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6 Reasons To Invest In Real Estate Over Stocks

6 Reasons To Invest In Real Estate Over Stocks

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When it comes to investing, the stock market usually comes to mind first, with real estate often forgotten, ignored, or dismissed as an investment alternative. But given the right set of circumstances – and knowledge – real estate can be considered as a positive investment option.

As with all financial decisions, investing in real estate or stocks is a personal choice that should take into account your financial standing, goals, investment style, and risk tolerance. Taking a look at the advantages of investing in real estate can help you decide whether real estate or stock choices best suit your needs.

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Tangible Asset

Real estate appeals to many investors because it’s a tangible asset – land or property –that can be controlled. Real estate investors own something concrete, which requires a level of accountability and management. When you buy stocks, you’re buying a tiny piece of a company that generates income only if the stock value appreciates or you receive dividends.

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Tax Benefits

Unlike with stocks, real estate investors can gain leverage on their capital and take advantage of tax benefits that don’t apply to stock investments. Granted, real estate doesn’t offer the liquidity of the stock market, but the long-term cash flow provides the advantage of appreciation as well as passive income. Whereas selling stocks usually results in capital gains taxes, real estate capital gains taxes can be deferred if you purchase another property after the sale (a 1031 exchange in the tax code).

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Stability      

Compared to real estate investments, the stock market can be extremely volatile. Stock prices can be affected by a variety of factors, including market fluctuations, company-specific performance, geopolitical events, monetary policies, and more. Real estate investments allow for riding out significant market changes; most real estate investors have access to a steady income stream through rent collection, which they can rely on as the property appreciates and its value goes up.

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Ability To Leverage

Although purchasing a property requires more initial capital than buying stocks, real estate investors have more leverage over their money, which allows them to buy other, more valuable investment options. For example, purchasing $25,000 in stocks buys $25,000 in value (assuming you’re not using margin). In contrast, the same investment in real estate could buy a $125,000 property that allows for rental income and tax-deductible interest.

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Reliable Rental Income

Monthly rental income can increase with inflation, even if the property is located in a rent-controlled area. Money that you garner from a rental property is expected to cover not only the mortgage but also property taxes, insurance, repairs, and maintenance.

Photo: Flickr.com/Jeffrey Zeldman

Option To Flip A Property

Real estate investing provides an opportunity to get in on the home flipping game. Home flippers make money by purchasing a property, making any necessary repairs and renovations that could add value to the home, and then selling the property for a profit. While home improvement TV shows make the process seem quick and easy, flipping a property requires time, research, and money. Hiring a contractor to handle the details and oversee the work can free you up from overseeing and managing all the details, but it will cut into your bottom line.