Hi, I’m Judy Copenbarger. Welcome back! Today we’re going to break down the pros and cons of real estate versus stocks. So you can make sure that you’re on the right track to making investments that are just right for you.
So what’s it going to be? Real estate or stocks?
Historically, real estate has given better returns than equities (that’s ownership of stocks).
But I won’t just leave you with assumptions today let’s talk about the factors of each investment starting with real estate.
Initially, you’re looking for a larger investment upfront, unlike stocks which you can squirrel away extra cash into every month.
Leveraging your investment
The trade-off is that you can leverage your money to purchase something worth much more.
Your down payment is going towards a property worth potentially up to 5 times your initial investment. Keep in mind you also pay a mortgage over time, property taxes, utilities, and all of these other costs that go into property ownership.
Real estate value tends to match the market
The key here is the money you make from the people renting from you and the way that the value of housing adjusts with inflation. As the market changes, housing tends to change with it. Rent goes up, and the property value goes up as well.
Real estate is also less volatile. This means less risk and risk is the first factor you should consider when choosing one investment over the other.
Think about it like this: you may not be able to quickly turn around and sell your home, but the value of your property fluctuates much less than the stocks in your online portfolio.
You own tangible property and this gives you much more control.
Did I mention the tax benefits? Many of the costs of your investment towards real estate can be deducted from your taxes during the course of your ownership.
Once that mortgage is paid off, thanks to the lovely people who rent from you, your returns can sky-rocket.
The cons of real estate investing
Don’t let me sell you that easily because along with property ownership you are responsible for managing and maintaining your properties.
Some management is required even if you have a property manager and somebody to fix and maintain things for you.
It’s not a hands-off investment and often overlooked is the huge amount of research required before you sign off or begin to pay for anything.
Real estate in a nutshell
In summary, you will be investing more than just money. It takes time to make a good real estate decision and a bit of management along the way.
But real estate has been proven to outperform stocks in the long run and you own something that can potentially pay off indefinitely.
So Judy why would I invest in stocks at all?
Well, on this channel I will always advocate for diversification of your investments.
Diversify with stocks
Owning just one type of investment increases your risk should something happen to your individual property or even the market as a whole. For example the housing market bubble in 2008.
With stocks, bonds, and ETF’s the lesson is the same. You should seek to invest diversely in each type of investment as well.
Beyond the fact that stocks are an alternative investment, you’ll also find that they have their appeal.
Stocks are higher risk, that’s the first thing to understand.
You can look at the ups and downs of the market over time to see this is true.
Liquidity and simplicity
The benefit of stocks is that they are easily invested in with any amount of money and they are quickly bought and sold.
This is called liquidity.
Rebalancing your portfolio and reinvesting dividends is painless. There are no tenants to talk to at 2 AM in the morning.
Each company is managed by a CEO that takes care of things while you sleep.
The costs involved are the potential losses when a company does poorly as well the capital gains tax you pay when you make profits from the sale of your shares.
Hands-off or hands-on, the decision is less about which type of investment is better but which is better for you.
A property will take more time and thought as well as initial capital and can be a great choice if you are willing to do your research and manage your investments over time.
You can start renting and paying off your mortgage right away. Over time you’ll have a constant inflow of cash that appreciates with the value of the market.
Stocks are a great idea especially if you want to invest right away and a hands-off approach. If you follow the principles of investing for the long term you can watch their value grow over time and when you’re ready, sell them off or reinvest in other areas at a moment’s notice.
In the spirit of diversifying consider both types of investments. Your wealth strategy is always dependent on your life goals so start with this in mind to determine the strategy that will get you there.
Which investment is better for your wealth strategy? Let me know what you think in the comments below.
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As always, I’m Judy Copenbarger, and I’ll see you next time.
Judy Copenbarger is the Founder and President of Comprehensive Financial Services, based in Irvine, California.
She holds a Juris Doctor Degree, with a Taxation Emphasis, is FINRA Registered and maintains various Securities and Insurance Designations. Her professional expertise is in Estate Planning, Retirement and Education Planning.