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Why You Should Invest in Real Estate Over the Stock Market

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Investing your hard-earned money is a life-changing decision that must be carefully thought out. Your investments will yield different results and require various levels of commitment. That’s why it is crucial to select the ideal option to help you increase your profits and build financial security.

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

1. Steady Cash Flow

Investing in rental properties can provide a steady cash flow, making real estate an appealing option for passive income. You can make rental money month after month by owning in-demand properties.

Factors including long-term leases, consistent housing demand, market appreciation, excellent property management, cash flow control, and financing opportunities impact real estate investments’ ability to generate revenue.

Stocks are long-term investments that can only be turned into cash when they are sold. You may receive dividends on a monthly, quarterly, or annual basis, the amount is often incomparable to the monthly income earned from renting out a home.

Furthermore, while stocks provide fluctuating or non-existent dividends, real estate investments provide more steady and predictable revenue sources.

hands exchanging money

2. Real Estate Property Management Can Be Outsourced

A real estate investment requires a wide range of responsibilities, from tenant screening and rent collection to property 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 property management frees up time and energy for investors like you. This allows you to simply enjoy being a property owner.

Outsourcing property management responsibilities allows investors to benefit from the skills and experience of property 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 rental income is maximized by delegating these activities to professionals.

While you pay a mutual fund manager fee to manage your stock assets, property management charges are usually modest. Property management fees are easily outweighed by the profits you make from an effectively managed rental property.

3. Diversification and Risk Mitigation

Stocks can be extremely volatile and investing in real estate 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. 

stock on screen

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

This increase in value can boost the total return and diversification benefits of a real estate investment. Real estate 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

Real estate has a long history of increasing in value over time. While the stock market can be unpredictable and prone to market shifts, real estate is more stable and less variable. Over time, strategically positioned properties generally appreciate their value, offering investors the opportunity for significant returns on their investments. 

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

5. Tax Benefits

Real estate investments create a variety of tax advantages that might have a significant impact on your revenue stream. Rental income is normally taxed at a lower rate than ordinary income. 

You can also deduct expenses related to your real estate investments, like property taxes, mortgage interest, 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

The ability to defer capital gains tax is one of the most significant advantages of investing 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 property 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 property 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

The stock market has its own set of rewards; however, real estate investing presents an appealing alternative with various advantages. Real estate provides a unique mix of benefits, ranging from consistent cash flow to the possibility of value appreciation, and tax advantages. 

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

While managing real estate investments 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 make sound real estate investment decisions.

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