Investing in Real Estate vs Stocks: Which Is Better

Investing in Real Estate vs Stocks: Which Is Better

Investing in real estate vs stocks is no longer just a textbook comparison. In 2025, mortgage rates are still high, property affordability is stretched, and global stock markets are strong but nervy. The choice you make now has to fit both long term data and today’s reality.

This guide walks through how investing in real estate vs stocks really compares, then layers on the current mortgage and stock market environment so you can decide what suits you right now.

Understanding Investing in Real Estate vs Stocks

Before choosing sides, it helps to be clear what each investment actually gives you.

Real estate

• Direct ownership of a property such as a rental apartment, house, or small commercial unit
• Returns from rental income plus changes in the property value
• Usually uses leverage through a mortgage, which can magnify both gains and losses

You can also invest indirectly through listed vehicles like REITs and property funds, which behave more like stocks but still track the property cycle.

Stocks

• Ownership of shares in companies, either individually or via funds and ETFs
• Returns from dividends plus share price growth as companies become more profitable
• Easy diversification across sectors and countries with a single low cost fund

When people compare investing in real estate vs stocks, they often jump straight to “which one makes more money”. The better question is “what does each one do to my risk, cash flow, and flexibility”.

Long Term Returns Real Estate vs Stocks

Over long periods, both real estate and stocks have delivered strong real returns above inflation.

Equities

• The UBS Global Investment Returns Yearbook, which tracks more than a century of global data, finds that stocks remain the strongest performing major asset class in real terms over 100 plus years.
• For example, S&P 500 data shows average annual returns around 8 to 10 percent over many decades when dividends are reinvested, with about 5 to 8 percent after inflation depending on the period.

Housing

• The famous “Rate of Return on Everything” study, which covers 16 advanced economies from 1870 to 2015, found that average real returns on housing and equities are surprisingly similar, around 7 percent per year before inflation.
• Housing tends to deliver more of its return through rental income and slightly less through rapid price gains, with lower volatility at the national level.

Listed real estate such as REITs

• In the modern REIT era since the early 1990s, US REITs have often matched or exceeded broad stock market returns over long holding periods.
• Nareit data shows that some REIT indices have delivered long term annual returns in the high single digits to low double digits, with higher average dividend yields than the broad stock market.

The headline message is that over decades, both stocks and property can work. Stocks tend to offer higher pure growth, while real estate and REITs often look good on a risk adjusted basis.

Current Mortgage Market: What It Means For Property Investors

The 2025 mortgage backdrop changes how attractive direct property looks compared with stocks.

Mortgage rates are still high

• In the United States, the national average 30 year fixed mortgage rate is around 6.3 to 6.4 percent in mid November 2025, more than double the ultra low levels seen in the late 2010s.

For a real estate investor, that means:

• Monthly payments and stress tests are much heavier
• Rental yield has to work harder to cover higher interest costs plus maintenance and tax
• The margin for error is smaller if rents fall or vacancies rise

Negative equity pockets are growing

• Recent reports estimate that nearly 900 thousand US homeowners are now underwater on their mortgages, mostly buyers who purchased near the top with small deposits in overheated markets.
• ATTOM data shows that the share of homes with serious negative equity has ticked up to about 2.8 percent, while the proportion of equity rich properties has slipped, even though national median prices have hit record highs.
• ICE’s Mortgage Monitor has flagged rising negative equity and affordability workarounds as early warning signs of strain for some homeowners.

This is not a repeat of 2008, but it does mean that recent, highly leveraged buyers in certain regions carry more risk than long term owners with older, cheaper mortgages.

How this shifts the real estate side of the comparison

In this mortgage environment, investing in real estate vs stocks looks different than it did five or ten years ago.

For property:

• Conservative leverage matters more. Stress test your deal at higher rates, not just the cheapest quote today.
• Cash rich investors with large deposits have an advantage. They can negotiate better prices and are less exposed to future rate moves.
• There can be selective opportunities where distressed or cautious sellers meet investors with strong balance sheets, but these are specific, not universal.

If you like real estate but do not want to take on a big mortgage at current rates, listed REITs or property funds can give you exposure without tying up most of your net worth in a single leveraged property.

Risk Liquidity And Effort Compared

Beyond returns and sentiment, investing in real estate vs stocks affects your everyday life very differently.

Risk

Stocks

• High visible volatility. Values update every second when markets are open.
• Diversified funds help reduce single company risk, but broad markets can still fall sharply in recessions or shocks.

Real estate

• Values move slowly on paper, but risk shows up in other ways:
  • Leverage risk when higher rates squeeze cash flow
  • Concentration risk when one property dominates your net worth
  • Tenant and location risk when local economies weaken or properties need major repairs

You feel stock risk in your portfolio statements. You feel property risk in your monthly cash flow and your stress about mortgage payments.

Liquidity and flexibility

• Stocks and ETFs are highly liquid. You can sell quickly and rebalance as your situation changes.
• Direct property is illiquid. Sales can take months and may require price cuts, especially in weak markets.

Effort

• Stocks can be almost fully passive, especially if you use simple index funds.
• Property is hands on. You need to handle agents, tenants, maintenance and legal issues, or pay a manager and accept lower net yield.

If your time and mental bandwidth are limited, this part of the comparison can matter more than expected returns.

Which Mix Might Suit You

There is no universal winner in investing in real estate vs stocks. It ultimately depends on you.

Real estate tends to suit investors who like tangible assets, are comfortable with debt, have stable income and a long horizon, and like the idea of rental income that can move with inflation or see specific value in their local market. Stocks tend to suit investors who want liquidity and easy diversification, prefer not to take on large personal debts, can tolerate price swings, and like a simple, mostly automated approach.

In practice, many people blend both: they use diversified stock and bond funds as their core, add REITs or property funds for real estate exposure without heavy borrowing, and only move into direct property when their income and savings are strong enough and the numbers still look solid after stress testing higher rates, vacancies and repairs.

Conclusion

There is no single winner in investing in real estate vs stocks. Stocks offer liquidity, diversification and simple long term growth, while real estate adds income, leverage and tangibility but with more work and concentrated risk. The smartest move is to build a diversified core in stock funds, then add property carefully if and when it fits your finances, time and risk tolerance.