Real Estate Vs Other Investments: Pros And Cons

Key Takeaways

  • There are several pros and cons to consider when looking at real estate vs other investments.
  • Real estate returns could prove to be profitable over time for investors willing to put the work in.
  • Consider your risk tolerance when debating whether or not to invest in real estate or stocks.

There are a lot of ways to invest your hard-earned money; from real estate, stocks, bonds, CDs or even gold. That said, it is entirely too easy to become inundated with “investment overload.” The burden of placing your money in someone else’s hands is not something to take lightly. At what point does one investment option become more attractive than another? Perhaps even more importantly, how can you tell when to avoid a particular investment altogether? By examining real estate vs other investments you can help determine which options are right for you.

Average Real Estate Return On Investment

Deciding which investments are right for your portfolio will depend on a number of factors: the value, your risk tolerance, the potential return on investment, and the amount of control involved. With any investment opportunity, there will be trade offs; however, real estate represents a strong investment opportunity for those seeking to increase cash flow, save for retirement, and build a strong financial portfolio.

According to a 2017 study examining investments across 16 different countries, the rate of return on residential real estate averaged more than seven percent annually. Comparatively, stocks averaged less than seven percent, while bonds came in around three percent. The study suggests real estate has historically been a strong investment opportunity for investors. This is because real estate allows investors to profit in more ways than one. First, by purchasing real estate you are investing in a physical asset that will appreciate over time. Real estate also provides the opportunity to generate monthly cash flow through rental income.

Aside from the potential for residential and commercial real estate returns, real estate investing also offers the benefit of being relatively easy to break into. Most individuals grow up somewhat familiar with the real estate market, and will have a strong understanding of real estate when compared to the stock market or other investment opportunities. If you are new to real estate investing, check out this guide to finding the right investment strategy for you.

Finally, real estate offers the chance to be in direct control of your investment portfolio. Compared to assets such as CDs, real estate offers the unique perk of being able to control all aspects of your investment. When you own real estate, you can decide what changes need to be made and when to buy or sell, on your own. While this may sound intimidating to some, being in charge of your own investment can allow you to have more control over your own finances.

Real estate is just one of several opportunities available to those seeking financial freedom. While real estate is arguably one of the best investments to make, there are other avenues that can help diversify your portfolio.

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stock market vs real estate

Real Estate Vs Stocks

Historically, stocks tend to increase both in profits and cash dividends over time. Investors, therefore, have the chance to earn increased profits from stocks annually if the company proves profitable enough. Investing in stocks also provides the chance to create a diverse portfolio. By investing in mutual funds, investors can buy stock in multiple companies at a time, which enables investors to spread out their investment capital and lessen the overall amount of risk they take on.

While the benefits of investing in stocks are hard to ignore, there are a few trade offs involved. The most obvious dilemma for investors is that stocks are unpredictable. Due to market volatility, the price of stocks can fluctuate dramatically in a given period of time. For some investors, watching their profits grow and shrink rapidly throughout the year can be frustrating. In comparison, real estate represents a more stable investment opportunity for investors unwilling to participate in risky nature of the stock market.

A final thought when considering the stock market vs real estate is the amount of knowledge required to get started. The average person is unfamiliar with the inner workings of the stock market, and while that is perfectly acceptable, it can act as a barrier to entry. Many investors will find themselves at the hands of stock brokers or financial advisors. For those who prefer to have more control over their portfolio, stocks can represent a challenge.

Real Estate Vs Bonds

There are three main categories of bonds investors can work with: corporate, municipal and government bonds. Investors earn revenue from bonds through interest as they come to maturity. One of the biggest perks of investing in bonds is that they are low risk. While interest rates can fluctuate, bonds are often considered more reliable than other investment opportunities.

Despite their low risk nature, investors may find bonds do not offer the same profitability when compared to other investments. In many cases, the returns will be significantly impacted by rate of inflation. For example, if you are earning three percent and the inflation rate is one percent, your returns will have dropped by one third. On the other hand, real estate typically benefits during times of inflation. As material and labor costs go up, rent traditionally follows suit, leading real estate investors to realize higher profits during these times.

