Why Real Estate Investing Makes More Sense Than Investing In Stocks
There are clear advantages to real estate investing despite the millions of dollars investors have made in the stock market. In fact, investing in real estate for profit is one of the most popular approaches to generating additional income in the United States today.
In this article, we’ll consider just a few examples to illustrate why careful and smart real estate investing might make more sense to an investor than stocks. However, before we begin, it should be mentioned that investing in real estate is not a bed of roses without risk, and it does come with several drawbacks worth understanding.
Disadvantage of real estate investment
1. Liquidity: Real estate typically cannot be turned into cash overnight. While shares can be sold with a phone call, the process of liquidating shares in a real estate investment can take months.
2. Slow market reaction: Real estate has a slower reaction time than the stock market and therefore requires more patience on the part of investors. While the ups and downs of stocks happen in real time and therefore allow you to measure your profits or losses on a minute-by-minute basis, this is not the case with real estate investing. You may have to wait months (probably years) before discovering the true value of your investment.
3. Less Certainty About Market Value: The stock market is more efficient when it comes to market value than investing in real estate. When you buy or sell a stock, for example, you can be sure that the price was actually the “right” price for that stock on that day and at that time because the existing price for the stock incorporates and reflects all relevant information available about it. the company as earnings. This is not the case with real estate value. The buyer and seller must discover the correct value for themselves, whether it is too high or too low. This, of course, is why experienced investors research the local market and use real estate investment software to run and re-run the numbers.
Real estate investment potential
1. Leverage: Real estate allows you to borrow money to make the purchase; It’s generally not something you can do when buying stocks. Also, the stock market, by law, limits the amount of leverage (margin) you can use to buy stocks, while there are no such limits with real estate. You can purchase an investment property with a small amount of your own money with no restrictions other than the lender’s willingness to finance the property.
2. You can buy below market value: It’s generally hard to find “below value” stocks on a regular basis, whereas, especially in this troubled economy, you can buy discounted properties well below market value if you dig deeper. enough.
3. You get the benefit of depreciation: One of the beauties of investment property is the tax benefit you get through the depreciation deduction (or “cost recovery”). Defined as a loss in value of a property over time as the property is used, depreciation is a non-cash tax shelter deduction in full compliance with the tax code in that the government allows you to assume that buildings ( not the land) are to wear out over time and become less valuable, allowing you to take a deduction for that supposed decrease in the value of your asset.
4. Market conditions are localized: While a stock market downturn could affect everyone involved wherever they live, barring a national collapse of the economy, home values could fall in a city without affecting home value. of properties in other cities. This allows you to protect yourself with a “geographically diversified” real estate investment portfolio to protect against these types of events.
6. You can control the value of the property: Investment property is different from other investments because its value is primarily controlled by the investor. With some no-nonsense capital improvements and/or diligent property management, investors regularly increase the value of their investment properties. This is not the case with shares.
Okay, you get the idea. Investing in real estate is a smart and profitable alternative to the stock market. As stated, investing in real estate is not a guarantee for wealth, and it certainly requires more insight and effort than the “gurus” would have you believe. Still, if done right, real estate can be one of the smartest investments you can make.