Real Estate vs. Stock Market

04/19/2021

My sister called me a millennial last week, which is to say, old and basically irrelevant. It seemed a bit unfair given I am on the cusp of Gen-Z (96’ baby) but, nevertheless, to combat the obsolescence, I naturally went to Tik Tok. 

In between the compulsive loop of videos telling me “pink is the new black, but so is green”, “side parts are for old people”, “how to channel my bad bitch energy” and “the crying-laugh emoji is dead” …I came across another something quite humiliating. 

I did not know what hibernation is. I sincerely thought hibernation meant animals went to sleep for 6 months straight. In and of itself, this should have given me pause. In actuality, apparently, hibernation has something to do with a drastic drop in metabolic and heart rate to conserve energy (I don’t know, I’m clearly not the expert). The point: with 18 years of education behind me – I needed Tik Tok to spell out that animals don’t just sleep for half the year. 

All of this to say, my ego and intellect have taken a real beating. 

This has little to do with the real estate vs. stock market investment debate. Rather, my tendency to overshare and hope that this existential, aging-in-quarantine moment will resonate with some.
(To my editor: do with this what you will).

(Editor’s note: not on Tiktok yet, can’t comment). 

 


 

As with everything in life (aside from murder and racism in the police force), this is not black and white. There is no definitive answer to whether or not one should invest in real estate or the stock market. Rather, a bunch of little dependent variables I lay out below:

 

Stocks: Pros

  1. Longevity: More than 100 years of research tells us that, despite the crashes, buying stocks and holding them for long periods of time (remember kiddos: investing and not trading!) has been the greatest creator of wealth in history. This makes sense. Nothing, in terms of other asset classes, beats business ownership. When you buy a stock, you buy a piece of a business. 
  2. Liquidity: Which in human terms means that you have easy access to your cash. For one, it does not take a huge cash infusion to get started in the stock market and for another, stocks are usually easily bought and sold. In a money emergency (for instance, I realized I haven’t paid my dentist for the past 2 years), you’ll prefer your money in stocks rather than real estate. 
  3. Easy to diversify: This is quite self-explanatory. The stock market is a candy store whereas real estate is a pack of skittles. You could buy shares from Disney, Fortis BC and a up and comer psychedelics company, whereas you probably can’t buy that apartment, loft, and small-family home. (And if you can, [wtf], could you share? I am low-key a socialist). 
  4. Minimal work: This one speaks to me. You get the (marginal) benefits of owning part of a business without the stress and workload of owning a business? Yes. 

 

Stocks: Cons

  1. Volatility: The stock market, like my sister, can be extremely volatile. Volatility can be caused by geopolitical or company-specific events. Your $50 stock may go to $100 or to $10. In any case, as an investor (like an older sibling) you are subject to this volatility – but this is only a negative if you fall privy to… 
  2. Emotional investing: When people see themselves losing money, they tend to panic. The debt crisis of 2007-09 is a good example of this. Well-known financial advisors told people to sell their stocks after it had tanked 50%…the very time they should have been buying, by banking on the markets eventually bouncing back (of course, depends again on your need for liquidity). Though stocks have been proven conclusively to generate wealth over the long run, psychological factors in the short-term can result in losses. 
  3. Selling stocks can trigger big taxes: There’s a fun little thing called the capital gains tax. It is, as it sounds, a tax on your investment earnings once sold. This is something to be aware of when you are involved in the markets. 
  4. Stagnation: If you invest in a company with little room for innovation or growth, your stock may look like it’s moving in a straight line sideways for years. However, this is often an illusion, seeing as charts fail to factor a long-term driver of value for investors: reinvested dividends (when you use the cash a company sends you for owning its stock to buy more shares… entitling you to more cash dividends over time).

 

Real Estate: Pros

  1. Comfort: As children, we were taught nothing of hibernation and everything about success in the conservative, traditional sense. The middle-class suburban singsong goes something like this: job, marriage, house (white picket fence), and 2.5 kids. This is my personal version of hell, but I’ve been trying to be less judgy lately – if this is your dream, kudos to you. The ways in which this ideal is ingrained in our social fabric make investing in real estate a safe haven for most. It makes sense that the tangibility of this realm is far more appealing than the online ether of the stock market. 
  2. Tax advantages: I haven’t got the energy to go into specifics, nor have you got the time… so if you’re already considering buying a home, read up on all the funky ways to save on taxes here and also why are you reading this? 
  3. Hedge against inflation: Real estate investments have traditionally been considered an effective inflation hedge to protect against a loss in the purchasing power of the dollar. In human words: as time goes on, your house becomes worth more 
  4. Passive income: Although real estate is not nearly as liquid as the stock market, if you choose to rent out your property you have a guaranteed promise of passive income. 
  5. Security: There’s a reason people go for real estate. You’re generally guaranteed a rise in property value (especially if you’re buying in Vancouver, dear god) over time, and paying a mortgage is an investment, whereas typical rent is just money down the drain. Plus, landlords can be fickle. 

 

Real Estate: Cons

  1. Time and effort: In comparison to stocks, real estate takes a lot more hands-on work. This makes sense seeing as you are dealing with a whole home as opposed to electronic numbers on a computer screen. If you are a landlord, you further have to deal with the nightmare of getting the 12 AM call about fixing cute things like backed-up sewage or insect infestations. Even if you’re not a landlord, general house maintenance (lawns *groan*) are a big deal – and that’s without bringing up HOAs. 
  2. Illiquid: Remember when I said the stock market keeps your money relatively liquid? Real estate does not. If you need that dentist money ASAP, you’d have to sell a house first (goes to show how badly I have gone into debt on this one). What if it isn’t a good market to sell in? What if you are struggling to find the right buyer? What if etc. etc. I don’t really know anything about owning a home. Nevertheless, the investor needs to be comfortable with an inability to access that money easily. 
  3. Expensive: Hello, obvious. But seriously. I can partake in the stock market and not the real estate market (sort of, keep reading)… 
  4. High transaction costs: Transaction costs are expenses incurred when buying or selling a good or service. They represent the labor required to bring the item to the market, giving rise to entire industries dedicated to facilitating exchanges. They exist in the financial verse by way of brokers’ commission and trading fees (although this is greatly minimized with robo-advisors and discount brokerages), however, in real estate these fees can rack up. This includes the agent’s commission and closing costs, such as title search fees, appraisal fees, and government fees. (Full disclosure I don’t know what any of this means – but it supposedly adds up). I would theoretically add in all the costs associated with moving and if need be, renovating as well. 

 

Real estate is a worthy investment for someone with a couple hundred thousand (again, in Vancouver at least)?? But that really depends on the trend for rent increases in your area, your relationship with your current landlord – and the cost of renting vs owning (mortgage and all) in your city. I’ve heard of mythical cities in the US where rent is so affordable, it’s better to pay the difference of a mortgage straight into savings or investings for higher immediate ROI. 

And on that note: 

The REIT: Best of both worlds?

So you can’t afford to purchase a property of your own but like the idea of power associated with owning land and tall square buildings? Fortunately, there is something called a Real Estate Investment Trust. REITs are companies that own income-producing real estate such as offices, hotels, apartments, warehouses, malls, and whatever else buildings are used for. These are typically known to pay large dividends and, as with a house, are quite a solid investment.

 

Until next week…

 

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