For many people, the moment they start thinking of investing their money, the first place their minds turn to is the stock market. Maybe because stocks are always in the news, and buying or selling shares is relatively easy. Conversely, very few new investors think of real estate in the same way they think of stocks. For some reason, real estate investing is seen as less profitable than investing in stocks.
But is this correct?
The fact is, more often than not, real estate is a better investment option than stocks. An investment in properties is far more stable and can outperform an equivalent investment in stocks. Real estate gives investors control over a tangible asset with more value appreciation opportunities than is available with the company’s shares.
In general, even though real estate investing and stocks have their respective risks, real estate offers more advantages to the investor. This, of course, depends partly on the investor’s age, capital, investment goals, and level of risk tolerance. Below are some of the reasons why you should consider putting your money in real estate ahead of stocks.
1. Predictable Cash Flow
Cash flow from a real estate investment is how much money you have at your disposal after deducting the operating cost of the property and mortgage payments. When you invest in real estate, you can predict this income to a large extent.
This is unlike stocks, where you are never sure of how much you will earn in dividends. Moreover, income from real estate will keep up with the rate of inflation.
2. Greater Assurance of Profits
When you put your money in stocks, there are two ways you can earn income; through dividends and as an increase in the value of the company’s shares. Real estate investing also offers two sources of income: rents and value appreciation. However, with real estate, you are sure of the asset’s value going up even in years of economic downturn. Stocks do not offer this guarantee.
3. Forced Appreciation or Sweat Equity
In addition to the appreciation in the value of the real estate, which happens due to an increase in the overall value of land, you can forcefully improve the value of a property. This is possible when an investor does renovations that improve the property’s condition and make it more attractive to renters. But there is no way that an investor can individually improve the value of a stock.
4. More Involved Management
Real estate investors can take an involved or passive approach to the management of their assets. They can decide to be involved in its day-to-day administration or give control to a manager. Investors who buy stocks only have control over their buy or sell decisions; the asset’s everyday management is fully out of their hands. If you decide on a passive approach, research property manager sites to find your needs’ best property manager.
5. Real Estate Can Be Leveraged
Even though it takes more capital to get started as a real estate investor versus a stock investor, real estate investors have the advantage of being able to buy properties using leverage. They can acquire 100% control of an asset by paying 20%-25% of its purchase price.
Moreover, a real estate investor can use an existing property to finance more real estate acquisitions. These advantages are not available when investing in stocks.
6. Real estate is Ideal for Retirement Planning
To serve as a source of income during retirement, stocks are a self-liquidating asset, while real estate is a self-sustaining asset. A portfolio of stocks must be slowly liquidated to provide the income that the retired person needs.
Retirees who build their retirement plan on stocks must hope that the asset does not run out before the end of their life. Real estate investing, in contrast, does not suffer from this limitation. The asset generates income steadily while also appreciating.
7. Real Estate is Tax-Deductible
Real estate investors can significantly boost the performance of their property investments by taking advantage of tax deductions that are not available for investments in stocks. Many of the expenses involved in the operation of a rental property are tax-deductible.
Real estate investors can make deductions on mortgage interest, legal, and professional fees, insurance costs, utilities, management fees, real estate taxes, and advertising, to name a few.
8. Real Estate Can Be Depreciated
In addition to tax deductions, the value of real estate can depreciate over time. This means that you can write off the value of a real estate investment over the period of its useful life. For taxation, the asset loses value, effectively reducing how much the owner pays in taxes.
A real estate investment can depreciate on paper while the asset actually appreciates. It is not possible to do this with stocks.
Finally, real estate is far less volatile than stocks. While stocks are highly responsive to news and events in the larger economy, real estate values respond very slowly. This makes real estate a much safer investment vehicle than stocks. If you need someone to help you manage your property after purchase, contact us today.
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