5 Reasons to Invest in Real Estate Instead of Stocks
If you are reading this article, you are probably considering investing in real estate, but you are not sure if investing in property makes sense in the current economic situation. You may be also wondering if you should be investing your money in the stock market instead.
Before we proceed, let define the two-term ” Real estate and stock”
What is Real Estate?
According to Wikipedia, Real estate is property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this (also) an item of real property, (more generally) buildings or housing in general.
Real estate is different from personal property, which is not permanently attached to the land, such as vehicles, boats, jewelry, furniture, tools, and the rolling stock of a farm.
Real estate, sometimes referred to as “real property,” is technically land plus any other tangible improvement that might rest upon it or be installed in it.
The improvement might be a building that’s been erected there or a roadway. It can be something that’s been inserted into the ground, such as a septic system. Land with any of these structures is said to be “improved.” It’s “unimproved” when it lacks them.
What is a stock?
A stock is a type of investment that represents an ownership share in a company, when you purchase a company’s stock, you’re purchasing a small piece of that company, called a share. Investors purchase stocks in companies they think will go up in value. If that happens, the company’s stock increases in value as well.
Now we have given two distinct definitions of real estate and stock, let us find why real estate investing is safe than investing in stock
Real estate investment is much safer than investing in the stock market – history bears this out.
1. Real estate investment generates cash flow
If you invest in a buy-and-hold property, you can rent it out and earn monthly cash flow. Most investments don’t provide cash flow. At the very least, they may provide dividends, but you only receive them quarterly or sometimes annually.
Depending on how you manage your property, real estate can be a passive investment.
If you have checked stocks that pay the highest dividend, they pay 4% or less annually.
This is not a bad return, especially when you consider that banks give you a return of just 1% or less, but this is only a little over inflation. So, you won’t make much money till you sell the stock.
With real estate, you can rent out your property and earn an excellent cash flow from it, of anything from 5% to 10% of the price of the property. Also, you can earn a substantial profit over the sale of the property.
See also : land banking development
2. Real estate investments are easier to value
It is very easy to value a property. If you have seen a luxury property and don’t know if the price being asked for it is fair or not, you can always ask a trusted estate agent to value it for you.
If you invest in a home for long enough, chances are it will appreciate. While things happen, like the housing crisis of 2008, they aren’t common. Most of the time, buildings and land appreciate, making your investment worth more than you paid for it.
You can also force appreciation by renovating or improving the property.
See also : Understanding real estate appreciation
Whether you buy an undervalued property and fix it up to sell, or you renovate a rental property, you can increase the home’s value faster than natural appreciation occurs, giving you an even greater return on your investment
As a result, you will get an accurate estimate from them, since they have special knowledge of the area.
However, when it comes to stock markets, the prices change every day and every minute.
There’s no way to tell if you are paying too much for a stock. After all, it is not easy to evaluate a stock belonging to a company worth billions of dollars, unless you are Warren Buffett.
3. You can always negotiate to buy the real estate below the market value
Typically, during negotiations, the property owner agrees to cut down the asking price of the property. Of course, this does not happen every time, and it depends on exactly how desperate the owner is to sell – he may not agree to sell it below market price if there is a lot of demand for the property. But, you can always try your luck.
With investment in the stock market, on the other hand, there is no room for negotiation. You have to pay whatever the market price is at the time you buy the stock.
4. It’s a Great Retirement Savings Plan
When you invest in real estate, it’s not liquid. You invest in it for the long term. As time passes, you earn more equity in the home. When you’re in retirement or near it, you can sell the property and use the profits to get you through retirement.
See also : How to maximize your retirement savings
Whether you invest in real estate or the stock market, what matters is your appetite for risk and personal knowledge. If you are an expert stock-picker, then investing in the stock market makes a lot of sense.
But then not everybody can be like Warren Buffett. That’s the reason most people find it easier to make money from real estate than from the stock market.