Real Estate vs. Stocks

January 27, 2022

Real Estate is an investment that works for people in all stages of their life.

Real Estate > Stocks

Written by someone who makes money selling Real Estate and knows nothing about Stocks.

2022, the continuation of an era characterized by uncertainty, a label applied to nearly everything around us. Everywhere we look we are bombarded with headlines warning us of the dangers of an accelerating housing market or an unpredictable stock market, followed by predictions for the fallout from either, and one can’t help but wonder, where is the money you work so hard for actually safe?

It used to be prudent to put your money in a savings account and let interest work its magic, and while a savings account (with money in it ) is absolutely necessary, more and more experts agree, a diversified portfolio is the way to go.

Times have changed. We live in a world now where many expect to retire, travel, pay off debt and live comfortably by 60, 50, or younger, and why not, those are great goals! So, if one is to realize those goals, one must make smart choices with their money now. Easier said than done. In our 20’s, 30’s and 40’s we are raising kids, saving for their college, paying off our own college, and juggling everything in between. Investing is often the last thing on our minds. Here is where real estate comes into the picture. Real Estate is an investment that works for people in all stages of their life, for a wide range of income levels, for all demographics, regardless of the location. Everyone, everywhere, can invest in real estate, and here’s why you should.

You Need a Home Anyway, Right?

Have you ever tried to get a loan to purchase stocks? I haven’t, so I don’t know what that conversation would look like, but I suspect your lender may look at you like you have 2 heads. Real Estate on the other hand has more loan options than I can count, and banks are practically giving home loans away (literally, there are options to borrow over 100% of a homes’ purchase price) at historically low interest rates. We all need a place to live, so a home is an investment you needed anyway, and if you have a stable income and decent credit score you can purchase a home to live in for little to no money down, it’s a win-win. Real Estate is an investment accessible to many with a low barrier to entry. If you qualify, and if you choose, you may not even need to invest cash to get started.

Could You Actually Live There for Free?

No investment is guaranteed, but on average, assuming you will continually update and maintain your home, it is expected your property’s value will appreciate 3-5% per year. If you have a $100,000 home, and invest $3000-$5000/year in updates and maintenance, when you sell your house, considering the national average appreciation rate, you very likely could regain a majority of the money you have invested in your home, essentially living there for free, or close to it. If you live in a market appreciating at a higher rate than the national average, or if you make improvements to the property that increase the value of the property, (improvements are different than maintenance) you may find that you even make money on the sale. And, when you sell your primary residence in which you have lived for 2 of the last 5 years, the sale is tax free.

What if I don’t want to sell my home?

If you aren’t in a position to sell your property quite yet, you still take advantage of the equity you’ve built in your home. Let’s assume you’ve made all of your mortgage payments on time and have been investing 3-5% of your properties’ value back into your home each year. If you’ve paid the mortgage against your home down below 80% of the value of your home, you may choose to use the equity you’ve built in your home to invest. You may choose to invest in a larger remodel, increasing the value of your property again, or perhaps you want to purchase an investment property, or maybe you want to buy stocks! The option is yours; you’ve made this investment and now you get to choose what to do with it.

Real Estate = Options

Real Estate is an investment with options, and unlike the stock market, many of those options you control. With stocks, you have the choice to hold or sell, and everything else is affected by a myriad of factors over which you have control. When you own real estate, you may choose to live in the property or you may choose to rent the property, or maybe you’ll remodel the property, or change the property’s use. While you can’t control the real estate market, you can determine a whole host of factors that in turn influence the value of your property.

Other People’s Money

If you decide to invest beyond your principal residence and purchase a rental property, you are afforded the option of utilizing other people’s money to build your investment portfolio. Tenants pay rent and you use that rent to make the property’s payment. Again, this isn’t without risk and most often not without some injection of personal funds from you as the owner, but a carefully chosen property can help you build a portfolio of rental properties, utilizing incoming rent pay down the property over time and creating a passive income stream for the owner as well as options for deprecation and tax write-offs. Utilize the strategy of investing 3-5% of the property’s value back into the property in the way of updates and maintenance each year and in time, take the equity out and buy another!

WebMD ≠ Doctor

When purchasing a property always work with a trusted professional who is familiar with the market in which you plan to buy. It is possible to over buy, it’s possible to find yourself “backwards” in a property, it’s possible to purchase a property that doesn’t allow you to carry out the plans you have for it. Real Estate Investing is not without risk. Share your short term and long terms plans with a Realtor you trust and allow them to help you navigate the market, find properties that fit your goals, and implement strategies to build a real estate portfolio that works for you. A lot of information is available on the internet, but WebMD is not a substitute for a doctor and Zillow is not a substitute for a Realtor. Do yourself a favor a find a Realtor who can support you in your journey, I promise you won’t regret it.