting interest from those overseas.
By investing in British bricks and mortar, you give yourself the chance to make large returns through both regular rental payments and capital gains while owning a valuable asset.
Is Real Estate a Good Investment Right Now?
If you’re asking is it a good time to invest in real estate, and is real estate a good investment right now, then yes, it is an excellent time to invest in real estate.
House prices are set to rise by 21.1% by 2025 according to Savills, with house prices already seeing huge growth in 2020 and 2021. Rental income is also set to increase by 17% in the UK, making it the ideal time to invest to capitalise on the future growth potential of the country.
Investing in Rental Property Vs Stocks: Things To Keep in Mind
Now that we’ve reached the end of our guide, if you’re still unsure about what to choose between stock market vs rental property, take a look at this summary of the key points to take away.
- Property investment stands out against stocks and shares investments as investors can generate two types of return with less volatility and risk involved.
- The property market is predicted to grow in value in several areas, such as the North West, securing higher capital growth returns for investors.
- While investing in stocks and shares can offer a lot of potential, it also comes with a lot of risks. Investors can lose all of their money from investing in stocks, so it’s important to be cautious.
- Property investment is ideal for those who want to take more control of their venture, unlike stocks and shares, which are more hands-off.
- The downsides of property investment, such as possible void periods and declining market values, are easy to overcome if you carry out the right level of research.
Interested in Investing Money in Property?
We hope you’ve enjoyed our guide to real estate vs stock market investment.
If you were wondering, “Should I invest in real estate” or “is investing in real estate worth it?” hopefully you have had your questions answered.
If you’ve read our tips on stocks vs property in the UK and feel it’s time to invest in property and begin your buy to let journey, get in touch with RWinvest.
We have a wide range of rental property investment opportunities with high yields, strong growth potential, and stylish, modern designs.
Ready to get started? Contact us today for more information.
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