The Big Picture On Whether Stock or Real Estate Is Faster In Building Wealth:

    • US stocks average 10.13% returns p.a. with higher volatility.
    • US residential real estate averages 11.6% p.a. with better stability and leverage options than stocks. Neither is universally better.
    • Private equity real estate has averaged between 17-25% returns over the last decade.
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an image depicting a person holding a key to represent real estate investment with stock charts in the desk to signify comparing which one is faster in building wealth

Suppose you’re wondering how to get to the financial freedom finish line in the shortest amount of time. If so, it’s natural to consider stocks or real estate—I mean, both helped create fortunes for many investors over the years.

However, choosing between these two investment choices shouldn’t be entirely about potential returns. Think about your risk tolerance, what’s happening in the markets right now, and where you want to be in 10, 20, or 30 years. 

And while I am unabashedly partial to one of them (it’s in the name of this site, after all), I am also a big fan of diversification. Plus, I invest in both stocks and real estate. 

So, let’s consider each of the possibilities and, hopefully, figure out which one will make a difference in your financial future—regardless of whether you’re an expert investor or just starting out. 

Real Estate Vs. Stocks

Real estate investing is primarily about owning an actual property—a cozy rental house or an office building. The goal is to earn rental income while the investment property (hopefully) appreciates over time. 

Some of the best benefits you can experience from this route are tax advantages, which can really increase your bottom line, and you can use the bank’s money to multiply your returns through mortgages—more on the benefits later. 

On the other hand, investing in the stock market is a whole different animal. You won’t be dealing with physical properties and tenant calls at 1 AM about a leaking pipe. 

Instead, you’ll buy shares from companies you think will grow or pay you dividends—passive income streams like rental properties. Since 1957, the average return of the S&P 500 is around 10.13% per annum, though it was quite a roller coaster ride. I say this with all sincerity: stocks can be volatile enough to make you question your sanity. 

Key Differences Between Real Estate and Stocks

Before you invest in real estate or stocks, below is a comparison between the most crucial aspects of investments. 

Aspect

Real Estate

Stocks

Price Behavior

Steadier price movements

Frequent price fluctuations

Asset Type

Tangible physical property

Intangible financial instrument

Purchase Method

Usually bought with mortgage financing

Generally bought with cash

Ongoing Costs

High ongoing maintenance costs

Minimal holding costs

Tax Treatment

Rental income is taxed as regular income

Lower tax rates on gains/dividends

Housing and Stock Market Performance Through History

When it comes to investing, we say past returns are not indicative of future results; however, past returns are the primary metric for how investments are sold.

So, with that in mind, I say nothing beats historical data in comparisons, and I have a decade of market performance to pull from. 

As mentioned, the S&P 500 has achieved a 10.13% average annual return since inception, including both price growth and dividends. Despite inflation taking a bite, stock investors still walked away with a 6.37% return. And that’s considering all the ups and downs in the market. 

Real estate hasn’t exactly been sleeping on the job, either. Specifically, home prices steadily increased at a 5.5% annual clip in the same period from 1992 to 2024. Beyond price increases, residential real estate also generates an average income yield of 6.1% per year, for a total annualized return of 11.6%. 

Meanwhile, private equity real estate returns 16-20% on average, according to a study by the University of Pennsylvania. Over the decade from 2013-2022, Benzinga found that private equity real estate returned between 17.4% – 25.6% annual returns

So, does that mean real estate investing is a better option to reach financial freedom faster? 

Not necessarily. The numbers don’t tell the whole story. Stocks and real estate each come with their own advantages and disadvantages, and both belong in your portfolio.

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Which One’s More Volatile?

The stock and real estate markets have unique volatility patterns that show how they respond to market pressure. Looking closely at the early months of COVID-19 chaos in 2020, the S&P 500 index drastically dropped 33% from its peak of around 3,400 to below 2,300 between January and June. Note that this kind of sharp decline isn’t new to the stock market, which also serves as a typical example of the rapid price swings that investors face during a bear market. 

The real estate market, by comparison, showed more resilience during the same period. In particular, the median home prices declined 3.4%, falling from $329,000 to $317,700 in the early quarters of 2020. 

