Two of the most popular investment types are real estate and the stock market. Both types of investments offer lucrative rewards, but they also come with different risks. As an investor, it’s important to know the kind of risks associated with each type of investment. This can help you mitigate your losses and maximize your potential returns.
Before choosing the best investment strategy for yourself, it’s essential to find out the level of commitment that you are willing to give.
Whatever you choose to invest in, whether in stocks or in real estate, you must spend time understanding the market to ensure that you’re making the right investment decision for your financial security.
In this article, we’ll share five reasons why you should consider investing in real estate than in the stock market:
1. Real estate investment offers a steady cash flow
If you want to receive a consistent income on a regular basis, investing in a rental property is the best option for you. Real estate investors have several choices when it comes to finding the best income-generating property.
For instance, you can buy a residential home and rent it out as a long-term rental. This allows you to target a wide pool of residents who do not own a home yet.
Since a house is a necessity, there will always be a need for long-term rental properties. If you choose this option, you must ensure that you buy a property in a location where there is a high demand for residential rentals.
The best thing about investing in rental properties is that your options are not only limited to residential rentals. In fact, if you want to go big, you could also try investing in commercial rentals. You could buy a commercial building and use it as a strip mall and rent it out to different businesses.
Moreover, you could also use a condo unit as a short-term rental for travelers and holiday-goers. There are many home-sharing platforms available that can list your vacation rental property and advertise it to millions of users from all over the world.
When compared to the stock market, rental investments offer steady cash flow when managed properly. A stock market investment may give you dividends from time to time, but this is not guaranteed, and you will not receive dividends on a regular basis.
2. You can outsource a property manager to manage your real estate investment
Managing a real estate investment is not easy. If you have several businesses to take care of and you don’t have enough time to manage a rental property, you have the option to hire a professional property manager to manage your real estate investment on your behalf.
When you work with a reliable property manager, you won’t have to worry about things like filling in vacancies, collecting rent, screening tenants, and organizing your paperwork.
Hiring a property manager is the best course of action if you want to maximize your income potential and minimize your stress. What’s more, property management fees are relatively low compared to the fees you pay to a mutual fund manager to manage your stocks.
3. Stocks are a volatile investment
One of the major risks of investing in the stock market is that stocks can be extremely volatile. If you want a hedge against inflation, then investing in the real estate market is your best option.
It’s important to note that picking the best location is significantly crucial if you want to become a successful real estate investor. If you pick the right area for your investment, your real asset will appreciate in value over time, which is a great way to surpass inflation.
The value of real estate properties grows steadily over the years. In contrast, the value of stocks can grow or drop drastically in just a matter of days. Your $100 worth of stocks can grow to $300 or drop to $5 in just a few days, all without warning.
If you cannot take the stress that comes with this kind of volatility, it’s better to put your money somewhere safer where rewards can also just be as great.
4. The value of the real estate will appreciate over time
As mentioned, most real estate assets appreciate in value in just a few years. However, to ensure that your real estate property will grow in value, you must make sure that you’re investing in a market with steady appreciation rates.
Location is an important factor that can either make or break your success in real estate, so you really must choose your location wisely.
Moreover, real estate investors can also do something to increase the value of their properties. Doing some improvements, as well as maintaining the upkeep of the property all the time, will definitely make your investment property grow in value more quickly than you expected.
If you’re investing in rental properties, you can increase your rental rate once your property’s value also increases. In addition, you have the option to sell your property after a few years when the value has doubled or even tripled what you originally spent to acquire it.
5. Real estate investments offer several tax benefits
If you invest in real estate, you’ll enjoy more tax benefits because essentially, a real estate investment is a business. And since businesses come with expenses, you will be eligible for deductions from your mortgage interests and property taxes.
Aside from tax deductions, you can also take advantage of being able to defer taxes on capital gains through a 1031 Exchange. For instance, you could swap raw land for an apartment complex and be eligible for capital gains tax deferment.
On the other hand, when you sell your stocks, you’ll typically be charged with capital gains tax right away.
Choosing the Right Investment Vehicle
When it comes to deciding where to put your hard-earned money to make it grow, it’s important to do your research properly and understand all the benefits and risks involved. All kinds of investments come with risks, just make sure to know which risks are worth the rewards.
Here are Bigham and Associates, we’ll help you navigate the difficult but rewarding path of investing in real estate. With years of experience, we’ve got your back! Get in touch with us today to learn how you can start investing.