Property Management Blog

Why You Should Invest in Real Estate over the Stock Market

Bob Preston - Wednesday, March 16, 2022
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Investments come with different outcomes and levels of commitment, and choosing the best option can help you grow your income and create financial security. But which investment option should you choose?  

Among the many investment options available are stocks and real estate investments. As the most popular forms of investing, people often go back and forth on which of these may be better suited for their needs. To help with your choice, North County Property Group will give you 6 reasons why you should invest in real estate over stocks!

1. Real Estate Investments Have High Potential for Steady Cash Flow 

When managed properly, buying an income-generating rental property will ensure you receive a consistent income for many years to come. They don’t have to be limited to residential properties, either. Other than rental homes, other cash-generating real estate investments include commercial buildings such as strip malls. 

Not all real estate investments are quick to turn a profit, however. Buying land, for instance, will mean spending money every month you hold it until you sell it to a developer or build on it yourself. 

On the other hand, stock investments don’t have the same potential for cash flow as rental investments. That’s because they are long-term investments that only generate cash once they are sold. While you may get dividends on a monthly, quarterly, or annual basis, the amount would still be incomparable to the monthly income you’d get by renting out a property. 

2. The Tasks of Managing a Real Estate Investment Can Be Outsourced 

Admittedly, managing a real estate investment is no easy task. Among other things, you’ll need to fill vacancies, collect rent, maintain the property, as well as pay taxes, utilities, and insurance. 

hire a property management company

Thankfully, you’re able to outsource such tasks to a professional like an experienced property management company. Hiring a good property manager will ultimately make you earn more from your investment than if you managed it on your own. This is attributed to the high success rate of filling vacancies and the execution of optimal management strategies. North County Property Group is the top property management company in San Diego and can help with all of these aspects! 

While you can pay fees to a mutual fund manager to manage your stock investments, property management fees are usually relatively low. They are quickly overshadowed by the profits you’ll generate from a well-managed rental property. 

3. Stocks Can Be Extremely Volatile 

One of the benefits of investing in real estate is that it acts as protection against inflation. This means that you’ll avoid a loss in the purchasing power of the dollar. When you pick a good neighborhood for your investment, the appreciation rate of your property will surpass inflation. 

The price of stocks, on the other hand, isn’t always as steady as that of a real estate investment. On top of losing the purchasing power of the dollar should your investment not take off, extreme fluctuations are pretty commonplace in the short term. Your $50 stock can quickly go to $20 or to $100. This can be a very nerve-wracking process for investors, and it makes planning your finances much harder. 

4. Real Estate Values Usually Appreciate With Time 

As we’ve mentioned, if you invest in a real estate investment for long enough, odds are that it’ll appreciate in value. Sure, things happen and the value could dip. Think of the 2008 housing bubble, for instance. However, these occurrences aren’t common, and it’s usually just a temporary decrease in value. 

real estate appreciation

Generally speaking, land and buildings appreciate in value, making the investment worth more than what you paid for it. In addition, you can also make your investment appreciate in value by making the right improvements. 

5. Investing in Real Estate Can Make You Eligible for Tax Deductions 

When it comes to paying your taxes, deductions can be few and far between. However, the deductions that are available to you in most cases are for mortgage interest and property taxes! 

When you own a rental property, the IRS allows you to make quite a few deductions. Any expenses you incur running the property can be written off on your taxes. You get to deduct property taxes, property management fees, mortgage interest, and costs of maintaining and repairing the property. 

Buying stocks, however, won’t reduce your tax bill. Stocks only become deductible when they are associated with retirement account contributions or charitable donations. 

6. You Can Defer Real Estate Capital Gains Tax 

Typically, selling stocks results in capital gains taxes. With real estate, however, you may be able to defer taxes on capital gains if you purchase a “like-kind” property after the sale. 

The process of swapping one investment property for another for the purposes of deferring tax is known as 1031 Exchange. Examples of properties that can qualify for a 1031 Exchange include:

  • Swapping raw land for an apartment complex

  • Swapping a ranch for oil and gas royalties

  • Exchanging a real property for an industrial, commercial, or residential rental property

1031 exchange

Stocks, bonds, trust certificates, inventory, or trade stocks are assets that don’t normally qualify for a 1031 Exchange. 

The Bottom Line

Real estate investments and stocks both have their share of risks and rewards. However, if your goal is to maximize returns, reduce risks, and diversify your investment portfolio, investing in real estate is ideal. 

While real estate investments do require investment in time and effort, hiring professional help is always an option. North County Property Group has the resources and experience necessary to guide you toward making smart investment choices. We can help you purchase, sell, or manage your San Diego investment property. Get in touch today to learn more!

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