In the current market, investments come in all shapes and sizes. So, with myriad options available to the typical investor, it is common for one to be in a dilemma over which type to use, that may secure their future.
Two investment options stand out. Both withstanding the test of time and offering investors good returns – stocks and real estate.
But which of these is the better option? In this article, we at East Bay Property Management will break down why real estate is the better of the two options for you.
Steady Cashflow
Regardless of your investment goal, you are going to need a steady flow of cash from your investment to achieve them. In this case real estate is the ideal option, especially when you sink your resources or funds into a primely-located rental property.
But potential investors should be aware that this is not the case with each investment in real estate. Investment in the land would not offer you the same cash flow advantage since there are no rentals.
Stocks will not offer you the same steady cash flow as they are held for the long term. Unless an extraordinary circumstance occurs that will make the stocks rise in price suddenly and make it lucrative for you to sell.
Even though investors in stock receive a dividend periodically it doesn’t hold a torch to the returns from property.
Outsourcing Management
Both real estate and stock management are quite technical fields. Your typical investors may lack the expertise, experience, or tools to properly manage the needs of the property. It is common to have expert managers handle the daily issues of your stock or rental property.
Your rental property should be managed by a property manager who will comprehensively handle its daily operations. From maintenance to leasing administration and rental collection. When effectively managed, your rental property should be able to keep up with newer options and possibly improve your ROI.
But if you invest in the stock market, you will require a fund manager, and similarly to a property manager, they will require a fee from you. But as real estate enjoys continuous returns, you can offset this cost. The same cannot be said of your stocks as dividends may not be enough to grant you a return.
Market Stability
An investment should offer you peace of mind. You should be able to rest easy knowing that you are getting wealthier every day or that you are expecting a certain amount of money at the end of the month or quarter.
Real estate stands out as a great investment option as it has historically been a hedge against inflation. As a landlord, you can put in place clauses in your lease document that protects you from inflation and reviews the rental amount upwards every few years.
In addition, the real estate market is slow in responding to market changes. You won’t hear of a scenario where the value of your property will drop by half or more overnight.
The same cannot be said of the stock market. Stocks are very volatile. As a stock investor, you always have to be on your toes, listening in to news that may change the value of your stock in the smallest amount at a time.
Appreciation in Value
Provided you invest in a prime location with good tenant demand and favorable economic conditions, you can expect an appreciation in property value over the years. A decrease in value, known as depreciation, is also possible but the odds of that occurring are low.
Furthermore, there is something also known as forced appreciation. A property owner can increase the value of their property by making renovations or upgrades to the fittings and amenities.
Deductions in Tax
Another significant difference between real estate and stock is the tax incentives. For potential real estate investors, you can take advantage of two types of tax deductions: property taxes and mortgage interest.
When you are filing your property tax returns, there are several costs that you can use to reduce your taxable income. Some of them include management fees, property maintenance costs, and mortgage interests. These are allowed for by the IRS and see you pay fewer taxes meaning a bigger take for you at the end of the month.
Stocks, on the other hand, don’t offer such a tax incentive. When you are transacting with stocks, you can expect to pay the full tax amount. The only time you can enjoy tax deductibles is during charitable donations and distributions to your retirement account.
Bottom Line
There you have it! Over the decades, real estate can be cited as the better investment option. Apart from its stability from shocks in the economy, you are assured of better returns, possible appreciation in value, and tax incentives/ breaks when tax season comes knocking.
Ready to make your first step in property investment?
You are going to need an expert well versed and who has the experience and resources to guide you every step of the way. East Bay Property Management is such a company.
