Investing in Real Estate Versus the Stock Market

If you’re unsure whether investing in real estate or the stock market is right for you, we can help. Below, we break down the pros and cons of each to help you make the best possible decision for your financial future.

By Emily Southey | 21 minute read

Nov 14

Investing in Real Estate Versus the Stock Market

Most people turn to the stock market when they want to invest their money, but what about real estate? They forget that not only is real estate an investment option, but it can also be an extremely lucrative one. In the right environment, investing in real estate can be just as worthwhile as investing in stocks, if not more, offering better returns, added portfolio diversification, and lower risk. 

Real Estate Versus Stocks

Before jumping into the pros and cons of investing in real estate versus stocks, let’s examine what real estate investments and stock investments are. We break down both types below. 


Real Estate Investments

What is a real estate investment? In simple terms, it is any piece of real estate that is bought to turn a profit. Typically, the best real estate investing strategy is also the most basic: purchase a property at a low price, let it appreciate, and sell it for a higher price. While this strategy of buying low and selling high can be applied to many properties, such as primary residences, real estate investments are usually not the home you live in. Instead, it is a second property that you purchase with the express purpose of making money. One of the main differences between a primary residence and an investment property for the investor is that with the latter, they can take advantage of unique tax breaks that only apply to investment properties. Another difference is that if you’re living in the property, you likely aren’t generating rental income from it, which means any expenses you owe (for example, property taxes, insurance) are being paid out of pocket, thereby reducing the property’s value. On the other hand, if you purchased a true investment property and you rent it out, the rent you collect from tenants can be used to offset the cost of the property expenses like taxes, utilities, home insurance, mortgage interest, and more. You would not have to use funds from your personal account to pay these costs. 


Another important facet of investing in real estate is, like stocks, you have several options. Real estate investors can choose to invest in residential or commercial properties, and within those categories, they could invest in a residential condo, townhouse, or single-family home, or a commercial warehouse, hotel, or office building. The possibilities are endless. From there, what you do with the property is also your choice. You can simply hold onto it and let it appreciate it, selling it for a profit in the future. You could also flip it — buying a house at a low price, renovating it, and selling it at a higher price shortly thereafter. Finally, you could rent it out to tenants, generating monthly cash flow until you decide to sell.  


To help you gain a deeper understanding of real estate investments, we break down the various types of investment properties below.


Residential properties

Residential properties are one of the most common types of real estate investments, and they are likely what comes to mind when you think of real estate investing. Purchasing a residential property with the intention of renting it out to a tenant can make for a fantastic investment. However, this form of investing is more involved than your average stock investment, so you must be prepared for a bit of hard work. First, you will need to settle on the type of residential property you wish to purchase. This could be anything from a single- or multi-family home to a condominium. The next step is finding a tenant to rent it to. This way, you will receive monthly income in the form of rent while still benefiting from any appreciation in value upon selling. While renting out a residential property can be lucrative, it requires more work since you become a landlord. If you don’t have the time or patience for this, hiring a property management company might be the right move. A few of the most popular types of residential investment properties are as follows: 


  • Short-term or vacation rental property: A short-term or vacation rental property is a property that you purchase to rent out for short-term stays. As these properties are often rented by vacationers, it’s important to choose a property in an area that is popular with tourists. In addition, you must consider the added expenses that come with operating a short-term property (high tenant turnover means more maintenance). 
  • Long-term rental property: A long-term rental property is the most common type of residential investment property. It is a property that an investor purchases and then rents out to tenants long term (usually for a minimum of 12 months at a time). Investors make money from long-term rental properties by collecting rent from tenants, in addition to any profit they make when they sell if the property has appreciated. 
  • Accessory dwelling unit (ADU): Next, accessory dwelling unit or ADU, is a term used when a homeowner rents out part of their home for extra income. In most cases, the ADU is rented out to a family member, but it can be rented to anyone. Common examples of ADUs are finished basements or sheds that have been renovated and converted into small living suites. Adding an accessory dwelling unit to your home or taking advantage of an existing one often costs less than purchasing an entirely separate investment property. This can make it an attractive option for beginner investors.
  • House flipping: One final type of residential real estate investing is house flipping. House flipping is when you purchase an inexpensive property (for example, a fixer-upper), renovate it, and sell it at a higher price point to turn a profit. This is one of the fastest forms of real estate investing, as the goal is to minimize the amount of time between purchasing it and reselling. Therefore, it is an appealing option for real estate investors who want to make quick money. However, house flipping isn’t without risk. Not only does the short turnaround time make it riskier, but it is usually more hands-on than other types of real estate investing. For this reason, investors interested in house flipping should do their research, ensuring they choose a hot market with no shortage of buyers. It is also recommended to choose a home that does not need major repairs, especially if this is your first home-flipping experience. Though improvements are guaranteed to be a central part of any house you flip, some renovations are significantly more expensive than others. The more expensive your improvements, the less profit you will make, which is why we suggest avoiding homes that need major structural repairs, such as roof replacements. Assuming you know what you’re doing, house flipping can be a great option that allows investors to avoid the hassle of managing a tenant while making quick cash.

