Question

Explain why common stock ownership might be preferable to direct ownership of real estate.

Answer 1

Reasons why common stock ownership might be preferable to direct ownership of real estate:

1. Stocks have had a higher rate of return than ownership in real estate.
2. Stocks are more liquid. If you need to liquidate stock or need immediate cash, it is easy to sell stock holdings. But it’s more costly and time consuming to cash out real estate.
3. Stocks have a lower transaction cost.
4. Long term capital gains and dividend income are taxed at lower rates.
5. It’s easier to hedge in case of stocks. The only way to hedge in case of real estate is by taking insurance.
6. Real estate investment has a lot of fees such as property taxes, maintenance cost, insurance costs and property management costs. Stock ownership does not have these fees.
7. It is much easier to buy and sell stock than listing and selling a property.
8. It is easier to achieve diversification by investing in stocks by buying different stocks in different industries. Diversification in real estate can only be achieved by investing in properties in different countries.
9. Stocks are more flexible and can be reallocated to a retirement account.

I hope that was helpful :)