1. What are the pros and cons of both real estate investments and investments in stocks, respectively?
2. How do you determine which is best for you?
It’s interesting. At the end of the day you are really limited in ways to invest your money. The three areas are: real estate, investing in a business (usually stocks) or lending money (bonds and private lending).
About 15 years ago, the Stern school of business at New York University researched the appreciation of Manhattan Real Estate over the past 400 years. The average rate was 7%...about the same historical average of the New York Stock Exchange.
However both investment instruments have unique advantages:
For stocks, there is liquidity. You can convert it to cash at any time. Also, you may get dividends. It is also low-maintenance. Nothing to fix. Tax-wise, you are subject to capital gains, which is at a historical low. Conventional wisdom speculates it will be higher in the future.
For real estate, you own physical property. It can always be used for something (living, commercial, storage, etc. As such, you can collect rent. Catastrophes aside, it won’t disappear (remember Blackberry, Blockbuster, etc.) Tax-wise there are substantial advantages. You can depreciate the asset over 27.5 years and when you sell you can defer capital gains with a 1031 tax exchange.
So it depends on the investor. If you want hassle free and liquidity, stocks may be the best option. If you want overall better returns I suggest real estate.