To build wealth, you need to plan your investments. With the range of investment options available out there, it can be confusing for investors to choose. Among the popular investment vehicles are stocks and real estate. 

It can be challenging to learn whether stocks or real estate fits your needs better. This article can shed light on why real estate investments come out ahead of stock investments.

1. With real estate investments, the cash flow can be consistently high. 

Consider a scenario where you transformed your place of residence into a rental. If you manage it well then it can provide you with steady returns over the years. This is not confined to residential rentals only but to commercial rental properties, too. 

Note that generating a profit from real estate does not extend to all types of real estate since purchasing a lot can only give you high earnings when you sell it or construct rental units on the land area. 

In contrast, the cash flow opportunities from stock investments are generally lower since they only provide earnings when you decide to sell off the stock after holding it over the long term.

Even if you’re given monthly, quarterly, or yearly dividends from your stock investments, the amount would still not be on par with the income you can derive from the monthly rentals of your real estate investment.

man holding money

2. Investors have a choice to hire a property manager to handle their rental properties. 

Managing your real estate investment can be a challenge with multiple tasks to do, such as regular property maintenance, periodic property inspections, seeking top-quality residents when a unit is vacant, collecting the rent on time, screening potential renters, and crafting a lease agreement. 

However, the great news is that property owners can engage the services of a property management company to perform these tasks.

With a supportive and reliable property manager, you can enjoy the success of your real estate investment without additional stress.

Property managers have the expertise in dealing with property vacancies, taking care of delinquent renters, and running a comprehensive tenant screening. They also have more industry exposure which helps them set the right rental rate and execute marketing strategies better.

Meanwhile, you can still access the expertise of a mutual fund manager to help you manage your stock investments. Still, the fees may be higher compared to the property management fees collected by a property manager. What’s more, the fees can be recovered quickly when your rental property is handled by a professional property management company.

3. Stock investments can succumb to volatility.

What sets real estate apart from other forms of investment is the protection it provides against inflation. When you choose a great location for your rental space, it can benefit you through appreciation in property value, which can be an excellent hedge against inflation.

computer with financial statements

In contrast, the stock market prices can rise and fall drastically, which can lead to a loss. The short-term stock price fluctuations can also be quite extreme, which can be risky for investors looking for consistent returns from their investments. 

It can be tough to watch a stock you paid $1,000 plummet in value in a given week, especially if you are a risk-averse and conservative investor.

4. Time is a huge factor in real estate investment value appreciation.

Over time, holding onto your real estate investment property can lead to an increase in value. Even if the market conditions can impact real estate and decrease the value during a downturn, this situation tends to be temporary.

Typically, after many years your land and properties rise in value, which makes the investment worthwhile. Even if the initial investment cost is high, the returns will be higher over the long term. You can also recoup the ROI quickly by performing property upgrades to attract more long-term renters.

5. You can maximize tax deductions when investing in real estate.

Tax payments can seldom offer deductions but when you invest in real estate, you can benefit from deductions on your mortgage interest and property taxes. Rental property owners are given this advantage by the IRS. 

While operating your rental business, some of the expenses can be deducted from your taxes. You can enjoy lower tax payments from deductions made from property taxes, property management fees, mortgage interest, and property maintenance and repair costs.

Meanwhile, stock investments do not provide any avenues for lowering your tax payments. The deductions can only be made for specific areas, such as being associated with charitable donations or retirement account contributions.

6. You can consider deferring the real estate capital gains tax.

With stocks, selling them can subject you to capital gains taxes, whereas with real estate, you have the option to defer the capital gains taxes when you purchase a “like-kind” property after the sale is completed.

A 1031 Exchange refers to the process of swapping one investment property over another to defer taxes. 

Here’s a set of examples of properties that qualify for a 1031 Exchange:

  • Exchanging raw land for a condo apartment 
  • Swapping a ranch for oil and gas royalties
  • Swapping a real property for a commercial, industrial, or residential rental unit

On the other hand, stocks, bonds, trust certificates, or trade stocks are assets that are not accepted for a 1031 Exchange.

Bottom Line 

Since real estate and stocks are categorized as investments, they come with risks and rewards. However, for investors who prioritize maximizing their returns, diversifying their portfolio, and lowering their risk exposure, investing in real estate is an excellent move.

Even if time and effort are expected to be poured into your real estate investments, property owners always have the choice to engage the services of a professional property management firm.

Keyrenter Denver provides excellent guidance, solid expertise, and ample resources to help you make the right real estate investment decisions. If you’re an investor looking to buy, sell, or manage your real estate property, we offer our dedicated support. Contact us today!