A common question that many people have is whether real estate or stocks are a superior investment.
There really is no clear cut answer here, because there are advantages and risks to each one. Nonetheless, there aren’t really any stocks that could give you the same kind of investment as buying property along the West Coast (such as in California) in the 1970s and then selling it a few decades later.
If you’re wondering why you should invest in real estate over stocks, we’re going to help you out by clearly defining what real estate and stock investments are, and then we will discuss the main advantages that come with investing in real estate.
Real Estate vs. Stocks
Investing in real estate means that you are buying land or property. Sometimes, real estate can be cash-generating each month (such as an EB-5 investment), such as if you buy apartment buildings or strip malls and then rent them out to tenants. Other times, however, they will require you to pay for things out of your own pockets, such as property taxes and maintenance.
This is one of the big reasons why people are discouraged from buying real estate. That being said, real estate can still appreciate in value over several years (or decades) depending on the status of the national and local economy, the local housing market, and so on.
Buying stocks means that you are buying pieces of a company or a percentage of a company. If a company has 1,000 shares and you buy 100 shares, that means that you would own 10% of the company. If the overall value of the company goes up, the value of your shares will go up as well.
Stocks are one of the most well-known investment options, and it’s easy to see why. Over the course of the last century, the stock market returns have shown them to be an overall good creator of wealth and specifically a source of wealth that does not require any work on your part.
It’s also very easy to diversify with stocks, unlike with real estate where you will need more buying power (such as going through a Regional Center) in order to do so. Stocks also enable you to borrow against the value of them much more easily than real estate does, and finally, since stock prices can fluctuate quickly, it’s possible to make money quickly with them too.
Nonetheless, because stock prices can fluctuate quickly, this can also be a major concern if you don’t know what you’re doing. Stock investing also requires true discipline on behalf of the investor, and if you make any emotional buying decisions you’re going to lose money. Finally, during sidewalks market conditions (which can last for a very long time), you can make little to no money with stocks.
Why Real Estate Instead of Stocks?
Another option to stocks, of course, is to buy real estate. Real estate is actually a more comfortable investment for those in the middle class because it requires less emotional decision making on your part. You also probably grew up being taught the importance of owning a home. There’s a lot of truth to that.
But perhaps the biggest reason to buy real estate over stocks is the fact that buying property or homes means that you are purchasing tangible things. This means that the chances of you being defrauded in real estate are very low in comparisons to stocks, and you can use debts far easier to buy real estate than stocks.
Last but not least, stocks have also traditionally been a good inflation hedge to help protect yourself against losses in the dollar’s purchasing power.
Keep in mind that when you purchase property, you are going to need more capital to do it than stocks. But the advantage here is that you will have more leverage over your money. For example, if you spend $10,000 in securities, that you are effectively getting $10,000 in value.
But if you spend the same amount of money in real estate, you could be buying much more than that when you take into consideration tax-deductible and mortgage interests.
Finally, real estate can save you money. When you sell stocks, you have to pay capital gains tax. When you sell properties, you can defer the capital gains if you buy another property afterward.
Conclusion
Real estate and stocks both have risks and rewards, but real estate is tangible, the chances of you being defrauded over it are very low, and it can help to protect you against losses in the dollar’s purchasing power.
Keep in mind that you don’t have to buy one or the other. It’s often a good idea to diversify your investments if you have the capital to do it.
If you’re looking to invest in real estate inside the US, Rahbaran Law Firm can help you gain your green card in the process through the federally mandated EB-5 Immigrant Investor Program. You can contact us here to get started on your investment and immigration process.