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Why You Should Invest in Real Estate Over the Stock Market

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If you want to start investing your hard-earned money, it’s a life-changing decision that must be carefully thought out. Your investments will yield different results and require various levels of commitment, whether it’s in real estate or buying stocks. That’s why it is crucial to select the ideal option to invest in to help you increase your profits and have financial success.

While the stock market has long been a popular investment option, the real estate industry provides several benefits that make it an appealing alternative. Here at McCaw, we’ve put together this article so you can look into why investing in real estate is a better investment than the stock market.

1. Steady Cash Flow

Investing in rental properties, whether through financing or buying, can provide a steady income stream, physical real estate investing is an appealing option to passively generate income and build wealth. Investing in real estate, you can make rental money month after month by owning in-demand properties.

Factors including long-term leases, consistent housing demand, market appreciation, excellent rental investment management, revenue control, and financing opportunities impact the ability of an investment property to earn you money.

Stocks are long-term investments that can only be turned into money when they are sold. Stocks tend to be iffy. You may receive dividends on a monthly, quarterly, or annual basis, and stock values are often incomparable to the passive income earned from renting out a home.

Furthermore, while stock investment provides fluctuating or non-existent money returns, real estate generates income more steadily, providing predictable revenue sources.

hands exchanging money

2. Real Estate Management Can Be Outsourced

A real estate investment requires a wide range of responsibilities, from tenant screening and rent collection to upkeep and financial reporting. These obligations, however, can be conveniently outsourced to expert property management businesses, presenting real estate investors with a number of benefits. 

One of which is that outsourcing management frees up time and energy for investors like you. This allows you to simply enjoy being a rental owner.

Outsourcing management responsibilities allows investors to benefit from the skills and experience of management experts. These companies have the experience and resources needed to handle tenant management, lease agreements, property maintenance, and other operational issues. 

Investors may ensure that their properties are well-maintained and that their rent income is maximized by delegating these activities to professionals.

While stock investors pay a mutual fund manager fee to manage their stock assets, real estate management charges are usually modest. Management fees are easily outweighed by the profits you make from an effectively managed rental.

3. Diversification and Risk Mitigation

Typically unlike real estate, stocks can be extremely volatile. Investing in the real estate market provides diversification benefits that might help you to manage risks. Economic slumps, political instability, and company performance can have an impact on the stock market, having to potential to damage the financial health of any stock investor rather quickly. Many people end up having to sell stocks at a loss.

stock on screen

You can limit your exposure to these risks and build a more balanced investing plan by allocating a portion of your diversified portfolio to real estate. Real estate is a tangible asset to invest in with the potential for long-term value appreciation. 

This increase in value can boost the total return and diversification benefits of a property investment. The housing market is frequently less connected with the stock market, which means that it can serve as a buffer against stock market volatility and provide a more stable overall portfolio.

4. Appreciation Potential

Property values have a long history of increasing in value over time. While stock prices can be unpredictable and prone to market shifts, real estate prices are more stable and less variable. Over time, strategically positioned properties generally appreciate their value, offering investors the opportunity for significant money returns on their initial investment. 

You can maximize the appreciation potential of your investment by carefully selecting properties in high-demand areas and considering factors such as economic improvement and infrastructural development.

5. Tax Benefits

Investing in real estate creates a variety of tax advantages that might have a significant impact on your revenue stream. Monthly rental income is normally taxed at a lower rate than ordinary income. 

You can also deduct expenses related to your real estate properties, like property taxes, interest on monthly mortgage payments, insurance, and maintenance fees. Furthermore, by using an approach like depreciation, you can lower your taxable income even further, allowing you to keep more of your earnings.

person writing on note pad with money and calculator

6. Capital Gains Deferral

Not having to pay capital gains taxes is one of the most significant advantages for many investors in real estate. This benefit is available through a tax provision known as United States Tax Code 1031 exchange or like-kind exchange.

A 1031 exchange enables real estate owners to sell one investment and reinvest the earnings in another without incurring capital gains tax on the sale. To qualify for a 1031 exchange, the investor must follow the Internal Revenue Service’s specified criteria and requirements.

Consult legal advice or hire the services of a property manager like McCaw Property Management if unsure of how to proceed.

It is crucial to understand that a 1031 exchange allows for the deferral of capital gains tax rather than eliminating it from the equation. The tax liability is simply postponed until a taxable transaction takes place, such as the sale of the replacement without completing another 1031 exchange.

While the income from the sale of real estate can be deferred for tax purposes, trust certificates, bonds, inventory, stocks, and trade stocks are examples of assets that do not generally qualify for a 1031 exchange.

Bottom Line

Both real estate and stock investments have their own set of rewards; however, real estate comes out on top with various advantages. It provides a unique mix of benefits, ranging from consistent revenue to the possibility of value appreciation, and tax bonuses. 

Furthermore, real estate diversifies and mitigates risk, making it a fantastic asset to any investment portfolio. Ultimately, investment properties can bring wealth over time and financial stability.

While management might demand patience and dedication, hiring a team of professionals such as McCaw Property Management is always a possibility. We provide both the expertise and the resources to help you and provide you with a effective investment strategy. We aim to keep your financial situation positive and stable while meeting all of your investment goals.

We can assist you in purchasing, selling, or managing your properties in the Dallas/Fort Worth areas. Contact us today to get started!