The goal of all investors, large and small, is to receive a good return on their investments. The challenge that all investors seek to address everyday is where to allocate capital to achieve maximum returns. Over the years, they have solved this challenge in various ways. Some like Warren Buffet have decided to invest in large public companies while some like Ray Dalio have opted to invest in various assets. Other investors like Stephen Ross of Related Companies have achieved tremendous wealth by investing in real estate. This article will compare the real estate and the stock market industries and help you decide on where you may invest your money.

Real estate

The global real estate industry is worth more than $220 trillion. The growth of the world’s population coupled with the growth of the middle classes and urbanization has led to increased demand for housing. To solve the problem, developers around the world have continued to invest in real estate projects. In developed cities like Hong Kong and Dubai, investors have been forced to reclaim the ocean to create room for housing projects. 

As a real estate investor, there are six main areas you can invest. First, you can decide to invest in land. This is where you buy land and wait for its value to rise. Second, you can invest in residential property where you invest in condos, apartments and townhouses. These are intended for families who want to live there. Third, you can invest in office buildings that target companies, non-governmental organizations, and governments. Fourth, you can invest in industrial real estate. This includes warehouses and factories that target companies. Fifth, you can develop mixed-use developments like shopping malls and new cities. Finally, you can invest in retail real estate projects that target retailers like department stores and pharmaceuticals.

There are various ways you can invest in real estate. First, you can build your own project and monetize it. For example, if you build your own office blocks, you can lease them to companies. These companies will then pay you rent for a period you have agreed to. You can also build residential buildings and lease them to tenants. Alternatively, you can monetize the projects by selling them. The benefit of this is that you will recover your capital expenditure fast and reinvest it in other investment projects.

Second, you can buy already developed projects and monetize them. You can do this by renting them or reselling them. Also, you can buy an old building that is located strategically and build better ones. A good example of this was the purchase of the 666 5th Avenue building by Kushner Companies. 

Third, you can invest in Real Estate Investment Trusts (REITs). These are special public companies that invest in real estate projects. By law, they should derive more than 70% of their income in rent and a big percentage of taxable income should be distributed to investors every year.

Fourth, you can invest in crowd-funded housing projects. This is where you contribute funds that will be used to build a particular project. There are a number of online platforms that help you do such investments. 

Finally, you can invest in public real estate companies. Here, you will benefit from the increased share price and the dividends that are distributed by the company.

Investing in real estate has a number of benefits. These include:

  • Safe investment: Real estate is a relatively safe investment. The worst case scenario is when the project is destroyed by fire or other force majeures. To mitigate such risk, developers insure their projects. 

  • Fixed income: Real estate is a good source of fixed income. This is especially when you use the leasing model. For example, if you have invested in an office building that has been leased by the government, you can be sure that you will receive funds at the agreed period.

  • Leverage: When you have invested in real estate, you can use projects as collateral to borrow more money. You can then use the funds to invest in other assets.

  • Good retirement investment: Real estate gives you peace of mind in terms of retirement. In addition to your other savings, you will receive ongoing income from the money generated by your real estate investments.

  • High returns: In most places, the value of real estate always go up. This is because of increasing demand.

There are challenges to real estate investments. These are:

  • Expensive to start: The cost of building a real estate project is very high for many people to afford.

  • Time consuming: It can take a number of years before a project’s construction ends.

  • Trend changes: At times, changes in trends can affect the value of real estate projects. For example, the rise of e-commerce has affected mall investments as key anchor tenants leave.

  • Value does not always rise: A common myth in real estate is that the value always rises. However, this is not always true. For example, a 100-year old apartment building is worth less than a brand new apartment. 

  • Price does not always rise: The price of real estate projects depends on the demand and supply. If there is a lot of supply, the price will fall. A good example is what happened in Sydney and Melbourne in June 2018, where increased supply and low demand led to a decline in price.


Stocks refer to shares of companies that are publicly listed. Globally, there are more than 20,000 public companies. As a stock investor, there are three main ways you make a profit. First, you benefit when the stock price of a company goes up. For example, if you bought 100 shares in company whose stock was trading at $10, you will have spent $1000. If the stock rose to $15, your investment will be worth $1,500, a profit of $500.

Second, you benefit when the company distributes its dividends to shareholders. In the above example, if the company decided to pay $1 per share, you will get $100. 

Third, you benefit when the company buys its own stock. By reducing the number of shares, the value of your holdings increase.

There are a number of benefits of investing in stocks:

  • Easy to start: Unlike real estate investments, it’s easier to get into investing in stocks. There are a number of online platforms that give easy access to trade stocks and derivative products like Indices CFDs.

  • Many opportunities: There are thousands of stocks to choose from. These stocks are in many industries that you might be interested in. For example, if you are interested in the banking industry, you can invest in the hundreds of banking stocks. If you are interested in technology, there are many technology companies you can invest in. 

  • You don’t need a lot of money to start: You can invest in stocks regardless of your budget. For example, the stock price of a company like Twitter goes for less than $35 (at time of writing). This means that with $350, you can buy 10 units. Further, you can use an online CFD broker that gives you leverage to invest in.

  • Invest globally: In stocks, you can easily invest in companies from around the world. A good way to do this is to use an online trading company that offers stocks and indices CFDs.

  • Best performing asset classes: When there are crashes, like the one in 2008, stocks tend to fall sharply. However, in the long-term, stocks recover. For example, in the past 100 years, the Dow Jones Industrial index has gained by almost 2000%. This growth is much higher when you include the dividends.

  • Liquidity: When you have invested in stocks, you can exit instantly. This is because there is always a ready buyer. Real estate on the other hand is illiquid. This means that in some instances, it takes months before you find a buyer.

Stocks too have a number of limitations. Examples of these limitations are:

  • Volatile: While stocks tend to do well in the long term, they can also be very volatile at times. This is more common with penny stocks.

  • Bankruptcies: Companies can also go bankrupt. Recently, Sears Holdings announced that it will file for bankruptcy. In the past, Sears was the biggest retailer in the world.

  • Margin call: If you are leveraged and the stock declines, a margin call can be triggered, leaving you at a loss. It is also possible to lose more money than you invested. It’s important to trade with brokers that have negative balance protection to ensure you don’t lose more than what you invested.

Stocks versus real estate


As shown above, each of these investments have their own benefits and limitations. In terms of ease of investing, stocks are better but in terms of safety, real estate is better. A good way of capitalizing on the benefits of the two is to invest in them. For example, you can invest 60% of your funds in stocks and the other 40% in real estate. Being diversified will help you mitigate the risks of investing in one asset class. The real estate investment will help you generate cash flow even when stock prices are falling.