“While real estate is not as liquid as the stock market, you can rent out your investment property, allowing you to generate some regular cash flow. On the flip side, the upfront costs of investing in real estate are much higher than the stock market and there are additional costs that come with managing a rental property, such as property repairs and maintenance.”

Commercial properties

Now that you know all about residential properties, let’s dive into commercial investment properties. Unlike a residential property, a commercial property is used for business purposes  (tenants do not live there, they conduct business there). Purchasing a commercial investment property is very similar to purchasing a residential property. You find a property you like (preferably in an in-demand area), find a tenant, and rent it out while it appreciates in value. The main difference is that your tenant would be some type of business or company rather than an individual. When it comes to investing in a commercial property, there are lots of options. While the most obvious might be an office building, other types of commercial properties include warehouses, hotels, retail spaces, and more. 


Stock Market

Moving on to the stock market. Again, to understand how real estate investing differs from investing in the stock market, we are going to give a brief explanation of how stocks work. In the simplest terms, a stock represents a share in the ownership of a company. Accordingly, stockholders have partial ownership of the company. When the value of a company goes up, so does the value of the stock. Conversely, when the value of a company goes down, the value of a stock goes down too. Nowadays, stocks are purchased online via stock exchanges. Some companies may still sell stock directly to investors, but most sell them through brokers or banks. Stocks can be purchased in a matter of minutes and sold just as quickly, which makes them a convenient and attractive option for investors of all levels. Plus, there are plenty of stocks to choose from. Investors can purchase a stock for a company located anywhere in the world, instantly giving them access to other markets. 


The purpose of investing in stocks is similar to that of investing in real estate: to make a profit. Some investors have short-term goals in mind, so they may apply a strategy of buying a stock at a lower price and selling it shortly thereafter when the price increases, taking advantage of short-term stock price moves. Alternatively, some investors prefer a “buy and hold” strategy, buying stocks to hold onto them for the long term. The prices of stocks fluctuate daily, and as with real estate, there is no guarantee that the stock price will rise, which means you could end up selling at a loss. That said, stocks are generally considered to be a healthy part of any financial portfolio owing to their high potential for growth and impressive returns compared to other types of investments. To determine which stocks to invest in and what percentage of your portfolio to allocate to stocks, you should do your research, speak with a financial planner, and carefully consider the level of risk you’re willing to accept in exchange for the possibility of higher gains.


The Pros and Cons of Real Estate Investments

Investing in the stock market comes with a series of benefits and drawbacks, as does investing in real estate. For example, stocks are more liquid and do not require much capital to get started. Plus, there are all kinds of stocks to invest in (for example, mutual funds, exchange-traded funds [ETFs], and stocks in various industries all over the world), giving you an easy way to diversify your portfolio. On the other hand, they are extremely volatile, which makes them a riskier investment. Selling them can also lead to hefty capital gains taxes. Keep reading for a full breakdown of the pros and cons of investing in the stock market. 


The Pros

  • High liquidity: The opposite of real estate, stocks are highly liquid, which makes them a great option for short-term investors or investors looking to make quick cash. While real estate investments can be tied up for years, you can buy and sell a stock in a matter of minutes. It is also easy to see the value of your investment any time you want.  
  • Portfolio diversification: Another pro of investing in stocks is the diversification they offer. There are so many types of stocks in the stock market. From mutual funds and index funds to exchange-traded funds, the options are endless. You can buy stocks in industries all over the world — you aren’t limited to your local market. Plus, with stocks, it’s possible to diversify your portfolio in a fraction of the time it would take to invest in real estate all over the world. You can build a portfolio of diverse companies and industries in no time.  
  • Limited transaction fees: The next perk of investing in stocks is the limited transaction fees. While you may need to pay a small brokerage fee to buy and sell stocks, there are not nearly as many expenses associated with investing in stocks as there are with investing in real estate. 
  • Tax-advantage accounts: One final pro of investing in the stock market is that you can keep your investments in tax-advantaged accounts, like a TFSA or RRSP, minimizing or possibly eliminating the tax you need to pay on these investments.

The Cons

  • Stock prices are volatile: Stock prices fluctuate much more frequently than real estate prices. This makes them riskier and can be hard to stomach for beginner investors. 
  • Capital gains tax: When you sell your stocks, any profit you make may be subject to capital gains tax. You may also be required to pay taxes on any stock dividends your portfolio paid out during the year. 
  • Decisions based on emotions: While stocks can be bought and sold easily, that doesn’t mean they should be. Their liquidity can be a con in some ways, as it may translate to more emotional decision-making, which could hurt your overall returns.

