Risk versus expected returns. Whether putting cash into the market or purchasing real estate, you need to assess the risk versus the expected returns. Traditional equity investments are much easier to analyze in this way. You have historical data, and although past performance is not indicative of future results, you have a bit more control over how much risk you're exposed to when deciding what amount to invest, the asset allocation and so on. Investing in single stocks versus an index fund is a calculated risk some are willing to take in search of higher expected returns.
Required capital. Virtually anyone can invest in traditional equity assets. Some shares can be very inexpensive and you can often determine the volume as well. The same cannot be said for real estate. To purchase a property, you need to either come up with a down payment yourself, or enlist partners to invest with you. Typically, you need to put down 20 percent for a traditional mortgage, and although various programs can help you to put down a smaller percentage, there are fewer options for investment properties.
Taxes. Another aspect to consider when deciding to invest in real estate or the stock market is taxes. If you own property, you will be required to pay property taxes every quarter, based on the assessed value as determined by the city or country. This is included in your mortgage payment. Whether you want to flip the property or hold onto it as a landlord, you will also have to pay tax on the sale or rental proceeds.
Inflation. Real estate can be a potential hedge against inflation as historically, rental rates and home prices rise with inflation. This provides a potential inflation hedge for both your rental income and sale of the property. Since your mortgage payments will not increase with inflation, it offers a benefit over time.
Time. Another factor to consider when choosing to invest in real estate or the stock market is to factor in your time as a cost during the analysis. While you do need to do some research when deciding which funds to buy, you can purchase traditional equity investments in a matter of moments. There is a lot more time required in buying and maintaining a property, as well as managing any improvements. As a landlord, you will be on call for the tenants as problems arise. Hiring a property manager is an option, but depending on the size of your property, could eliminate your profit margin.