Stock Market vs. Commercial Real Estate – Which One Is Best?

Stock Market vs. Commercial Real Estate – Which One Is Best?

Are you looking to improve your portfolio? Many people find it difficult to choose between the stock market and real estate.

And there’s a reason why this decision is tough. Both the stock market and commercial real estate have significant potential to grow your capital.

But deciding which option best suits you means you’ll have to analyze both sides to learn the pros and cons of each. As experienced commercial real estate brokers in Toronto, we’ve talked to many people who have considered these two options, and we’ve compiled a list of some of the most important things to consider.

The Basics of Commercial Real Estate

Commercial real estate is a physical piece of land or a property that is used solely for business purposes. It is often leased to a business (tenants) who use it as their office or shop. This type of real estate’s purpose is to make the owner profit through consistent rent payments, real estate appreciation, and other opportunities.

The Pros of Owning Real Estate

You Control It

When you are buying stocks, you don’t have much control over anything. While you may vote on certain decisions, day-to-day decisions are often made by management themselves with little input from shareholders.

That means you really won’t have any hand in the activity that’s going on. You’ll be on the outside looking in, hoping that you’ve chosen a company with an experienced management team.

You are always in control when it comes to commercial real estate. You decide what tenants to rent to, the prices you’ll charge, and the other decisions that will need to be made surrounding the property.

You Have an Asset In Hand

A piece of commercial real estate is something you can see, touch, and use. It’s something you have and will have no matter what. It cannot disappear one day out of the blue.

With stocks, you never really know where your money is. Buying a share doesn’t even get you a physical stock certificate like it used to. Today – everything is digital.

Because of this, you’ll be able to better analyze what you have with commercial property by comparing it to buildings nearby that are around the same. You can even work at increasing its value by staying on top of upkeep and renovating it when the time comes.

You Will Assume Less Risk (Most Times)

Commercial property can be less risky than stocks. The real estate market is typically stable, but crashes like what happened in 2008 can happen.

Still, your commercial property is your property. You can make safe investments in real estate if you take the time to research a specific property, it’s value, the value of nearby properties, and other vital market research.

With stocks, your entire investment can vanish rapidly. That’s the way the stock market goes, and many investors have lost large amounts of money by investing in the wrong company (Enron being the most famous example).

While real estate is sometimes influenced by political events, stocks are much more susceptible to sudden political and economic shifts. Need an example? Look at President Donald Trump’s trade war with China.

The Cons of Commercial Real Estate

  • Real estate takes a lot of hands-on work. You cannot sit back and make money like you might be able to do with stocks.
  • Commercial real estate can cost you money on a more regular basis, especially if it is unoccupied.
  • Your money will typically increase at predictable rates and is less likely to keep pace with stocks.

The Basics of the Stock Market

Buying shares of a company entitles you to partial ownership of that company. That’s how stocks work at a basic level. However, there are specific types of shares (like voting vs. non-voting) that can further complicate how ownership works.

If you own shares of a company that makes a profit, you are entitled to a cut of those profits based on how many shares you own. But that doesn’t mean a company will pay you every quarter. Instead, your investment will increase as a company increases its overall value.

Other times a company may pay dividends to reward shareholders. These payments are typically made quarterly or yearly and are paid out to shareholders based on the number of shares they own.

The Pros of the Stock Market

Own a Business

When you own a share, you technically own a piece of a business, and you don’t have to do anything to maintain that ownership. This is a special thing to be a part of, especially when the business is doing very well.

There will be professional managers in charge of the company. This lets you sit back and watch your investment grow when you’re invested in well-managed companies.

Own a Diversified Portfolio

The stock market provides investors with access to many financial products. An investor can diversify their portfolio between ETFs, GICs, bonds, individual stocks, index funds, and more. There are no shortage of options.

Real estate requires a substantial amount of money in one place, but the stock market allows you to invest with enhanced flexibility.

A Shorter Commitment

Your money doesn’t have to be tied up for long periods of time with the stock market. Stock investments are often more liquid, and you are able to sell part or all of your shares at any point while the markets are open.

With real estate, you’re looking at a long-term commitment that will last for many years.

The Cons of the Stock Market

  • It can be easy to lose money in the stock market because of the many moving pieces that exist. Emotions often play a large game in the stock markets and are the reason why many people lose lots of money.
  • There can be extreme fluctuations in the prices for stocks from one day to the next. You’ll never really know what to expect from day-to-day.
  • There is never anything to show for when you own shares. There are no tangibles, and everything exists only on paper.
  • Major political and economic issues can affect the markets.
  • The markets are often irrational and can test your patience.

How Do You Decide?

You should talk to industry experts when deciding where to invest large sums of money. If you know people who have done both, discuss your situation with them and hear about their experiences.

Are you looking at commercial real estate? CHI Real Estate is Toronto’s best commercial real estate broker and we can help you find the right properties for your portfolio.

Contact our team today if you’re looking for a commercial real estate broker in Toronto.