Dividends vs. Real Estate Investment

One of the first, and most important, decisions new investors make is deciding what to invest in. You can buy into hedge funds or mutual funds, purchase common or preferred stock, invest in the bonds and notes market or put money in real estate. Choosing between investment types like dividend stocks and real estate comes down to making decisions about what best fits your financial situation, investment strategy and lifestyle.

Dividend Stocks vs. Real Estate

Various types of stock exist, among them divided-paying stocks. Dividends are portions of a company’s profits paid out annually to all of its owners/shareholders in equal proportion to the amount of stock each owner holds. Investors who purchase dividend-paying shares receive these payments.

Real estate investment takes various forms. Investors may purchase physical real estate for repair and resale or rental as a means of earning money, or invest in real estate as a commodity through a real estate investment trust (REIT). REITS work like mutual funds, selling shares to raise investment capital. By purchasing shares in a REIT, an investor purchases a portion of all of the REIT’s real estate holdings.

Requirements for Investment

The requirements for investing in dividend-paying stock and REITs prove similar and relatively simple. Investors contact brokers or invest directly by purchasing shares themselves. Both REITs and stock markets offer diverse investment opportunities that allow investors to create extensive portfolios. These markets also provide shares priced at a variety of levels, allowing investors of a wide gamut of financial means to invest. Investing in physical real estate through resale or rental requires a large amount of capital for purchasing property and making any necessary repairs.

Time Commitment

Investing in dividend-paying stock or REITs requires very little time commitment, particularly when investors use brokers to develop and manage their portfolios. Investing in physical real estate requires a large time commitment, as well as stores of revenue for employing building maintenance professionals and making required repairs or installations as needed. Those who invest in physical property to earn money as rent must also make themselves available to tenants and manage potential problems within the building, such as conflicts between tenants or legal disputes over damage to the property.

Market Differences

REIT shares and dividend-paying stocks in non-REIT ventures exist on different markets. The success or failure of these markets overlaps in some instances but in many cases things affecting the value of shares and profits made from dividends prove completely different. Investing in either REITs or divided-paying stocks carries the risk of losing the investment capital if a company or trust goes bankrupt or if the market crashes. Investing in both as a means of diversifying a portfolio protects investors from total ruin if one market crashes but the other remains strong.

Investment Revenue Streams

The concept of deciding between dividends and real estate investments is somewhat misleading, as REITs actually pay dividends in the same way that dividend-paying stocks do. As per federal law, REITs in the United States must pay at least 90 percent of their taxable income as dividends annually. Investing in shares, such as stocks or REITs, provides two streams of revenue, dividends and capital gains. Companies usually pay dividends once per year, and investors only earn capital gains by selling stock as its price increases. Investing in physical real estate provides monthly revenue for those renting out the property and a large sum of money upon the resale of a building. Rental buildings also generate capital when sold.