Why You Should Invest in Real Estate Over the Stock Market

Investments aren’t created equal. They all come with different levels of commitment, risks, and outcomes. The right investment will ensure you grow your income over time. But perhaps the million-dollar question is – what kind of investment is right for you?

Stocks and real estate investments are arguably the most common investment options. If you came here because you are facing a dilemma in which option to choose, this article is for you. In this piece by State Property Management, we’ll walk you through 5 reasons you should invest in real estate over the stock market.

There is Great Potential for a Recurring Monthly Income

If you buy the right property in the right location, you can set yourself up to earn a consistent cash flow. What’s more, you aren’t limited to how many rental properties you can have.

Another real estate investment you could make is buying land. However, unlike a rental property, the land won’t generate any income until you sell it or build on it.

Stock investments, on the other hand, don’t hold the same cash flow potential as a rental property. Why? Just like land, you’ll only get to earn money once you’ve sold your shares. And while dividends may be payable at a set time, the amount still may not match the income potential of a rental property.

investing in real estate or stocks

You can Outsource the Management Tasks

Truth be told, being a landlord is far from easy. Having to market a property, screen prospects, collect rent, maintain the unit, and deal with tenants’ complaints can be stressful and time-consuming. Luckily for property owners, all these tasks can be outsourced to professional property managers.

While that will mean an added expense, a good property manager is worth it. They can help you earn even more from your investment! Remember, these are people that know the ins and outs of the local rental industry. As such, they will have all the knowledge to help their clients maximize their income.

Mutual fund managers can also help with managing stock investments. However, unlike hiring a property manager, hiring a mutual fund manager can be quite costly.

Stocks have a Tendency to be Volatile

One key benefit of real estate investments is that they help act as a hedge against inflation. In other words, investing in a piece of real estate can help you avoid any losses that come with a depreciating dollar. In addition to that, properties normally appreciate over time if you buy in the right location.

stock market volatility

On the other hand, the price of stocks isn’t always steady. One day, the price of your stock could rise from $50 to $100. But on another day, it could plummet from the initial $50 to just $5. This uncertainty can certainly make financial planning daunting for you.

Real Estate Investing Comes with Potential Tax Deductions

The Internal Revenue Service (IRS) offers some tax deductions to property owners. In most cases, deductions apply when it comes to property taxes and mortgage interest.

However, when it comes to rental investments the IRS allows landlords to make a slew of deductions. Many of the expenses you incur when renting out your property can be written off on your taxes.

The following are some of the tax deductions that landlords are eligible for under the IRS tax code:

  • Interest - This is usually the single biggest deductible expense for landlords.
  • Repairs - This applies to ordinary repairs, such as those incurred when fixing leaks, repainting the unit, or fixing gutters or floors.
  • Travel - This applies to traveling expenses, such as when you have to drive to your property to deal with a tenant complaint.
  • Home Office - This applies to any expenses you incur by using any part of your home for rental-related activities.
  • Insurance - Most insurance you pay for a rental activity is tax-deductible.
  • Professional services - This applies to any fees you incur to hire professionals such as accountants, attorneys, and property managers.

property investors

Buying stocks won’t reduce your tax payments. The only way tax can become deductible is when they can be linked to a charitable donation or a retirement account. But in all other cases, all dividend payouts and sale of stock will be taxable.

You May be Able to Defer Capital Gains Tax

Usually, you’ll have to pay capital gains tax when selling stocks. But with real estate, you may be able to defer capital gains taxes by doing a 1031 Exchange.

A 1031 Exchange is the process of swapping one like-kind property for another following the rules under Section 1031 of the Internal Revenue Code. You may be able, for instance, to exchange:

  • Raw land for an apartment building
  • A shopping complex for a condominium
  • Industrial property for a single-family home

For the exchange to be successful, the process must follow certain strict guidelines under the code. Besides the two properties being like-kind, the exchange must also follow certain timelines.

Stocks are an example of assets that don’t qualify for a like-kind exchange. Others are inventory, trust certificates, bonds, and trade stocks.

Bottom Line

Investing in real estate or stocks comes with its fair share of risks, as do other types of investment options. That said, if your goal is to reduce risks, earn a passive monthly income, grow your investment portfolio, and create wealth through rising appreciation rates, then investing in real estate is the right investment option for you.

State Property Management can help you make the right real estate investment. We understand the Central Florida real estate market like the back of our hands. We can also help you manage your investment properties thus freeing up more time for you to pursue other financial opportunities. Get in touch to get started!

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