The question of which is better – real estate investing or stock market investing – is almost as old as time itself. While the answer relies mainly on personal preference (neither investment is ideal for every person), there are definitely unique advantages of investing in real estate over stocks. It’s not uncommon for real estate investors to also invest in the stock market. Many find, however, that their real estate investments bring a higher return on their holdings than their traditional stock portfolios. Below are several reasons why you should invest in real estate over stocks.
Cash flow and inflation hedge
If you purchase the right properties, real estate investing provides a steady flow of cash and can even be a hedge against inflation. When you invest in rental properties, your monthly rental income keeps up with inflation; meaning the cost of the property automatically rises as the cost of living goes up. You can also make a profit by buying up distressed or foreclosed properties on the cheap, fixing them up, and then selling them at a higher price than you paid. Whether you decide to be a landlord or you fix and flip properties, real estate investing provides a steady cash flow and a hedge against inflation.
Buy low, sell high
The key to making money with any investment is buying low and selling high. To do this consistently in the stock market is very, very difficult as it’s nearly impossible to know everything about a given company. In real estate, however, there are many opportunities to buy low and sell high because every property is different and there is no set market. As mentioned above, you can buy a distressed property at below market value and sell it a few months later after fixing it up for a much higher price. In addition, with just a little research, you can “sell high” in specific geographical areas if you have a property that’s in high demand.
Lower risk, better return
Actively managed real estate typically provides a better return than playing the stock market. This is because there is less risk of emotional selling, which damages the potential gain on any given investment. Real estate investing is a longer-term investment where property owners hold on through positive and negative fluctuations in the market, thus decreasing the risk of loss the longer you own it. The risk of loss stays the same in the stock market no matter how long you own your stock.
Unlike stock investments, real estate investments have special tax advantages. Depreciation is the tax break that most investors look forward to. Since real estate property values rarely decrease, this means you get to depreciate an asset that increases in value over time. To make this even more attractive to investors, the depreciation tax break is something that can be taken in addition to other tax breaks such as property upkeep and other expenses you deduct from the rental income you collect. Ultimately, this tax credit lessens your tax liability, putting more money in your pocket to make repairs, pay off the mortgage, or do whatever you want.