Four Major Risks Of Investing In Stocks vs. Real Estate

by | Apr 8, 2022 | Investing Advice | 0 comments

Those of us in the medical field set out expecting to follow the same path: grueling years of medical school followed by a decade of 50-60 hour work weeks to pay off student debt and advance in our fields.

That’s what Victor and I did the first few years in our careers until we found ourselves completely burnt out. The truth is, I don’t think we thought that far – the high-income profession where you get to make a positive impact on people’s lives every single day is quite attractive from the outside. 

In light of our burn out, we took time off to travel and explore what was really important to us. We valued helping others, but we also valued our time, energy, and freedom.

We returned to the medical field, although not at the full-time, high-stress capacity we left, and decided to pursue an additional revenue stream through real estate investing. 

We could have gone through the stock market to generate passive income, but the ups and downs of the markets didn’t give us the stability we wanted. 

If you’re trying to decide between stocks and real estate, you’ll need to look at the four major risks associated with the stock market and how real estate may be a safer, more recession-resistant choice.  


A Primer on Risk

As with any investment, there’s an element of risk. Just as you could have been hit by a bus this morning, unexpected things come up in life, in the stock market, and in real estate.

The key is not to look for investments that are risk-free (that doesn’t exist), but to understand the risks thoroughly, determine your threshold for risk, and ensure that you’re doing everything you can to mitigate risk.


Risk #1 – Consumer Behavior Could Change

Stock Market

Stock market investors bet on the success of companies who create products for people to use. Facebook, iPhones, Happy Meals, and soap are all consumable products. 

However, it’s impossible to predict the length those products will remain in favor, and a companies’ popularity. Blockbuster had a long reign, but when technology and consumer behavior changed, the company stagnated, dragging investors down with it.

Multifamily Real Estate Investments

When you invest in real estate, you’re investing in a basic human need that will never go away: the need for shelter. As long as humans have existed, we’ve required a roof over our heads, and that need has only strengthened over time, especially with rising population trends.


Risk #2 – The Market Could Turn

Stock Market

One of the most common fears and possibly the biggest reason would-be investors remain on the sidelines is for fear of a sudden market correction.

During a downturn, investors may exit quickly (which only solidifies their losses). Others aim to accept short-term losses in exchange for long-term gains. Historically, the market bounces back, but clinging to that “trust” is challenging during the downward trend.


Multifamily Real Estate Investments

Recessions are actually good for commercial multifamily real estate investments, especially for workforce housing.

In good times, incomes and savings rates are higher, which means more people tend to move up to class A (luxury) apartments.

When faced with layoffs or pay cuts, homeowners may sell, and renters of class A apartments may downgrade to more affordable apartments (class B or C).

Hence, during a recession, demand for apartments actually tends to go up, thereby decreasing the risk.

Risk #3 – Competitors Could Come on the Market

Stock Market

When Netflix stormed the scene, they beat out Blockbuster because not only did they target the same audience, but they also got ahead of the technology and consumer trends.

Consumers don’t have insight into technology development or companies’ operations. Thus, new competitors can have a significant impact on investment returns.


Multifamily Real Estate Investments

Multifamily competitors don’t just spring up out of nowhere, because space, zoning, and permits are limited. When new apartments are built, they’re always class A (i.e. newer luxury tier) apartment buildings. 

Since the demand for workforce and affordable housing is on the rise, the risk of having high vacancy in well-maintained class B and C apartment buildings is fairly low.


Risk #4 – Not Having Control and Transparency

Stock Market

Investing in stocks is like buying a train ticket. The train is leaving, with or without you. Whether you’re on board or not is up to you.

When the market is sailing upward, the ride is smooth and exciting. During a correction, a terrible, helpless feeling takes over. The conductor (CEO) is unreachable and you better buckle up.


Multifamily Real Estate Investments

When you invest in a real estate syndication, you know exactly who the deal sponsor is, and you can reach out directly to ask questions and provide feedback.

Further, when you invest in a solid syndication, you can be assured that there are multiple buffers in place to protect investor capital, such as reserves, insurance, and experienced professionals to handle the unexpected.

Plus, with monthly and quarterly updates, you have ongoing transparency into each deal.


Making an Investment Choice that Fits Your Goals

There’s certainly no one “right” way to invest. There are people who make money in the stock market, just as there are people making money in real estate.

The key is to assess your own goals and risk tolerance, then choose the path that will best help you meet those goals. If you can handle the volatility and the lack of control that the stock market provides and you’re okay investing the same way your parents probably did, then stocks are probably great for you!

On the other hand, if you’re interested in recession resistant solid assets that provide cash flow independently from the stock market and your day-job, commercial real estate is probably something you’ll want to explore further. 

Here at 25/8 Capital, we only present real estate investment opportunities that we’ve thoroughly vetted and that we’re also investing in personally. So, you aren’t just throwing your hard-earned cash at what’s rumored to be good. You’re investing alongside us, leveraging our experience, connections, and market knowledge to establish reliable returns in a lower-risk, tried and true endeavor.


Submit a Comment

Your email address will not be published. Required fields are marked *