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Each investment requires different levels of effort from you. If you pick the right investment, it can boost your income and build your financial security. Knowing that, let’s evaluate what kind of investment options you should consider.
Most of the common investment choices rest with stocks and real estate. Since they’re two of the most popular ones, people may find it difficult which one fits their needs. To make the decision easier, we will provide the best reasons for choosing real estate investments over stock investments.
1. Real estate investments are more likely to provide you with consistent cash flow
If your real estate is converted into a rental home and it’s managed well, it can earn steady returns for you over the years. You don’t have to restrict yourself to residential properties only, you can also invest in commercial units.
Although having a real estate investment can be lucrative, it doesn’t mean that you’ll be able to generate a profit quickly. Purchasing land can mean having a monthly expense when it’s under your care unless you offer it up for sale or put up properties on it.
Contrasting stocks with real estate, the former doesn’t generate a potential regular cash flow as the latter. Stocks are categorized as long-term investments that can only produce cash when they’re sold.
You may obtain dividends every month, per quarter, or each year but the amount wouldn’t reach the level of the monthly income that you could get from having your property rented out.
2. You have an option to outsource the management of your real estate investments
While self-managing your real estate investment is challenging given the range of tasks you must perform, from finding qualified renters, filling vacancies, collecting the rent, and maintaining the property, you have the option of hiring a professional.
Engaging the services of a trusted property management company helps your rental investment become successful. They’re more experienced and can generate more earnings for you compared to managing everything on your own.
The reason behind this is that a local property manager can fill vacancies easily and can employ tried-and-tested management strategies that meet your rental goals.
You can pay a mutual fund manager to supervise your stock investments but, in comparison, the property management fees are generally lower. In addition, the profits you’ll generate can easily pay off the property manager’s fees since the rental home is excellently managed.
3. Stock investments have more volatility in contrast to investing in real estate
One of the best things about real estate investment is that it can guard you against inflation. You’re able to escape financial losses due to the reduced purchasing power of the dollar. When you choose to invest in a great neighborhood as your real estate investment, the value can increase due to appreciation.
If we compare, stock markets are much more erratic than real estate markets. Your stock investment can also be subjected to inflation. You can lose the purchasing power of the dollar if your stock investment doesn’t pay off.
Fluctuations can be severe during the short-term period and are what is called stock market volatility. Sometimes, a $100 stock can dwindle down to $40 or double up to $200. If you’re not a seasoned investor, this can generate anxiety and makes it difficult to plan your finances.
4. Property appreciation can be expected from a real estate investment over time
In the long run, your real estate investment increases its value due to appreciation. Although the value dips when the economy is in a downturn, the reduction in value is just temporary. In general, values can rise when dealing with land and buildings and your ROI will be higher.
This shows that real estate investment is worth more than its purchase cost. If you decide on improving your property through renovations, you can also elevate the value further.
5. When you invest in real estate, you can benefit from tax deductions
Often, there are few deductions when it comes to tax payments. Most deductions come from mortgage interest and property taxes. As a rental property owner, you’re given an allowance by the IRS to apply deductions.
Some of these deductions can be on the expenses you contracted from your rental operation. You’re permitted to write them off on your taxes. Other areas you can submit for deductions are property taxes, property management fees, mortgage interest, and the maintenance and repair costs of your unit.
For stocks, there are no areas where you can reduce your taxes. You can only enjoy deductions when they’re associated with charitable donations or related to retirement account contributions.
6. You have the option to defer the real estate capital gains tax
When you sell your stocks, you’re often subjected to capital gains taxes. Now, with real estate, you’re given an opportunity to delay paying taxes on capital gains if you buy a like-kind property after the sale.
When you swap one investment property over another to defer taxes, this process is called a 1031 exchange.
Examples of properties that qualify for a 1031 Exchange are the following:
- Exchanging raw land for an apartment building
- Swapping a ranch for oil and gas royalties
- Swapping a real property for a commercial, industrial, or residential rental home
Stocks, bonds, trust certificates, or trade stocks typically can’t be accepted for a 1031 Exchange.
Bottom Line
As investments, both real estate and stocks can expose you to risks and rewards. But if you’re focusing on maximizing your investment returns and reducing the risks by diversifying your investment portfolio, it’s smart to invest in real estate.
Real estate investment may consume your time and effort but having the option to hire a property manager to oversee your property can be a huge help.
Pinnacle Property Management has the solid experience, professional expertise, and necessary resources to guide you on your real estate investment decisions. Whether you plan to buy, sell or manage your investment property, we can support you. Contact us today!
