Stocks can be a great investment, especially if you are investing with a long time horizon and being disciplined in your purchases. The stock market generally outperforms most other investments over time.“But it doesn’t outperform real estate, and it suffers by comparison in several other notable ways,” says Alex Baker, fund manager at Coastal Equity Group, a specialty lender for real estate investors. While most financial advisors would recommend you own a balanced portfolio that includes several types of investments, the strongest arguments favor real estate for the bulk of that portfolio. Here are seven reasons:
1. A Unique Investment Instrument
Simply put, there is no other investment that allows you to borrow money at a low interest rate to buy an asset that produces cash flow for you to spend while paying off the debt. That alone makes real estate an amazing investment.
2. Better Returns
Since 1875 in the 16 richest economies, housing prices have increased slightly faster than stock prices. Of course, that doesn’t account for dividends or for rent payments, or the fact that you can easily leverage real estate purchases, which skew the advantage further in the direction of real estate.
3. Significantly Lower Volatility
Real estate is a low-risk, high reward proposition, while stocks require much more risk to deliver similar reward. Although stock prices generally increase over time, they can gyrate wildly over the short term. Real estate prices tend to move in a narrow range, usually up. In fact, a measure of risk to reward finds real estate has been three times the investment that stocks have been over the past 150 years. Stock funds have under performed inflation for entire decades, but real estate has never failed to outperform the cost of living over a 10-year span.
4. A Tangible Asset
Stock ownership is technically ownership of a minuscule slice of a business, but you can’t look at it, drive by it or bring your kids with you while you work on it. That makes real estate a more comfortable investment for many Americans who understand a piece of property but not the mysterious ebbs and flows of the stock market.
5. Tax Advantages in Owning and Selling
The tax environment is significantly friendlier to real estate than to equities. Try writing off the cost of a stock purchase: you can’t. But mortgage interest and depreciation are tax deductible, and tax on capital gains from the sale of your property can be deferred if you plow it into purchase of another property.
6. Increasing Profit Margin
Your mortgage payment doesn’t increase over time, but rents do. The longer you hold property as a rent producer, the higher your profit margins. There is no corollary in stocks.
7. A Buffer Against Emotions
Stocks are considerably more liquid than real estate – they can be turned into cash much more easily. But that is a curse as well as a blessing. Investors have a long history of acting emotionally when markets dip, by selling stock at a serious loss. Real estate is more difficult to unload rashly, and so acts as a check against our worst investing instincts.
CoastalEquityGroup.com is a professionally managed boutique investment firm providing real estate-based loans to borrowers in need of non-traditional financing. Because we are small and private, we can move quickly through the underwriting process and structure loans more creatively than conventional banks. Based in Charleston, South Carolina, Coastal Equity Group also lends in Kentucky and Florida. Apply for a loan today at CoastalEquityGroup.com.