When investing in any asset – whether it’s real estate or stocks – there are two Rs you want to keep in mind: risks and returns. Ideally, you want to make as many returns as possible on every penny you invest. But you also want to know the risk you are taking when you put your money into that asset.
For most types of investment, the relationship between risk and returns is direct. The higher the return you expect from an asset, the greater the risk you have to take. Conservative returns, on the other hand, mean reduced risks. The interplay between risk and return introduces a third R; reliability.
The reliability of an investment refers to how certain the return on the investment is. It tells you how sure you are of making money on that investment. When considering an asset’s reliability, you must look at likely events that can affect its income-generating ability and growth potential.
In this post, we examine the reliability of real estate versus stocks. Although stocks are a relatively safe investment to put your money in, real estate is many times safer. Real estate is superior to stocks in resilience (susceptibility to shocks and ability to recover) and potential returns.
Why real estate is more reliable than stocks
· Greater stability
Real estate is more stable than stock. The value of stocks can disappear completely, which can happen in a very short period. This is not a possibility when dealing with real estate because you invest in a tangible asset with real utility value, as explained by the Upkeep Media team.
Given that people will always need a place to live in and businesses will need premises, the value of real estate will never fall to zero. Even bare land, without a building on it, has utility value that cannot be completely eroded.
· Easier to analyze
It is easier to make investment decisions when buying real estate compared to stocks. To properly analyze a company’s income statement, cash flow statement, and balance sheet, you need some level of financial savvy.
Because many stock investors can’t do this, they simply buy an S&P 500 index fund in place of an individual stock that could have performed better. This difficulty does not exist when investing in real estate. Making sense of the numbers is a lot easier, and you can learn how to in a short time.
· Insulated from external shocks
The value of stocks is highly sensitive and will respond very quickly to all kinds of events happening in the economy or globally. In contrast, property prices are more stable.
During an economic crisis, property values may fall on the back of negative news or events. But property prices – even in major cities like London, Paris, San Francisco, or Singapore, where real estate prices are very high – will fall, recover fast, and even gain.
· Impacted less by volatility
Although home values may plunge during an economic downturn, that volatility does not impact housing as directly as it affects stocks. The property is still valuable as a home or a business premises. The rental income from the property may not even be affected.
Real estate is more likely to recover from economic upheavals. That’s why, as a real estate investor, you are more likely to stay on course with your investment goals in hard times, unlike a stock investor.
· Greater control
When you buy real estate, you are not a part player in a large corporation. You are 100% in control of the property and can make important decisions that will impact the performance of your asset. You can make improvements and repairs that will boost the property’s value. You can raise the rents and reduce costs to improve your returns on investment.
This kind of control is not available with stocks. When you buy stocks, you must rely on the competence and integrity of those who manage the company.
Other reasons to invest in real estate
· You can use your home to finance a rental property
When you buy a home, you are only required to live in it for a brief period before you can rent it out. This means you can buy rental property while taking advantage of the better mortgage terms are available for people borrowing to buy a residential property. Even more interesting is the fact that you can do this over and over.
· Leverage other people’s money
You can use leverage – borrowed money – to buy real estate. Even if you can do this in theory when purchasing stocks, it is considered irresponsible. Using leverage for real estate will let you own and buy real estate worth a lot more money than you have.
· More tax advantages
There are tax advantages available for real estate investors which are not accessible when you buy stocks. These tax deductions can run into six figures, and they make your property a lot more profitable.
We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.