Which Is Best – Investing In Stocks Or Real Estate?

by | Jul 6, 2022 | Investing Advice | 0 comments

Most people think the route to success is just to work hard, and they wind up contributing endless hours of their lives to their job and sacrificing time with family just to get ahead. Maybe you, too, have been told if you work hard enough and invest in the stock market, you can build wealth and enjoy retirement. 

Our top priority is faith and family. Being able to put our kids to bed at night isn’t something we can put off until retirement. We realized that the old recipe for growing wealth was flawed at best. 

Although we knew financial growth would give us the freedom we wanted, the constant spikes and dips of investing in the stock market felt too volatile. We knew we needed a more secure investment vehicle and eventually discovered real estate investing.

Keep reading as we take a deep dive into how investing in stocks differs from investing in real estate. We’ll break down the four primary investment risks, how commercial multifamily real estate investments mitigate risk, and why the stock market can be much riskier than investing in real estate.

Investing Involves Risk

Every investment holds some degree of risk. Just as unexpected things come up in life, the same is true in the stock market and real estate.

Don’t waste your time looking for risk-free investments; you’ll never find one. Instead, the key is to thoroughly understand the risks, determine your own threshold for risk, and ensure that you do everything possible to mitigate risk.

Risk #1 – Consumer Behavior Is Everchanging 

Stock Market Investments

When you invest in the stock market, you’re banking on the success of companies that develop products for people to use, like Apple phones and computers, social media platforms, cars, and household cleaning products. 

We never know how long those products will stay in the consumer’s good grace or popularity. Think of the old social media platform MySpace. They had a good run, but technology and consumer behavior changed when Facebook entered the scene.

Multifamily Real Estate Investments

However, when you invest in real estate, you’re investing in something that will never go out of style, the basic human need for shelter. As humans, we always have and always will require a roof over our heads. In fact, as the population continues to rise, that need will only continue to be strengthened over time.

Risk #2 – The Market Can Turn Quickly

Stock Market Investments

Most would-be stock market investors are fearful that the market could turn. This is likely one of the primary reasons investors decide to press pause on entering the stock market. 

During an unexpected downturn, investors may make the mistake of exiting quickly, unfortunately only solidifying their losses. Other investors buckle up and accept short-term losses with hopes to “hang in there” and achieve long-term gains. While the market historically always bounces back, holding on to that assurance during a downward trend can be incredibly challenging.  

Multifamily Real Estate Investments

On the other hand, recessions actually create a hedge of protection for commercial multifamily real estate investments. This concept is especially true for workforce housing.

During good financial times, incomes and savings rates are higher, which means more people upgrade their housing to class A, or luxury, apartments.

When workers who own homes are faced with layoffs or pay cuts, they may decide to sell, and renters of luxury class apartments may downgrade to more affordable apartments, like class B or C.

During a recession, demand for apartments usually tends to go up, which as a multifamily investor, will decrease the risk.

Risk #3 – Unexpected Competitors Could Come into the Market

Stock Market Investments

When Facebook took social media by storm, it beat out My Space by doing it better. They targeted the same audience and got ahead of the technology and consumer trends.

As you know, consumers don’t typically have insight into technology development or companies’ operations. As seen in this commonly occurring scenario, new competitors can significantly impact investment returns.

Multifamily Real Estate Investments

Multifamily competitors don’t have the luxury of just springing up out of nowhere. Limited space, zoning, and permits don’t allow for it. So anytime new apartments are developed, they’re always class A or newer luxury tier apartment buildings. 

As the demand for affordable workforce housing continues to rise, the risk of having high vacancy in well-maintained class B and C apartment buildings is relatively low.

Risk #4 – Having Limited Control and Transparency

Stock Market Investments

Investing in stocks goes on with or without you. When the market is trending upward, being an investor in the stock market can be smooth and exciting. However, during a market correction, your hands are tied, creating a terrible, helpless feeling.

Multifamily Real Estate Investments

The beauty of investing in a real estate syndication is you know exactly who the deal sponsor is, and you can reach them directly to ask questions and provide feedback.

When you choose to invest in a solid syndication, you can be assured that there are multiple strategies in place to protect investor capital. Typical buffers include things like reserves, insurance, and an experienced team of professionals to handle the unexpected.

With real estate syndications, you also have ongoing transparency and receive monthly and quarterly updates.

How To Decide Which Is A Best Fit For You

There’s no one-size-fits-all way to invest that will also help you achieve your unique lifestyle, legacy, and contributory goals. Instead, you should choose a customized method to grow your wealth based on your own specific needs.

Just as many people are successful and making money in the stock market, many people are building their wealth through real estate.

The key to deciding which path is the best fit for you is assessing your own personal financial goals, lifestyle, and risk tolerance. Once you’ve determined these factors, you can better choose the investment vehicle that will best help you meet those goals.


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