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Real Estate vs. Stock: Which Is the Better Investment?

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Many investors consider buying real estate and stocks to build wealth over time, and many Americans believe that real estate offers a better return. According to a Gallup poll published in May 2023, 34% of Americans believe real estate is the best long-term investment, while only 18% say that stocks or mutual funds are the best long-term investment strategy. However, according to data from the American Institute for Economic Research, historically, stocks have offered better returns on average, about 8% to 12% per year. In comparison, real estate has generated returns of 2% to 4% per year.1

While both provide the potential for profits, they differ in rates of return, risk, liquidity, and accessibility. Keeping in mind that having a diverse range of investments can help spread risk and mitigate losses, we take a closer look at factors to help you make a more informed investment decision based on your goals and risk tolerance.  

Rate of Return Considerations

Fees, commissions, account maintenance costs, and other expenses can reduce your returns in real estate and stock market investments. When calculating real estate appreciation, ROI is determined when a property is sold. It’s the profit remaining after deducting the property’s purchase price plus any costs for renovations or repairs.2   It’s important to include mortgage interest, maintenance expenses, insurance, and property taxes when calculating your return on investment in any real estate investment.3

While real estate investors may see lower returns than stock investors in aggregate, investors should remember that there are two ways to make money in real estate: through appreciation and rental revenue. The value of real estate properties tends to appreciate over time. For many Americans, their primary residence is a major investment. Homeowner tax benefits, such as mortgage interest, property taxes, and property depreciation deductions, can add to more significant returns over a longer timeframe.

While investment property can provide appreciation, the opportunity for rental income can significantly impact the return on investment. Other options to invest in real estate include commercial properties like shopping centers or office buildings, apartment buildings, or single-family homes. Investors with rental properties can expect a relatively steady income stream from their tenants. On the other hand, investing in rental properties includes responsibility for the property’s down payment, closing fees, mortgage, and recurring maintenance costs.

Other Considerations

Timing and Time Horizon

Investors need to be aware that return on investment for specific assets can vary widely depending upon timing and market conditions during the timeframe that the investment is held. The decision of when to buy or sell an investment can greatly impact the return on an investment. The length of time of the investment also matters as short-term fluctuations may affect returns differently than long-term investments. Factors like market trends, economic conditions, and personal financial goals must be considered to make informed decisions about selecting the most appropriate investment. For example, real estate may be ideal for investors who want a stable flow of income and can wait to see a return on their investment.


Investing in stocks generally requires a smaller initial investment than investing in real estate which may require a significant upfront investment. However, real estate investment trusts, or REITs, are an alternative form of real estate investing that have similar characteristics to shares of stock and mutual funds in that investors can easily buy and sell publicly-traded REITs on stock exchanges. REITs allow investors to own a share and profit from a pool of income-generating properties. They provide a way for investors to benefit from liquidity and diversification without individually financing or managing properties.


Investing in stock offers more liquidity than real estate investing, meaning investors can more easily buy and sell stocks. Real estate investors must find a buyer and meet legal and administrative requirements to sell, which can take weeks or months. Real estate illiquidity makes it challenging to exchange assets for cash immediately, which can impact an investor’s ability to react quickly to market changes and be a disadvantage for investors, depending on their investment goals.

Risk & Volatility

Stock prices tend to be more volatile than real estate prices. The economy can influence both real estate and stock investment returns. In general, under periods of high inflation, real estate may perform better than stocks and can generally be a hedge against inflation. Rising inflation may lead to rent increases, boosting investors’ cash flow. However, a recession can decrease demand for real estate, causing property values to fall.

The illiquid nature of real estate can also work in an investor’s favor because it can limit the number of speculators and short-term investors in the market. This can result in less volatility and a more stable market overall. Additionally, long-term investors can benefit from the steady cash flow provided by rental income, which can help offset any potential decreases in property value.

Tax Benefits

Real estate investments offer several tax benefits unavailable to stock investors. Depreciation can be utilized to offset rental income, reducing the amount of taxable income.

Rental property owners can deduct certain expenses related to the property, such as mortgage interest, property taxes, repairs, and maintenance costs. These deductions can further reduce the amount of taxable rental income. Real estate investors may be able to take advantage of 1031 exchanges, which allow them to defer capital gains taxes by reinvesting proceeds from the sale of a property into a new one. This means that if an investor sells a property and uses the proceeds to purchase another property, they can defer paying capital gains taxes until they sell the new property. These tax benefits can significantly increase the after-tax returns of real estate investments.

Final Thoughts

The performance of the stock market and real estate are subject to various factors. Real estate returns can vary significantly based on property type, location, mortgage rates, and local economic conditions. Real estate investment in individual properties requires active management. On the other hand, the stock market can be influenced by factors such as interest rates, global economic events, and political shifts.

Investors should carefully assess their risk tolerance and investment objectives to determine the most suitable option. Investing in a diversified portfolio of equities, real estate, and other asset classes can help optimize your returns while minimizing risk. Real estate investments can provide diversification due to their low correlation with other asset classes like stocks and bonds. At Treehouse Wealth, we can help you make well-informed decisions that align with your risk tolerance and financial goals.











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