When deciding whether to buy real estate or not, potential buyers frequently consider the stock market as an alternative. There are few comparisons in part because the decision involves many factors other than simple appreciation.
A significant difference between the two as investments is that you continually receive value from real estate as rental income or as your rent-free residence. The primary value received from stocks occurs when you sell them, which will incur income taxes.
You can often change your real estate investment without paying taxes by using a 1031 exchange. There is no such ability for stocks. Juliana Lee, the founder and broker of JLee Realty, has purchased and sold roughly 20 properties for herself using 1031 exchanges. JLee Realty has helped clients successfully complete their 1031 exchanges.
In a seminar hosted by JLee Realty, Jeffrey Traum (Managing Director at Morgan Stanley Private Wealth Management) pointed out that if you held an S&P 500 portfolio of stocks for 7 years, the largest loss you could have experienced between 1944 and 2023 was -3.8% while the greatest gain you could have experienced was 26.6%. Stock is best treated as a long-term investment unless you have better-than-average knowledge about short-term prospects.
We at JLee Realty believe real estate is one of the most rewarding investments you can make. We also believe that individual stocks can be very rewarding if you have employee stock purchase options and constant knowledge about your company’s prospects. Both should be considered and you should probably own both.