Another important factor to consider when looking at bonds is that many are not taxed at the federal level, and entrepreneurs will be hard pressed to find tax breaks when investing. Depending on the time frame, investors may be subject to income and capital gains taxes on any interest earned. In comparison, real estate investors stand to benefit from a number of tax deductions.

While bonds present a straightforward, relatively low-risk investment opportunity, they may not offer the best returns when compared to real estate. Across the board, rental properties typically outperform bonds because of their overall ability to generate cash flow, even during times of inflation or low interest rates. However, just because there are disparities in the profit potential does not mean investors should entirely rule out this option. For investors seeking to diversify an existing portfolio, bonds can provide a stable opportunity to do just that.

Real Estate Vs CDs

Certificates of Deposits (CDs) can provide investors with yet another low risk investment opportunity, though they also have generally lower profit margins when compared to real estate. The profit potential of CDs is directly impacted by interest rates. When interest rates are low, investors will have trouble yielding a high return on investment. Additionally, CDs will be taxed similarly to bonds, and investors will struggle to find as many tax deductions as real estate.

What makes CDs attractive to many, is the opportunity to expand their portfolio, though investors must be patient to see the returns. CDs can take anywhere from five to ten years to come to maturity, and investors are unable to access their funds during that time. Real estate represents more liquidity in comparison; even if investors are unable to sell a given property, there are a number of ways they can tap into the existing equity. For those asking “should I invest in real estate or another investment,” CDs can still represent the chance to diversify and grow your finances over time, despite their lower profit margins.

Real Estate Vs REITs

Real Estate Investment Trusts (REITs) allow investors to buy shares in real estate companies, and are often thought of as a great first step into the world of real estate. There are several key differences between investing in REITs and investing in physical real estate, with the most obvious being property ownership. REITs see investors operating in the real estate industry without ever owning physical properties. This has a number of effects on the potential profits.

REITs will often have annual dividends between two and three percent, and sometimes less. Owning properties on the other hand, can lead to higher dividends and more equity. This is due to the fact that REITs often focus on markets with relatively low yields in an effort to reduce risk. REITs will also pay dividends that are deemed sustainable by the company.

When investing directly in real estate, investors stand to benefit from the opportunity of managing a property directly and having a more active role in the business operations. Investors who choose to work with physical real estate can choose which market they are operating in, and will benefit directly as profits rise over time. While REITs can generate capital gains over time, investment properties offer the chance to receive profits and build equity in a physical asset. This difference can enable real estate investors to expand their portfolios at a quicker rate when compared to REIT investing.

Real Estate Vs Gold

Investing in gold is a simple process that works like this: Investors buy the precious metal, and earn a profit only after selling it (once the gold has appreciated in value). While this process sounds straightforward, it is truly a waiting game, especially when compared to real estate investing. Real estate allows the opportunity to earn revenue while waiting on an asset to appreciate in value, resulting in more cash flow overall.

As you examine real estate vs other investment returns, gold may not be the first thought that comes to mind. It is often not the most profitable, nor the most popular investment opportunity. There is something to be said about investing in gold; although, investors looking for an asset to focus on may not find the returns they are hoping for by purchasing gold.

Real Estate Vs Other Investments: The Breakdown

While stocks, bonds, certificates of deposit, and other forms of investment each hold water in their own unique way, real estate offers something that others can’t: cash flow that is directly correlated to your own decisions. In other words, your actions are responsible for your net income. Other forms of investment often rely exclusively on decisions made by company officers. Real estate investors are in charge of their own assets, and there is a lot to be said for that. Here is a visual breakdown of real estate vs other investments for investors who want to diversify their portfolios:

Real estate vs. other investments


It is important for investors to seek multiple investment opportunities in order to have a high-performing portfolio. There are a number of assets worth considering, ranging from REITs to mutual funds. Investors should weigh the pros and cons of real estate vs other investments when making a decision. As a whole, investors may notice that real estate represents the opportunity to generate annual cash flow and benefit from appreciation over time.

Which investment opportunity did you learn the most about? Leave a comment below and let us know.