With multiple options for increasing wealth, investors can often get confused over picking real estate or the stock market. Both offer rewards and risks and will require different levels of dedication. To build your wealth, you need to make the right investment decision.
The two popular types of investments are real estate and the stock market. We will talk about why choosing to place your hard-earned cash on real estate is the best way to go!
1. Real Estate Investments Offer a More Steady Cash Flow
By picking a strategic area to build your rental units, you can already create consistent returns and income. Apart from residential property types, you can also invest in commercial spaces since these have a greater opportunity to optimize your investment returns.
Note that simply purchasing real estate does not transform your investment into a money-making source. You need to construct rentals and upgrade the property to create value so potential tenants or future buyers are attracted to the property.
Now, in contrast to real estate investments, stock investments can offer limited cash flow. The only time you enjoy your investment earnings is when you sell the stock at a higher price than the purchase price.
Although you may receive periodic dividends monthly, quarterly, or annually from the stock company, the amount is often lower when compared to the proceeds from rental payments.
2. You can Outsource Property Management to a Third-Party Service Provider.
Managing a rental presents a lot of challenges. You need to promote it to the right demographic when it’s vacant. Scheduling repairs (open link in a new tab) and property inspections are also essential tasks to fulfill to keep your rental habitable.
In addition, you must collect the rent on time, manage your financial records, create a customized draft suitable to your rental space, and perform tenant screening.
Fortunately, engaging the services of property management companies is a common practice since they can reduce errors, conflicts, and the costs of operating a rental. You can carve out more time rather than spending your hours dealing with tenants and maintaining your rental unit.
Overall, you can rely on the committed support of property managers who offer streamlined services and protect you by complying with the state laws. You will also be able to relax as they have expertise in finding great renters on your behalf.
Foothills Properties is a trusted company in the industry that helps find the best renters and offers strategic property management services from marketing and tenant screening to property maintenance and repairs.
Meanwhile, stock investments may allow you to hire mutual fund managers to handle your stocks, but compared to property managers, the management fees are often steeper than property management fees.
Another advantage that property managers offer is that their fees can be easily recovered as your property gains more positive cash flow and your ROI is maximized.
3. Stocks Have a More Volatile Nature
Real estate protects property investors from the expected growing inflation. They can reduce the negative effects since properties show appreciation over time. The vital thing is to choose the best property investment.
In contrast, stock investments are inherently unpredictable. One moment, your stock price doubled, while the next minute, you are losing half of your investment.
You can expect upswings and downswings (open in a new tab) on any given day, such that picking the wrong stocks can lead to losing a lot of money. You can never fully rely on stocks over the short-term horizon.
4. Real Estate Values Can Appreciate Over Time
If you choose a long-term horizon, you can benefit from property appreciation. Notice that the property crisis in 2008 may have had a negative impact but it was impermanent.
A few years later, the property values increased again, which led to higher property demand. That’s why it is recommended to hold onto your properties for a long time since the market will eventually recover.
Property prices rarely stay the same and often grow higher with each passing year. The single-family unit has a higher rate today than a decade ago.
This is why real estate investments can be more reassuring than stock investments for their high rate of appreciation. Even better is when investors improve their properties to deliver more value to the end users.
5. Real Estate Investments Can Enjoy Tax Deductions
With tax-deductible expenses offered by the Internal Revenue Service (IRS), real estate investors can enjoy these tax breaks through lower property taxes, property management fees, and property maintenance and repair costs.
Unlike real estate investments, taxes remain the same when you are holding stocks.
6. Real Estate Investments Offer the Option to Defer Real Estate Capital Gains Tax
Selling your stocks includes paying for capital gains taxes. On the other hand, real estate allows you to delay this tax payment by purchasing a similar property after you sold the property.
This is called a 1031 Exchange. Real estate sellers can simply replace a property investment with another property to defer the tax payment.
Below are properties that can be accepted for a 1031 Exchange (open link in new tab):
- Exchanging raw land with an apartment tower
- Swapping a ranch for oil and gas royalties
- Swapping a real property for a residential or commercial rental space
Stocks, bonds, and trust certificates generally are not qualified for a 1031 Exchange.
Bottom Line
Like most things, stocks and real estate investments have advantages and disadvantages. However, comparing both, you can see how property investments are widely better since the returns are greater and the risks are lower.
Best of all, as cited above, property investors can easily hand landlord duties to an excellent property management company to provide professional services.
Foothill Properties has an experienced staff and offers our solid expertise in managing your rental property.
We also offer investor services to ensure you are making the right real estate investments. We understand that it can get confusing with so many property types to select from. Allow us to help you plan your real estate investments successfully. Contact us today!
