Real Estate Over Stocks? Making a Case for Real Estate Investing

March 11, 2019 | By: BiggerPockets | 0


by Larry Alton |

closeup of man holding smart phone checking stocks


When it comes to investing, the average American has tons of options. There’s insurance, bonds, CDs, hard money lending, stocks, real estate, and more.

But where’s the best place to put your money?

Stocks vs. Real Estate

Most casual investors are familiar with stocks. Whether it’s through an employer-sponsored 401(k) or a handpicked portfolio, it’s fairly easy to get plugged in with stock investing.

Anyone can put their money into an exchange traded fund (ETF) and enjoy earnings that mimic the movement of the major stock exchanges. Mutual funds can be quickly evaluated and used within retirement accounts to enjoy steady returns over many years, too. You can enlist the help of a financial advisor or learn to read charts and make sound decisions on your own.

But to assume that this is the only form of investing available to the casual person is a short-sighted view of the big picture.

The average person doesn’t know much about real estate. Or maybe they own a home, but in terms of investing, are unaware of real estate’s potential or lack the knowledge or expertise to jump in.

What’s more, there’s a notion that real estate is an investment class reserved for the wealthy. But this isn’t necessarily true.

There are dozens of real estate investment niches, strategies, and techniques. Whether you have a few thousand dollars available, or millions, there are opportunities. From single and multifamily rental properties to house flips and rehabs, there’s something for everyone.

So, why would someone choose real estate over stocks? And what is it that leads highly successful people to gravitate toward real estate investing, instead of seemingly safer, more hands-off investments in mutual funds, stocks, bonds, or insurance?

Related: The Fundamental Advantage Real Estate Investing Has Over Stocks

investing, diversification, assets, allocation


Why You Should Invest in Real Estate Instead of Stocks

1. More Upside

“The fact of the matter remains that real estate provides the most upside for investors,” financial guru Jordan Beaumont explained in an article for Budget Boost. “From 1970 until today, real estate’s average annual return has been over 11 percent. That same time period sees the S&P 500 returning closer to 10 percent each year.”

A one percent difference in the average rate of return might not seem like much, but when you have hundreds of thousands of dollars tied up, and you extrapolate the added earnings over years or decades, suddenly it’s a much more significant amount.

2. Greater Control

“When you invest in a public or private company, you are a minority investor who puts his or her faith in management. Sometimes managers commit fraud or blow their companies to smithereens through unwise acquisitions,” according to a Financial Samurai article.

With stocks, you don’t have much control over how the business performs. You’re banking on other people and their skills, discipline, and foresight.

With real estate, however, you’re not just a stakeholder—you’re the CEO. You get to make improvements, cut costs, move money around, raise rents, sell a property, etc. This extra control can be highly enticing.

businessperson showing unbalance between stacked coins

3. Leverage

Real estate investing allows you to get creative. If you have the contacts and networking skills, you may be able to leverage other people’s money to fund real estate transactions and reap a percentage of the rewards yourself. In fact, this is one of the fastest ways to build wealth from scratch.

4. Tax Advantages

Finally, you can’t forget about the tax advantages that come with real estate investing. Depending on the tax bracket you’re in and which sort of real estate investments you own, there’s ample opportunity to write off expenses, interest, etc. and lower your tax bill from year to year.

Related: The Ultimate Guide to Real Estate Taxes & Deductions

The Balanced Portfolio

You never want to be too heavy in any single investment product. Diversification through a balanced portfolio is key to financial stability and peace of mind. And while most people diversify through insurance, stocks, and bonds, it’s smart to throw real estate into the equation.

Real estate investments require more of a commitment and upfront cost than most other types of investments, but there’s also the potential for far greater returns.

Start small, and keep it manageable. If you don’t have the capital to invest in real estate on your own, consider pooling your resources with another investor and going in together.

You’re only limited by your creativity. Give real estate a try and take advantage of its benefits!


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