Which is a better investment choice—real estate or stocks?
This is a question I hear on a weekly basis:
Of course, both should be considered… As investors, we know it is not wise to put all our eggs into only one basket.
However, of the two, which investment option should you favor? In other words, which one should receive the majority of your money? Real estate or stocks?
According to this Gallup poll, one third of my fellow Americans agree with me—they say real estate is the way to go for long-term investment—a better choice than stocks or mutual funds.
A previous Gallup survey also found that less people are investing in the stock market since the financial collapse of 2008. In 2007, just before the melt down, close to two-thirds of Americans were invested in the stock market. By 2016, that number dropped to about 50 percent.
There are a number of reasons why I agree with this, and I’ll be sharing them with you in a moment.
To make my case, I would like to start with this excellent white paper that you can download for free here. Titled, “Investing for Cash Flow,” the paper makes a lot of strong points that show why real estate investing is a good choice. Once you’re a property owner, you can charge enough rent to cover the mortgage, taxes and maintenance of the property. The cash that is left over becomes an income stream for you—and the cash flow will remain much more stable during economic dips.
Meanwhile, cash flow with stock market investments are becoming less common. Some companies are still offering dividends to assure shareholders of their financial standing, but unfortunately, fewer industries in the U.S. today offer regular, significant dividends. And then the payouts you do get are exposed to the volatility of the stock market.
Another point the white paper makes has to do with the multifamily market and how that market has a track record of outperforming the stock market during the recession. (“Multifamily market” means properties that hold more than one rentable unit, such as apartment buildings.
This sector has built-in diversification—a huge reason why the multifamily market is popular.
It’s easy to see why: when a tenant leaves a single-family property, you now have a property that is 100 percent vacant. When a 100-unit property loses a tenant it only becomes one percent vacant. This diversifies your risk while providing additional protection if the economy takes a downturn or if some other factor arises that is outside your control.
This is why real estate is often called the best performing asset class. (According to the National Association of Real Estate Investment Trust Index, real estate has outperformed stocks, bonds, diversified portfolios, commodities and cash over the past 20 years.)
Still not convinced?
5 More Reasons Why Real Estate is a Great Asset
Over on the Financial Samurai website, can find a list of ten reasons why real estate is a great asset on this page.
I’d like to share some of these reasons with you:
Once the property mortgage is paid off, you will have an asset whose net worth will be equal to the value of the property. Follow the course and you will pretty much know what you’re going to end up with.
Serves a utility function
The need for shelter is an “evergreen” market. If the economy were to crash, with real estate you have a tangible asset that you can utilize. Paper money can become worthless (and has in other countries throughout history.)
Hedge against inflation
When you own something, inflation is a good thing in most cases, because your asset is going up in price. You want your rental property to go up in price, so if inflation occurs, celebrate! Hopefully your property is going up faster than the input costs and the costs to operate your asset. Whatever you think about the price of rent now, wait till ten years from now…you will think today’s rent rates were cheap!
A money-making play on inflation
Your rental property does more than protect you from inflation—you also get to make money with inflation. If hyperinflation occurs, and your cash is devaluing rapidly, your real assets start surging in nominal value. As you know, these surges will happen again and again over time, pushing up your property value and rental prices.
Generational wealth transfer
Your property can be passed on to your children and their children, which will be a blessing to their lives. Give your child a property where they don’t have to pay rent, and you took a lot of stress off their shoulders. This also opens up new doors for them, as they can pursue careers in non-lucrative fields that they love, like the fine arts. Think about the legacy you could leave behind with real estate investing.
Prepare Your Legacy Today
Real estate has a proven track record for being a reliable, effective means of building wealth. Turnkey rental properties can make this process easier for you.
If you need help figuring out where to start, contact us.