Real Estate vs. the Stock Market

The current volatility in the Stock Market might make investors consider if their money might be put to better use in real estate. Here are 8 reasons why real estate is a better investment.

1) You are more in control. Every physical real estate investment you make puts you in charge as CEO. As CEO, you are able to make improvements, and cut costs – refinance your mortgage, raise rents, and market accordingly. Of course, you are still at the mercy of the economic cycle, but overall you have much more leeway in making wealth-optimizing decisions. When you invest in a public or private company, you are a minority investor who puts his or her faith in management.

2) Leverage other people’s money. Leverage in a rising market is a wonderful thing. Even if real estate only tracks inflation over the long run, a 3% increase on a 20% downpayment is a 15% return. In five years you will have more than doubled your equity at this rate.

3) Tax Advantages. Not only can you deduct the interest on up to $1.1 million in mortgage indebtedness on your primary home, but you can also sell your primary home for tax-free profits of up to $250,000 for singles and $500,000 for married couples if you live in the home for the last two of a five year period. If you are in the 28% or higher tax bracket, it behooves you to own property

4) Tangible asset. Real estate is something you can see, feel, and utilize. Stocks aren’t event pieces of paper anymore, but ticker symbols and numbers. When the world comes to an end, you can seek shelter in your property. Real estate is one of the three pillars of survival, the other two being food and shelter.

5) Easier to analyze and quantify. If you can calculate realistic expenses and rental income that’s all you really need when it comes down to valuing a piece of property. If you can borrow at 4% and rent out for a 6% yield, you’ve likely found yourself a winner. There’s not only the cash flow component but the underlying equity component that helps investors build wealth. Stocks require you to trust what the company reports.

6) Less visible volatility. Your house value could be tanking and you would never know it since there isn’t a daily ticker symbol. During bad times, the utility of your home really helps soften the blow as you enjoy your home and create great memories. When your investment is less volatile, it’s much easier to stay the course and not sell at the bottom.

7) A source of pride. Real estate is a constant reminder that taking calculated risks over time pays off. There is an indescribable feeling nobody tells you once you’ve closed on your property. Even though the bank probably owns most of it in the beginning, you literally feel like the King or Queen of your castle. Plus you can always add value to your property.

8) More insulated. Real estate is local. If you’ve made a good decision to buy in an economically strong region, you will be more insulated from the national economy or the global economy. Look at prices in superstar cities such as Manhattan, Hong Kong, Singapore, London, Paris, San Francisco, and Santa Barbara. They fall the least, recover the soonest and gain the most.