When you hear the word “investing,” most people automatically think of stocks. While it’s true that most investors turn to the stock market to house their investing dollars, it's not the only option. In fact, over the last few years, real estate investing has become extremely lucrative for investors across the globe.
Whether you're planning for retirement, want to earn residual income, or are saving up to put your child through college, it's important to have an investment strategy that fits your needs and budget. Real estate investing is a worthy alternative to stocks, as it typically yields better returns, lowers risk, and provides endless diversification.
Many people invest in stocks because it's quick and easy. Real estate investment requires time and effort, along with money to purchase a piece of property.
When you buy a stock, you're buying a tiny piece of a company. Stocks can earn you money due to value appreciation and dividends. But when you buy real estate, you purchase physical property or land. There are many ways to make money from real estate investing, including:
Real estate investment trusts
Real estate investing is appealing because, unlike stocks, it's a tangible, controllable asset. This type of investing also comes with substantial tax benefits.
Why stocks aren’t always the best investment
It's true that stocks are appealing for many reasons. Unlike real estate, they're easily bought and sold. Investing in stocks also doesn't require a large amount of cash up front. However, there are some considerable drawbacks to stock investing.
First, stocks are much more volatile than real estate investing. Prices can be quite erratic and it's not uncommon for them to quickly rise and then decline. What's even worse is that investors have little to no influence over stock prices.
Another big drawback to investing in stocks is that returns aren't guaranteed. While stocks typically outperform other investment options over long periods of time, this doesn't mean that they will do well during your particular investing period.
The longer you plan to invest in stocks, the more time you have to recover from economic downturns and to make a profit. With that said, it's important to note that growing wealth via stocks takes decades. Patience is key when choosing to invest in stocks.
Benefits of real estate investing
There are countless benefits that come with real estate investing. Whether you choose to invest in single-family homes, apartment buildings, or commercial properties, each of these options can bring passive income each month.
However, like all investments, real estate investments don't always pay off. This is why it's crucial to invest wisely and to thoroughly research a property before purchasing it.
Want to add real estate investing to your portfolio? Here are some of the top benefits to keep in mind.
High chance of great returns
If you invest in the right property at the right time, chances are that you’ll have a great return on investment in the future. Because most real estate increases in value over time, you can sell the property and make a solid profit.
Property appreciation isn’t guaranteed, so be sure to invest in a great property that will net you big returns later on down the line.
Steady flow of passive income
Want to boost your monthly income? Own real estate. No matter if you decide to invest in residential or commercial real estate, there’s an option to receive monthly income from rent checks.
Diversification is the backbone of healthy investing and future planning. Deciding to add real estate investing to your portfolio increases diversification. This offers greater protection in the event of economic turmoil.
For example, if stocks are suffering due to an economic downturn, you can sleep soundly knowing that all of your investment eggs aren't in the same basket. While stocks may be down, your investment properties may still increase in value.
Real estate investing offers all sorts of tax benefits. There are all sorts of expenses that can be deducted when you own an investment property, including mortgage interest, property taxes, property insurance, management fees, ongoing maintenance costs, and more.
If you sell a property for more than you paid for it, the realized gain isn’t taxed as income. Instead, you’ll pay capital gains, which often comes with a lower tax rate. Invest in opportunity zones and you’ll pay even less.
For most investors, real estate is a long-term investment. Investors can hold onto property for several years and then sell as the value appreciates. During this time, you can rent out the real estate to earn monthly income.
Real estate investing is also a great short-term investment. This is especially true for flippers who buy property, renovate it, and then sell to make a profit while recouping costs.
Protection against inflation
Unlike other investments, real estate is one of the best protections against inflation. When the price of goods and services are on the rise, home values and rent typically increase as well. Investment properties provide a good financial cushion when everything is going up in cost.
While there’s no wrong way to invest your hard-earned dollars, it’s important for people to be aware of the many options available to them. Stocks may be the go-to option for most investors, but for those looking for solid passive income, a great return on investment, and long-term security, real estate investing is a sound choice.