You can refer to the graph below: 

a graph depicting median sales prices for houses sold in the US from 2018 to 2024

Source: FRED ECONOMIC DATA

Of course, real estate isn’t completely immune to market decline, either; I still remember the devastation of both real estate and stocks during the financial crisis of 2007-2008. That said, property values have more stability than stocks due to the real estate’s nature as a tangible asset—the values are grounded by factors like local economic conditions rather than market sentiments that often affect stock prices.

For a better picture, here’s a 30-year chart from 1993 to 2023 comparing the volatility of the S&P 500 (dividends included) and the real estate market.

Benefits and Drawbacks 

Investing in real estate or stocks has it’s pros and cons, so a quantitative comparison isn’t possible without addressing each aspect. Here are the most significant ones:

Benefits of Stock Market Investing

    • Liquidity: Stock investments have superior liquidity compared to traditional real estate. Investment properties can lock up your capital for years, while stocks give you more flexibility—as long as someone’s lining up to buy it, you can sell your stocks in one click and have cash in hand within days. 
    • Diversification: With stocks, you can easily diversify your investment portfolio without ripping out your pockets. You’d need massive fortunes to achieve this level of diversification through traditional real estate investing. 
    • Minimal Transaction Costs: Investing in stocks has never been more affordable—all thanks to the fierce competition among brokers. Some platforms offer commission-free trading for stocks or access to no-transaction-fee mutual funds. The principle is simple—when you pay less in fees, more of your money goes into your pockets. 

Drawbacks of Stock Market Investing

    • High Volatility: As someone who’s experienced it, I know how downright nerve-wracking the stock market’s wild swings can be. Stock prices can drastically change in days or, worse, hours compared to real estate, which tends to plod along. Trust me; staying cool takes serious mental fortitude when you see your portfolio tank.
    • Tax Implications: This one’s tricky. Although stocks have certain tax perks, they also come with a different layer of tax considerations that can take a huge chunk of your returns. Let’s say you want to sell your stocks at a profit; Uncle Sam would his part through capital gains taxes. 
    • Emotional Challenges: We now live in a world where instant access to the market is the norm. However, this can be both a blessing and a curse. We’re human, and keeping your cool when markets go haywire is difficult. For the same reason, too many investors end up panic-selling when their bets tank. On the other hand, some jump in with both feet when everything’s already expensive.

Benefits of Real Estate Investing

    • Straightforward Concept: What I like about real estate is its straightforwardness. You don’t need a business degree to understand how it works. Just buy a property, take care of it, make it pretty, and sell it for more later. Well, it can get more complicated than that, but you get the idea. Stock investment is an abstract concept of company ownership, while real estate is something you can actually see and touch. You know exactly what you own. 
    • Leverage Advantage: Yes, you can use other people’s money (the bank’s) to build wealth through mortgages. It’s possible to control properties with just 20% down – sometimes even less, especially if you know some real estate investing strategies. Unlike margin trading in stocks, which is about as safe as juggling chainsaws, real estate leverage is often a more reasonable way to stretch your bucks. 
    • Inflation Protection: As mentioned, real estate can be used as a hedge against inflation. Property value and the rental rate usually climb alongside inflation. This stability will help you keep your purchasing power intact when prices start rising across the board. That’s what I call a practical long-term strategy. 
    • Substantial Tax Benefits: Homeowners can write off mortgage interest on loans up to $750,000, which gets even better when it comes time to sell. Single folks can dodge up to $250,000 in capital gains from selling their primary home, while married couples get a whopping $500,000 exclusion. And if you’re investing in rental properties, you’ve got depreciation write-offs and handy 1031 exchanges to defer capital gains. Believe me, these perks can boost your bottom line!

