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There are risks involved with all investments, but the diversification of risk in the stock market makes it a much more attractive investment choice than real estate.
An investor’s first step should never be to invest all available funds into one type of asset. Diversifying one's portfolio will reduce exposure and lower overall risk: a strategy for balancing out gains and losses, which is not as easily achievable in real estate investing. Furthermore, investing in individual stocks can provide greater flexibility; there are no income taxes on capital gains from stocks, whereas there are on profits from selling property (real or otherwise).
Investors might be better off spreading their money around different types of investments that offer higher returns and less volatility than real estate.
Historically, housing prices rise slower than inflation. Median home prices doubled between 1978 and 2000. Over the same period, median family incomes rose less than half as fast. In 1974, the average homeowner spent 2%, 3% or 4% of his or her income on housing and related costs; by 2003, it cost 8%. (See the chart below.)
However, real estate still holds a significant amount of value because it generates rental income and is a store of wealth. The main risk of investing in real estate is that if you flip a house to quickly make a profit then you could be losing money due to transaction fees and other costs that are associated with flipping houses too quickly.
An investor’s first step should never be to invest all available funds into one type of asset. Diversifying one's portfolio will reduce exposure and lower overall risk: a strategy for balancing out gains and losses, which is not as easily achievable in real estate investing. Furthermore, investing in individual stocks can provide greater flexibility; there are no income taxes on capital gains from stocks, whereas there are on profits from selling property (real or otherwise).
Investors might be better off spreading their money around different types of investments that offer higher returns and less volatility than real estate.
Historically, housing prices rise slower than inflation. Median home prices doubled between 1978 and 2000. Over the same period, median family incomes rose less than half as fast. In 1974, the average homeowner spent 2%, 3% or 4% of his or her income on housing and related costs; by 2003, it cost 8%. (See the chart below.)
However, real estate still holds a significant amount of value because it generates rental income and is a store of wealth. The main risk of investing in real estate is that if you flip a house to quickly make a profit then you could be losing money due to transaction fees and other costs that are associated with flipping houses too quickly.
