Real estate and stocks both offer cash flow and of course a passive income.However, there are of course pros and cons with each of them.And you may find that when it comes to a higher rate of return, one or the other works better for you. There are pros and cons to consider for both. But first you need to understand what stock investing is. And how real estate investment works.
What Is Stock Investing?
Investing in the stock market can give you great returns. And it can also give you great wealth over time. As an added bonus, it can also be fun as well as exhilarating. However it isn’t something you can get involved in overnight. You need to learn the basics so you don’t make any mistakes. There are also a number of different ways to invest in stocks. Some are quick and easy. Others are more time-consuming. And you have to do a lot of learning to understand how to do it.
What Is Real Estate Investing?
The majority of people are familiar with real estate investing. It involves buying a physical property. While this is a very attractive way to make money, there can be some issues. For example for a property to appreciate rapidly, it can often depend on location and timing. Many properties can also be slow to grow in value. It can also take time to learn to competently and confidently invest. And there is a lot of perseverance and effort to find yourself a good deal.
You also need to have financial discipline so you can save up enough money to get started. However, you can often make a much higher return on real estate holdings than a traditional stock portfolio. Real estate also offers some unique qualities that can make it attractive.
Here are five reasons why investing in real estate is often a much better bet than stocks.
Investing In Real Estate Can Provide Cash Flow
There is a well known saying that ‘cash is king. ‘And this applies to stock or real estate. If you have invested in real estate, it should be giving you cash that you can reinvest or save to put into your retirement fund.
A rental property can be a source of steady income for you and provide cash. However you need to make sure you buy the right property.
A rental income also has the added bonus that it’s an income which keeps pace with inflation. This means as the market price for your rental property rises, your cost of living increases. If you buy a rundown or foreclosed property, which will sell below market value, you can make a lot of money. Just by fixing it up and selling it a few months later, for more than you purchased it at can result in a big payday. This is known as the ‘fix and flip.’ It’s also inclusive of the purchase price as well as the cost of rehabbing the property, and the transaction.
You also have the choice of getting some rental income on a monthly basis. Whichever method you choose, your investment property can give you the cash injection you need to hedge against inflation.
Real Estate Is A Market Where You Can Buy Low And Sell High
We all know money is made in the stock market by buying low and selling high. But it is nearly impossible for most investors to do so consistently. You can’t possibly know enough about an individual company, its sector, management, competitors, etc. And institutional buyers will always have more leverage and know more than you as an individual investor.
Contrast that with residential real estate where you are dealing with individual properties and each one is different in location, size, features and other criteria. There is no set market for the exact property you are considering.
In the stock market, other investors quickly account for anomalies. In the real estate market, there are thousands of little markets. You can always find deals and “buy low.” There are strategies where you can buy low and sell for a high price once you have rehabbed a house. And there are geographical pockets in just about any real estate market where you can “sell high” if you know the type of housing that is in high demand.
Managed Real Estate Has Better Returns Than Stock Market Investing
The stock market is not static. It goes up and down. According to the independent research firm Dalbar, the average investor is not very well placed to be able to capture the market return on property. An individual investor will often buy and sell a property at the wrong time. This means they negate any gains they could make. However the good thing about real estate is because the process is so long, it makes it very difficult to emotionally purchase. Or make a panic sell. It’s a less liquid investment unlike stocks. By its very nature, when you purchase real estate you have more facts at your fingertips when you are looking to buy.
When there are ups and downs in the market, investors will usually hold on to see how things pan out. And while this is happening, the majority of the time rents and property prices rise due to inflation. In fact, the longer you hold onto a property, the risk of financial loss depreciates. The equity you have in the home goes up as house prices rise. With the stock market, the risk is usually the same at whatever time.
There Are Some Unique Tax Advantages When You Invest In Real Estate
There are a number of tax advantages with investing in real estate. The one most people have heard of is depreciation. When it comes to a dwelling, you are allowed to deduct the cost of the property over 27.5 years. A real estate investor can get huge benefit from the fact it is essentially an asset, which is depreciating, while at the same time going up in value. This means you can get a tax credit as your asset goes up. You can also take away more tax benefits on top of this. They include those relating to the rental income and how much it costs to maintain your real estate investment. When you take it, you can get a tax deduction that lowers your tax liability. So this frees up more money and you can reinvest in growing your portfolio. Or you can look at paying off the loan you took out to purchase. Plus you can invest any money into the upkeep of your property.
Investing In Real Estate Means You Can Leverage To Build Wealth
If you get a mortgage so you can buy a rental property, it gives you leverage. This means you can purchase more income producing properties. And if you buy a variety of different types you can spread your risk with less money down.
For example, if you put $30,000 down on a $100,000 property that is an asset that is producing an income more than three times the cash you invested in it. If you chose wisely, your rental property will be cash positive. It can cover all of your outgoings, which include insurance, maintenance, mortgage, taxes, and management fees. It can also give you some more cash for your bank account.
However you must make sure you don’t put yourself into a position of over leverage. You must always manage and maintain your leverage and use it as a tool. It can take just one property to have a negative effect on your entire portfolio.
Real estate can provide you with some much better options in comparison to the stock market. You can see more than a 10% return from rental income alone on your investment. This gives you a monthly cash flow, and your properties will usually go up in value. This gives you capital appreciation. You also have a lot more control. There are also thousands of dollars of savings to be had due to the depreciation. Your rental income can also help pay down any loan you have taken out.
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