There’s an ongoing debate among active investors. Which investment strategy is better, stocks or real estate. I figure if anyone out there can honestly compare and contrast these two investment vehicles it’s me. After all, I started out my investing career in real estate and expanded into stocks and more specifically stock options. I still do both but my bread in butter is selling stock options and I’ll tell you why.

First of all let me run though some similarities.

• Both are great ways to build short and long term wealth.
• Both require careful analyzing. You may look at several dozen stocks and houses to find the perfect one.
• Both require quick decision making and action. Once you find that stock or house that you think fits your plan then you must quickly act before someone else steps in. In summary, you’ve got to be both thorough and decisive.
• You can’t suffer from paralysis by analysis. You can’t be afraid to step up to the plate and swing. You may be wrong but you also may be right. If you never take a shot you’re wrong 100% of the time.
• Both can be either short term or long term investments. In real estate you can buy, rehab and sell for a quick (3-4 month) profit. Stocks can be long term investments which you hold for years or short term which you hold for a few seconds or minutes. I prefer somewhere in the middle. I typically hold stock options about 3-4 weeks. I also have longer term investments in both. My rental property portfolio is for long term wealth growth. I’m not looking to live on the cash flow today. My longer term stock portfolio is exactly the same. With both I’m looking for growth in the value of the holding. By the way, did you know you can rent out a stock position by using a covered call. It’s a great way to improve your return on your long term holds but that’s another topic of discussion.
• Both strategies have the ability to use leverage. Real Estate can be leveraged with loans/mortgages on the property. Stocks can be bought on margin and stock options have built in leverage since 1 Option contract controls 100 shares.
• Both investment strategies can use options to buy and sell the underlying.
• You can hire a professional to manage both for you. But let me tell you from first hand experience you need to be an active manager even if someone else is doing the day to day.

How are they different?

• You can improve the value of real estate by improving the property itself or even the management of it. It’s hard to improve the value of a stock. I guess you could eat a lot of Big Macs if you own McDonald’s stock.
• Stocks are easy to own and maintain. I’ve never had a stock call me about of a leaky toilet.
• You don’t have to buy liability insurance to protect yourself from a tenant that may have too much to drink, slip in the kitchen and threaten you with a lawsuit (true story).
• Buying and selling stocks and stock options can be a one man show. You can sit at home in your pajamas and run a business. Buying and selling real estate is a team effort. You need Realtors, insurance agents, management, repairmen, contractors, etc.
• Stocks and stock options are very liquid. There’s always buyers and sellers. Real Estate may be on the market for months or even years before it is sold. The negative part of the liquidity is that it can cause big swings in stock and option prices. Real Estate goes up and down as well but it’s usually not as dramatic.
• Real Estate prices are very opinion and emotion based. If you spend 4 months of your time and energy on a project you tend to have an inflated sense of worth for your property. Just ask my Realtor. Stock and options prices are out there where everyone can see them. There’s no haggling involved. No offers and counter offers. The price is constantly updated and can be seen by anyone. It is what it is.

I could go on and on but I think you get the point and you can probably tell which is my favorite. Both investment vehicles have their place in any well rounded portfolio. Both require knowledge and experience to really excel at. The funny thing is the two easiest ways to invest (simply buying stocks and buying rental properties) are the two that should be done last. It’s more important to build a nice cash cushion before working on your longer term investments. In real estate this can be done by rehabbing/flipping properties. In the stock world it can be done through day trading or through buying and selling options. Day trading is very risky and has a very fine line between success and failure. With a little education and perhaps some guidance you can be successful buying and selling options. So get out there, start learning, step up to the plate and take a swing. There’s no need to hit a home run. You can easily win this game with a lot of singles. Good luck!