Commercial real estate and the stock market are two popular investment options that offer different opportunities for growth and income. Both have their own unique advantages and disadvantages, and it’s important to understand the key differences between the two in order to make an informed decision about which one is right for you.
One of the biggest differences between commercial real estate and the stock market is the level of control and ownership that investors have. With commercial real estate, investors typically own the property outright, which means they have the ability to make decisions about how the property is used and managed. This can be a major advantage for those who want to be more hands-on in their investment strategy, as they can make changes to the property in order to increase its value. In contrast, when investing in the stock market, investors do not own any physical assets, they own shares of a company which represents a percentage of ownership in that company. This means they have less control over how their investment is used, and their returns are dependent on the overall performance of the company.
Another key difference between commercial real estate and the stock market is the level of risk involved. Commercial real estate investments can be relatively stable, as long-term leases and steady cash flow can provide a steady stream of income. Additionally, commercial real estate values are often tied to the local economy, which means that they tend to be less volatile than stocks. In contrast, the stock market can be highly volatile, and stock values can change rapidly based on a variety of factors, such as economic conditions and company performance.
Another important factor to consider when comparing commercial real estate and the stock market is the amount of money required to get started. Investing in commercial real estate typically requires a larger initial investment than investing in the stock market. This can be a major disadvantage for those who don’t have a lot of money to invest, but it can also be an advantage for those who have the capital to invest in commercial real estate. Additionally, investing in commercial real estate often requires more time and effort to research and manage the property, which can be a disadvantage for those who prefer a more passive investment strategy.
Ultimately, the decision of whether to invest in commercial real estate or the stock market will depend on your investment goals and risk tolerance. Commercial real estate can provide a stable income and the potential for long-term appreciation, while the stock market can offer higher returns with a higher level of risk. It’s important to do your own research and seek advice from a financial advisor before making any investment decisions.
Here are a couple of key data points, courtesy of Marcus and Millichap:
- S&P 500: -18% gain in 2022
- CRE as a whole (all asset classes): +10%
- Leading asset classes: Multi-Family 10.3% | Self-Storage: 15.5%
- Last 20 years, Quarter over Quarter:
- S&P 500 6.6% volatility change
- CRE: 1.8% volatility change
- If you invested $100k in 2000, your gains would be:
- S&P 500: $320,000 in gains and dividends
- CRE: $530k in gains and cashflow
Essentially, as mentioned above, CRE is more stable on a quarter-over-quarter basis; and provides higher returns on a risk-adjusted basis.
In conclusion, commercial real estate and the stock market are two different investment options that offer different opportunities for growth and income. Commercial real estate can be a good option for those who want to have control over their investment and who are looking for a relatively stable income, while the stock market can be a good option for those who are looking for high