Whenever the question is asked: “What is the best investment to put your money in?” the debate is always between investing in stocks and investing in real estate. The people who insist that stocks are a better investment are just as adamant as those who prefer to invest in real estate.
But what do we think at Property Specialists? While there is more to be said for stocks, we truly believe that real estate is the better option for numerous investors. Real estate investing is perfect regardless of whether you are investing for cash flow, college, or trying to build generational wealth.
Why is that?
In this brief post, we explain why investing in real estate trumps investing in stocks. Please note that we are not saying you should not invest in stocks at all. The point is if you had to choose between stocks and real estate, you are always better off going with a real estate investment.
Here is why:
7 reasons to invest in real estate instead of stocks
1. Passive income
While real estate values often fluctuate the same way that stock values ebb and flow, the impact of these changes is not the same for property investors as they are for stock investors. That is because even in seasons of economic downturn, the reduction in the value of real estate does not affect the investor’s ability to earn passive income from their assets. Regardless of the economic climate in an area, a rental property will always provide cash for the landlord through the rent.
2. A tangible asset
There is a reason stocks are called “paper assets.” They are intangible, and their value can evaporate. Buying stocks gives you a piece of a particular company, yet the only thing you can do with those stocks is hold them. Real estate is a tangible asset that has applications in many scenarios. Regardless of what happens to its value on paper, real estate will always be valuable because it is a brick-and-mortar asset.
3. Based on sustainable demand
The value of real estate is based on real human needs. People will always need land. People will always need shelter. Real estate meets individuals’ and businesses’ needs for shelter. Real estate investing is based on the value of land, which is a finite resource. Because land will always be in limited supply compared to the number of people who need or want it, real estate will always be valuable.
4. Tax advantages
The tax benefits of investing in real estate are incomparable to the tax advantages attached to stocks. Gains in the stock market are taxed when the investor cashes in on their profits. But as a real estate investor, the government pays you to own rental property. These payments come in the form of tax deductions for a long list of everyday costs involved in the rental property’s operation. Property investors routinely use these deductions to make their assets more profitable.
5. Hedge against inflation
Because real estate is a tangible asset, its value moves in lockstep with the inflation rate. As the prices of goods and services go up, the value of buildings goes right along with them. Furthermore, a landlord can protect their income by raising the rent. That ensures that the investor’s purchasing power is not eroded by inflation. Such is not possible when investing in stocks; stock values and company dividends are both subject to the effects of inflation.
6. Ability to leverage
To invest in the stock market, you must have 100% of the cash required to buy the stocks. You cannot borrow money from a bank to invest in stocks. But to own an investment property, you only need to provide 25% of the property’s value as a down payment. The bank will give you the rest of the money, and you will earn on that property as if you own it 100%.
7. Less volatile than stocks
Movements in the value of a stock can happen rapidly. Just as the value of a stock can climb very fast in a few days, a stock can also lose a large part of its value in hours. This potential for sudden and extreme price movements is referred to as volatility. Real estate is less volatile than stocks; its value moves more slowly because property prices are less responsive to news and events in the economic or political space.
Lastly, as a property investor, you have direct control of your investments. That is not possible with stocks because their performance is determined by the company and its executives. Rental property owners can make decisions that directly impact the value of their assets. They can determine the location and quality of their property investments.
