Investing in Real Estate vs. Stocks: Volatility, Risk and Return
May 31, 2022

Investing in Real Estate vs. Stocks: Volatility, Risk and Return

The stock market is what often comes to mind for investors when looking at potential investment opportunities.

However, there are plenty of other options out there that allow for a better-diversified investment portfolio. 

Real estate investing is one of those options ––this type of investment offers a wide range of benefits that are unique from investing in stocks. Although real estate has often been an expensive and opaque asset class, advancements in technologies like blockchain, as well as next-gen real estate investment platforms, are eliminating many of the shortcomings associated with “traditional” real estate investments. 

Want more information about investing in real estate and how it compares to the stock market? Keep reading. In this blog we'll be covering:

  • The pros and cons of investing in real estate vs. the stock market 
  • Comparing the volatility, returns, and risks of real estate investing vs. stocks 
  • How Parvis is improving real estate investing for accredited investors

Investing in Real Estate vs. Stocks: Pros and Cons

Both the stock market and real estate come with their own advantages and fallbacks. Here, we’ll give a brief breakdown of the pros and cons of traditional real estate investing vs. investing in the stock market.

The Pros of Traditional Real Estate Investing

Passive Income

Some real estate investments, such as rental properties and retail investment groups, can provide returns in the form of both the increased property value, as well as passive income. Passive income allows investors to generate additional stable cash flow. For those looking to achieve financial independence, passive income is essential. 

Hedge against Inflation

Another benefit of real estate investments is that they act as a hedge against inflation. Property values and the cost of rent generally rise with inflation, which helps to protect investors and offset some of the negative impacts of inflation on other investments in your portfolio. 

Safer to Invest with Debt

Traditional mortgages or bank loans allow investors to use debt to purchase more costly real estate investments. This is much less risky than investing in stock with debt (trading the margins).

The Cons of Traditional Real Estate Investing

Illiquidity

Real estate is not a liquid asset. It is expensive and has a limited pool of buyers, making it difficult to sell quickly. That said, next-gen solutions like Parvis are unlocking liquidity through blockchain technology, allowing investors to have more peace of mind when investing in real estate (more on this below).

Expensive

Purchasing real estate is expensive. This makes it difficult for many individuals to take part in these types of investments. Not only that, but the upkeep and management of a property can also be costly. However, newer models of real estate investing are driving greater accessibility through fractional ownership, providing opportunities for investors to access projects that have typically only been available to the ultra-wealthy. Fractional ownership allows investors to put less capital down and still benefit from the great returns real estate has to offer. 

Costly Transactions

Real estate transactions can be time-consuming, confusing, and costly as well. The need for real estate agents and lawyers can be very expensive. While this still holds true for traditional real estate purchases, solutions like Parvis are enabling investors to quickly access and invest in institutional-quality real estate projects via an easy-to-use digital platform – without costly legal and realtor fees. Our experienced investment team conducts thorough due diligence so that we only offer the best quality investment opportunities to our users.

The Pros of Investing in Stocks

Liquidity

Stocks are a highly liquid asset ––investors can easily see the value of their investments and are able to sell them whenever they'd like. 

Ease of diversification

Creating a diverse portfolio is much more manageable when investing in stocks rather than real estate. With stocks, you can easily invest in a wide range of companies from different industries. Investing in a diverse real estate portfolio with multiple properties would be extremely expensive if one were investing via traditional avenues.

Inexpensive transaction fees

The rise of discount brokerages has significantly dropped transaction fees associated with stock trading. Once you have a brokerage account through one of many online platforms, you will have the ability to trade public stocks with low to zero transaction costs. 

The Cons of Investing in Stocks

Volatility

Stock prices fluctuate much more than real estate prices. Stock prices can rise and fall quite frequently, due to greater trading volume. Real estate transactions are not taking place nearly as much as transactions on public markets.

Risk

When investing in stocks, there is a chance that you could lose a substantial portion of your initial investment, particularly in higher-risk companies. Certain companies may face greater risk depending on their level of debt, what industry they operate in, and many other factors.