Drawbacks of Real Estate Investing

    • High Maintenance: Owning a property isn’t exactly a “buy and forget” kind of investment like long-term dividend stocks. You’d be fixing leaky pipes or broken faucets, dealing with dramatic tenants, or planning property upgrades—there’s something that always needs your attention. Prepare to play handyman and property manager all at once. 
    • Significant Entry Barriers: Getting started with investment properties isn’t exactly pocket change. Even with mortgage financing, you’ll need plenty of cash for the down payment and closing costs. Stocks let you sell in seconds if you need quick cash; real estate can lock your money tighter than a drum. Trying to sell a property quickly is nobody’s idea of fun.
    • Costly Transactions: You can enjoy zero-commission trades these days, but real estate still hits you with severe costs. The typical closing costs can eat up 6% of your sale price.
    • Market Vulnerability: Sure, real estate might seem as solid as, well, a house—but don’t kid yourself. The 2008 financial crisis showed us how rough things can get when the market tanks. And if you’ve been paying attention post-pandemic, you know the real estate market can still throw some unexpected, nasty surprises. 

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Nontraditional Real Estate Investment Options

There are nontraditional investment options in real estate. If you like the idea of “buy and forget” and dislike 1 AM calls from tenants but still want to become a real estate investor, the nontraditional route might be your perfect path to wealth.

REITs

REITs trade on major exchanges with tickers like VNQ (Vanguard Real Estate ETF) or individual REITs like Prologis (PLD). A $10,000 investment in a REIT can provide exposure to billions in real estate assets across multiple sectors. The average REIT dividend yield ranges from 2-16%,  which isi often higher than the S&P 500’s CAGR of around 10%.

Crowdfunding Platforms

Platforms like Fundrise and Groundfloor allow entry investments as low as $10, while CrowdStreet typically requires a $25,000 minimum. Historical returns vary by investment type — debt investments often yield 8-12% annually, while equity investments target 15%+ IRR. For example, an industrial property deal on these platforms can have a 5-year hold period with a projected 17.3% IRR through a combination of 6% cash flow and expected appreciation.

Platforms charge various fees: Fundrise’s asset management fee is 0.85% annually, while others may charge 1-2% plus performance fees. Each platform also has different accreditation requirements—some accept all investors, while others require $200,000+ annual income or $1 million net worth excluding primary residence.

Real Estate Syndications

Now, suppose you want to get into the bigger real estate deals without the headache of direct ownership; explore real estate syndications—pretty much like a cousin of traditional real estate investing.

However, unlike crowdfunding platforms where 10 bucks would do, you’ll need some cash for syndications—$50,000 and up as a minimum. Scary, I know, but hear me out: these deals typically target 15-20% returns, in line with historical averages documented by the University of Pennsylvania. 

The process is also pretty straightforward: investors usually get first dibs on an 8% preferred return, and after that, the profits are split 70/30 between the investors and the deal sponsors.

Now, let’s say there’s a $20 million apartment available. The syndication might raise $5 million from 40 investors and then leverage the rest through lenders like Fannie Mae (usually about 65-75% of the purchase price). The sponsors aren’t doing this for free, of course—they typically charge a 1-2% acquisition fee upfront, 2-3% for annual management, and might tack on a 1% fee when the property sells.

The deal usually includes property upgrades, too: $5,000 to $15,000 per unit to increase rents by $200-300 monthly. That’s how you juice both the income and property value. Most of these deals run for 5-7 years, and you can expect quarterly rental payments giving you 6-8% annual cash-on-cash returns. And when the property sells, you’d multiply your money by 1.8x to 2.5x—not too shabby.

SparkRental’s Co-Investing Club

Don’t have $50 grand sitting around? Not an accredited investor? SparkRental’s Co-Investing Club has you covered.

In the investing club, we as a group, discuss potential real estate investment deals together. These include private partnerships, notes, syndications, funds, and more.

Best yet, any member (yes, that’s you too) can invest with as little as $5,000. This is markedly less than the $50,000 or $100,000 you might need in a traditional syndication deal. 

At the end of the call, we decide if we’re going to invest as a group, and then you can decide if you’re going to participate or not. 

And no, you do not need to be an accredited investor to participate in SparkRental’s Co-Investing Club.

Real Estate or Stocks Investment?

At the end of the day, there’s no universal “best” choice between the two. Your path to wealth depends on who you are as an investor—your financial goals, timeline, or how hands-on you want to be.

You might even find that mixing both gives you the best of both worlds – I’ve seen plenty of successful investors do that.

Whatever route you choose, remember that consistency is your best friend, but if you’re willing to learn some real estate investing strategies, which we happen to specialize in, feel free to reach out! 

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