How to Invest in Real Estate Through Stocks

If flipping homes or renting out a property isn’t for you, but you’re still interested in investing in real estate, there is one more option to discuss: REITs. REITs, or real estate investment trusts, are publicly traded trusts that are similar to stocks, providing investors with an opportunity to diversify their portfolios without the hassle or upfront costs that come with purchasing an investment property. 


REITs are companies that own real estate properties. The properties they own can be anything from residential homes and condos to commercial warehouses, office buildings, shopping malls, or hotels. They function similarly to mutual funds or exchange-traded funds (ETFs). Investors make money from REITs through dividend payments (the most popular REITs typically have a strong track record for paying significant dividends) and/or by selling a REIT that has increased in value. Investing in a REIT is just as easy as investing in a stock or mutual fund and can usually be done online through a broker or financial institution, such as a bank. Therefore, REITs provide an opportunity for investors to invest in both stocks and real estate at the same time.

We put the real back in real estate.

Join Wahi today and find out how easy it is to get real estate in the GTA.


Frequently Asked Questions

Does the stock market beat real estate?

It’s difficult to compare investing in the stock market with investing in real estate as they both have their own unique advantages and disadvantages. That said, while both types of investments have performed well historically, stocks may have the edge. In the long term, most financial experts agree that stocks tend to outpace real estate in returns.


That said, there are a few real estate crowdfunding sites that are consistently ranked well, and they include Fundrise, CrowdStreet, RealtyMogul, YieldStreet, and EquityMultiple. Fundrise is generally considered to be one of the top overall crowdfunding sites for non-accredited investors.

What is stock market investment?

A stock market investment is the process of buying (and eventually selling) a stock. A stock is a share in the ownership of a company. Therefore, when you buy a stock, you become a stockholder, which means you have partial ownership of the company. The value of the company is closely tied to the value of the stock (when a company’s value goes up, the stock goes up and vice versa). Stocks are highly liquid investments, but they can also be risky owing to how frequently they fluctuate. Investing in the stock market is easy and convenient since stocks can be purchased online, often via your bank or other financial institution. 

What are the disadvantages of investing in stocks?

The main disadvantages of investing in stocks are their volatility (stock prices fluctuate frequently), high taxes (if you do not hold your stock for very long, you may be subject to significant capital gains taxes), and the emotional decision-making that often surrounds them (since stocks can be bought and sold quickly and easily, this can lead to emotional decisions that hurt you financially in the long run).

Should I buy a rental property or invest in stocks?

The answer to this question ultimately depends on your personal preferences. Both investments can be extremely lucrative. However, if you’re looking to make quick cash, then the high liquidity of stocks may be a better fit. Alternatively, if you want to diversify your portfolio, generate monthly income, and are prepared to reap the benefits of a long-term investment, investing in real estate might be a wise decision.

How do I invest in real estate through stocks?

People can invest in real estate through stocks by purchasing a REIT (real estate investment trust). They are publicly traded just like a stock, mutual fund, or exchange-traded fund. However, unlike stocks or mutual funds, REITs are companies that own real estate properties. The properties they own can be anything from a mall to a condo building. REITs can be bought and sold online just like stocks, which makes them far more liquid than traditional real estate investments. Plus, they require fewer upfront costs than buying an investment property while still allowing the investor to diversify their portfolio by investing in real estate. For beginner investors or those hesitant to jump into real estate investing by purchasing a property of their own, buying a REIT can be an ideal solution. 

When is the right time to invest in real estate stocks?

It’s difficult to time investing in stocks and real estate. In fact, many financial experts say that trying to time the stock market is a losing game. However, when it comes to investing in real estate, there are a few signs that it might be the right time to invest. Generally speaking, investors should look for the following signs: low fixed-interest rates, rising rent prices, and adjusted housing prices. In addition, buying in the off-season (fall and winter) can translate to a lower purchase price than trying to buy in the busy periods of spring and summer. Beyond the market conditions that are favourable to investors, you should also consider your own personal circumstances to determine the right time to invest. For example, you should only invest in real estate if you’ve done your research, are financially stable, have enough equity in your first home, and have the time, energy, and resources to handle the responsibility of managing an investment property. 

Are stocks taxed favourably compared to income?

Generally speaking, the dividend and capital gains tax that an investor might pay on a stock is favourable (that is, lower) than typical income tax rates.

Do Canadian laws fall on the real estate investor's side?

Canada is largely considered to be an attractive market for real estate investors. Not only does it have a booming housing market, but many laws and regulations are favourable toward real estate investors. For example, real estate wholesaling is legal, only 50% of the profit you make from the sale of an investment property is subject to capital gains tax, and property investors receive several other tax benefits, such as being able to claim many property expenses. That said, if you’re interested in house flipping, it’s worth noting that changes are coming to Canada’s house-flipping rules. When the Government of Canada released its 2022 federal budget, it included a new law that makes any profit from the sale of a residential property taxable as business income if the seller owns the property for less than a year. The proposed rule is set to take effect on January 1, 2023, which will have a considerable impact on house flippers. 

Emily Southey

Wahi Writer