Investing in Real Estate vs. Stocks: Volatility

Investing in real estate has proved much less volatile than investing in the stock market. Over the years, real estate investments have shown to be an excellent hedge against inflation as real estate values have steadily risen with it, protecting the value of your dollar. 

Stocks can fluctuate multiple times a day with big swings in price. This can be beneficial by allowing investors the opportunity to attempt to buy at the dip and sell when the price peaks, but that can prove to be quite risky and unpredictable. Since stock market volatility has little correlation with the real estate market, you can be sure that owning real estate provides some protection against market downturn.  

Investing In Real Estate vs. Stocks: Returns

Historically, the stock market has outperformed real estate investments. According to data from RBC Global Asset Management, from 1996 to 2020, the S&P/TSX Composite Total Return Index has shown a rate of return of 8.0%, while the Canadian national average rate of return for real estate investment was 5.7%. To put this into context, if you were to have invested 300,000 at the start of that 25 year period without any leverage, you would have ended up with $2,037,735 investing in stocks (based on S&P/TSX Composite Total Return Index) as opposed to $1,195,888 investing in real estate (based on the national average).

Historical data aside, it's impossible to ignore the current boom occurring in Canada’s real estate market. The MLS Benchmark price for March 2022, increased 27% year-over-year to $887,100. That's the largest year-over-year growth in the history of the Canadian housing market. Furthermore, next-generation real estate investment platforms target higher returns than traditional investment methods – Parvis, for example, is targeting from 5% to 27% returns, net of fees, from investments based on 4 different investment strategies.

Investing in Real Estate vs. Stocks: Risk

Real estate investments are relatively low risk ––as mentioned above, this is a fairly steady investment generally rising in tandem with inflation, acting as a hedge. That said, there are a few risk factors investors need to be on the look for to avoid, including:

  • Bad location
  • Problem tenants, if investing in rental properties
  • Poor construction/structural issues
  • High Vacancy rates

As with any investment, due diligence is important to ensure you are making sound investment decisions. 

In comparison, stocks are a more high-risk investment. As we touched on earlier, stock prices are constantly fluctuating. Trying to take advantage of this fluctuation for quick gains can be very risky and often, choosing profitable investments can be difficult without a good understanding of the fundamental business operations and financial reporting of companies. Usually, the best way to mitigate against this is to invest in high-quality stocks/ ETFs over a longer term. 

Parvis: The Next Generation of Real Estate Investing

Real estate investing with Parvis offers the benefits of traditional real estate investment, while also eliminating or reducing the shortcomings typically associated with them.

Accessibility and Opportunity

Parvis uses blockchain technology to tokenize real estate assets allowing for fractional ownership. This helps to democratize real estate investing by allowing accredited investors to invest in larger, high-quality real estate developments with better returns that would otherwise not be available to them. 

Enabling Liquidity

Parvis also solves real estate's illiquidity problem by allowing investors to quickly and easily buy and sell their position in a real estate investment using blockchain technology, like they would stocks on an exchange. The use of smart contracts also enables transactions to be completed between buyers and sellers directly, thus eliminating  the need for costly intermediaries.

Strategic Investments and Better Returns

Parvis uses insights from its expert team, platform, AI, analytics, and industry to identify North America's top growth markets and leans on their vast connection of top owners, developers, and asset managers to secure high-quality real estate investment opportunities for accredited investors. This allows Parvis to target average returns of up to 27%,  which are much higher than real estate traditionally offers.

More About Parvis

Parvis is building the next generation of real estate investing. Our digital platform democratizes access by bringing quality real estate opportunities to more individuals. Through exclusive access to diverse, high-quality investment projects on the North American market and a user-focused, state-of-the-art platform, Parvis is becoming the go-to marketplace for real estate investing. We are bridging the gap between traditional and digital finance by offering a marketplace that automates compliance tasks and provides in-depth analytics. Get started today.