Aug 12, 2022
Stock prices are considerably more volatile than real estate prices. Stock prices fluctuate day-over-day, not to mention intraday. Subsequently, the prices of stocks move up and down more than real estate prices.
Stock price fluctuations can lead investors to make emotion-based investment decisions unless they take a long-view lens or passive perspective on their portfolio, buying and holding in the face of volatility.
Investing in real estate has a higher minimum investment than investing in stocks, both in terms of the upfront cost, as well as transaction costs.
In its conventional form, investing in real estate involves buying the entirety of a property. This cost encompasses a vast range. That said, even in its lower tiers, this amount represents a hefty upfront cost.
There are several ways around this. An investor might decide they do not want to buy a physical property because the upfront capital requirement is not feasible, or they have no interest in managing a physical asset such as a rental property. In this case, an investor has several options.
They can invest in Real Estate Investment Trusts (REITs). REITs are similar to stocks, serving as shares in a pool of real estate properties. REITs pay dividends consisting of rental income and capital gains typically on an annual or quarterly basis.
Another option investors are finding increasingly attractive include investing in properties through technology platforms like Landa.
Real estate also involves high relative transaction costs. Sellers should expect to pay closing costs of up to 10% of the sale price. That’s a sizable cut compared with stocks and crypto assets, especially considering that most brokers are feeless for trading.
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