Stock Market vs. Passive Real Estate Investing

Which one is better, stock market vs. passive real estate investing? This has been a heated debate for quite a while. There are many pros and cons on each side, and unfortunately it is up to you to determine which risks and rewards you are willing to live with and hope for.

The stock market has traditionally been a place to put money for many investors. This has been done directly or through retirement savings programs like a 401k. The market is such a well-recognized investment choice that many don’t even consider alternatives like real estate, presenting lower risk, yielding healthy returns, and offering greater diversification. Ultimately, the choice to invest in stocks or real estate is a personal decision that will depend on your financial situation, tolerance to risks, and investment goals. Each has its own opportunities and threats.

A healthy and diversified investment portfolio will contain both real estate and stock investments. How much of each will depend on your goals and which risks you are willing to endure. There are things to think about on both sides.

How Income is Generated

When buying a piece of a company via stock shares you can make money two traditional ways: with the appreciation of the stock’s value, and with its dividends. There are also alternatives, such as shorting a stock. This is where you are betting a stock to go down in value rather than up.

With real estate, you can receive a steady income stream by collecting rents, and then profit from the increase in value when the property is sold. There is a key thing available in real estate investing that is not available in stocks. When investing in a property, you or the syndicator will force appreciation by adding value (value-add) through capital improvements, maintenance, tenant optimization and bringing rents up to market value. Generally, it takes longer to make money with real estate, but the process is more predictable than stock investing.


Real estate isn’t as liquid as stocks and can sometimes require more money and time, but it may provide a positive passive revenue stream with the possibility for considerable appreciation. It is not as easily bought and sold as stocks.

To buy or sell a stock, pretty much all you have to do is push a button. Your broker’s technology platform takes care of the settlement and anything else that needs to be done. If you are executing a market order it only takes a split second out of your day. Real estate, on the contrary, can take weeks or months to market, sell, close and settle. It takes a lot of planning.

Historic Returns

According to Investopedia*, “the average annualized rate of return for housing increased 3.7% between 1928 and 2013.” That equates to 18.5% when leveraged to 80% LTV. Compare that with the Dow Jones Industrial Average** gain of 6.75% over that same period. But, comparing returns over different periods can result in stocks coming out on top.

Stability, Predictability and Volatility

Stock market investing can be unpredictable and the return on investment (ROI) can often be lower than projected.  As stocks are subject to market, inflationary, economic risks and public sentiment, values can fluctuate wildly. According to the Cboe Volatility Index,*** the highest periods of volatility coincide with periods of economic uncertainty. Two examples in point, 2009 during the housing crash, and 2020 during the pandemic. The index reached into the 80s during those peaks.

Many see times of capriciousness in the stock market as unpredictable, unstable and undependable. Stocks can gain or lose value very quickly. On the other side of this investment spectrum is real estate, where values tend to move slowly in direction or the other. This dependability can be somewhat comforting to the real estate investor. May investors prefer this since they do not necessarily need to be stressed out and on edge all the time.

Tax Advantage

The one thing that stock investing doesn’t have (directly) that real estate investing has is the ability to use depreciation, a non-cash expense, to protect you from a portion of your gains. Since real estate investing is basically a business, deductions of expenses are possible. All expenses associated with managing the property is deductible against rental income.

When it is time to sell the property, you can kick the can down the road (postpone taxes) by doing a 1031 exchange. This is where the IRS allows you to sell a property and use the proceeds to purchase a similar property without having to pay taxes on the gain. There are lots of rules around this and it can get complex. The 1031 exchange is not too common with syndications since investors in a project are owners of the company that owns the real estate.

Time Horizon

There is always risk involved with any investment. While there may be a greater potential for a quicker ROI in any given time frame for stocks or real estate, it’s also imperative to account for the associated risks. In some cases, stocks can outperform real estate in the short run. You could see a return on investment in a very short period of time, while real estate tends to grow over longer periods of time, unless of course forced appreciation is at play. But, predicting the stock market is almost impossible, while real estate doesn’t experience wide and quick fluctuations and can be easier to plan around.


Real estate generally can be leveraged more so than stocks, so it’s possible to increase your holdings beyond what you can afford to pay outright in cash. With stocks, you usually invest your funds without using a margin account. If you do use a margin account (an account that lets you borrow against your portfolio value), you can sometimes get 30-40% leverage allowing you to make even more money if you win. Your $100,000 investment becomes $130,000 that you could risk.

But if you lose, you lose big. Whatever is borrowed must be paid back. With real estate, you can up to five-to-one leverage (84%) meaning your $100,000 investment can buy $400,000-500,000 in real estate. In an appreciating market, this is a good thing and can maximize your cash-on-cash return. If something goes wrong, the loan that the leverage creates is collateralized by the property.

Passive Investing Means Following Someone Else’s Plan

When you invest in the stock market via a fund, this is considered passive investing. You do not have a say in the management of the fund. Although many fund managers are very good at what they do, you are at their mercy. At times, there will be no warning when your invested capital loses value dramatically. This is somewhat the same with investing in a multifamily property syndication, though you are privy to the business plan and there is less volatility. Because of this, there are fewer surprises. No quick fluctuations in value.


So again, which one is better, stock market vs. passive real estate investing? This discussion has not been meant to sway you in one direction or another. It was merely meant to show you what you already know and to put it into perspective. A certain portion of your portfolio needs to be in real estate in order to shield you from some of the volatility in the stock market. And vice versa, there are many opportunities to be had that real estate just does not offer. This diversification will go a long way in preserving your hard-fought wealth.

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