Real estate vs Stock Market: Guide for 2018
If one of your New Years Resolutions is to get serious about investing, we’re glad you’re here. Many people are getting excited about making their money work for them in 2018, instead of the other way around. And they are serious about making smart investments that make them a little (or a lot) of extra money in the new year. There are many different investment strategies to choose from, and all of them have their pros and cons. Stocks and real estate are two of the most popular, and everyone has their own opinion about which is better. As two seasoned investors who are extremely passionate about real estate investing, we’ve put together eight reasons why investing in real estate is a better strategy than traditional stocks.
Table of Contents
Calculating Risks
Although investors can look at a company’s financial history before buying stocks, there is uncertainty when it comes to the future of the company. You never know what the CEO of a company is going to do moving forward. Their lack of experience, talent or ability to lead the company successfully will impact your finances directly. With stocks, you don’t have a lot of control over how much risk you’re taking. With real estate, you have a lot more information at your fingertips. Your success relies heavily on your commitment, education, persistence and hard work, not on a complete stranger you’ve never met. There is a risk in any investing strategy, but real estate gives you a better chance to assess your risk before you make a big decision.
Taxes
No matter what you decide to do with the property that you purchase, you’ll have to pay taxes on it every quarter. And whether you flip it and sell it or keep it and rent it out, you have to pay taxes on the sale or rental earnings. However, as a landlord, there are a few extra tax benefits. For example, the interest on your mortgage is tax deductible along with others things like depreciation and insurance. Real estate investors can take advantage of many little-known tax deductions that help to make investing even more profitable. When it comes to stocks, regardless of whether you sell or not, you pay both a capital gains tax AND tax on any dividends you receive.
Inflation and Cash Flow
The beautiful thing about real estate investing is how passive it can be. Especially with turnkey investing, since you basically, show up and start getting paid on day one. Real estate investing offers a positive cash flow and a hedge against inflation. When the cost of living in a specific area increase, so does the price for rental properties. This isn’t the case with stocks. While “buying low and selling high” is the name of the game when it comes to stocks, it’s impossible to do so every single time.
There are too many variables (company history, management, competition, etc.) to get it right consistently.
Competition
The stock market is a global system where everyone has access to the same thing and all of the same information. This means you’re competing against thousands of people who want the exact same thing you want at the exact same time. With real estate, your competition is on a much smaller scale. You may still have to pull some strings or brush up on your negotiation skills to make a deal, but it’s nothing compared to competing with all of cyber-space to own a teeny-tiny part of a big corporation.
Ability To Add Value
It’s easy to add value to your real estate investments, You add a bedroom, upgrade a kitchen or build an awesome outdoor space, and you immediately it’s worth more than what you bought it for. With stocks, that’s just not an option. You can’t add value to a stock once you’ve bought it. It is what it is, and you don’t have any control over what happens next.
You Know What You’re Getting
Before you buy a property, you do thorough research. You walk through the property multiple times, you have appraisals done, and you ask questions. You point out things that you want to be fixed before you buy. When you seal the deal, you should be confident in what you’re buying. With stocks, there’s no way to really see how a company is run. You have to trust what the market says and hope for the best. The theme with real estate investing is that you have much more control than you do with stocks. And this is a prime example of that.
It’s A Tangible Investment
For many investors, having something you can physically see and touch is a significant part of investing. Having a property you can walk through, drive by, and work on provides a level of satisfaction that stocks just can’t. It’s also harder to run into fraudulent situations with real estate because you can show up and see what is going on with your investment. With stocks, everything is done out in cyberspace. You don’t have a physical location to go to or person to contact when things aren’t going well.
Americans Love Real Estate
Real estate is hot in America right now. There are countless reality TV shows about the lavish lifestyles of successful real estate investors. In the real world, home prices are soaring, and people are serious about owning property. Americans are addicted to the rush of real estate for many reasons. For many, it’s the magical combination of low-interest rates, mortgages with severe tax deductions and the “feel good” feeling that comes with being a homeowner. Millennial investors in America are moving more towards owning real estate than stocks, a shift from their parents and grandparents before them. Many professional investors think that since millennials have less cash to work with than the generations before they did, they’re less likely to take risks associated with stocks. Instead, they choose to go the route that’ll give them the best chance at a decent ROI. Since the idea of buying real estate with little or no money down sounds appealing to many millennial, investing in real estate is an attractive strategy for new investors.
Investing in real estate is a smart business strategy for many reasons. It has significant tax advantages, it is a way to serve your community, and produces a positive cash flow. If you have tons of money to spare and are feeling lucky, give the stocks a shot. However, if you like to have control over your money and prefer to go into an investment situation with a clear understanding of the risks involved, real estate investing is the way to go.
