Choosing where to invest your money is a pivotal decision with long-term ramifications. Maybe you’ve saved diligently, foregoing luxury vacations or the latest car, hoping to invest for retirement or your children’s education. How can you ensure the most significant return on your hard-earned money?
Even if you’re planning a diversified portfolio, where to invest often boils down to a fundamental choice: Stocks or real estate? Understanding their key differences will empower you to make informed decisions and maximize your financial returns.
Defining the Terms: Stock Market and Real Estate Investments
Investing in the stock market involves buying shares of companies, where the returns are tied to the performance of those businesses. It’s a more liquid and dynamic form of investment, subject to market fluctuations. On the other hand, real estate investment involves purchasing physical properties, such as homes or commercial spaces. Returns are often generated through property appreciation and rental income.
Key Considerations When Deciding Between Stocks and Real Estate
- Financial Risks: Investing in stocks and real estate entails differing degrees of risk. You don’t necessarily need as much up front money to invest in the stock market, but it’s known for its volatility, creating a more unpredictable environment. The investment process is more straightforward as you function as a passive investor. However, this simplicity places your financial fate in the hands of others’ business acumen.
On the flip side, acquiring a rental property demands a substantial initial investment. Real estate ownership also entails recurring financial obligations such as maintenance and potential development costs. Nevertheless, real estate is generally more resilient, minimizing the risk of complete depreciation compared to stocks.
Real estate also tends to exhibit greater stability, avoiding the pronounced fluctuations characteristic of the stock market. Additionally, historical trends overwhelmingly demonstrate that real estate values typically appreciate with inflation. The stock market is dependent on company performance, which may or may not go up.
Owning real estate assets often comes with substantial tax benefits as well. The U.S. government encourages economic growth through tax incentives that extend to real estate investors. These include deductions for mortgage interest, property taxes, and property depreciation.
- Accessibility: Investing in the stock market is easily accessible to investors of various experience levels. However, when you own stocks, you’re not employed by the company, and your involvement in management decisions is minimal.
Real estate investments typically require a higher barrier to entry. At the same time, real estate provides the advantage of direct control over the asset, allowing investors to actively manage and influence their holdings. Unlike stocks, real estate offers the opportunity to increase property worth through renovations, whereas you have little control over what a business does to add value.
- Financial Goals: While real estate investors may initially encounter lower returns than their stock counterparts, those who own rental properties often enjoy a consistent income stream from tenant payments. Plus, real estate properties typically witness an appreciation in value over time.
When you invest in stocks, you’re putting your money into paper assets lacking intrinsic value. Conversely, real estate investments involve tangible assets like land, structures, windows, concrete, and more, which typically retain or appreciate in value over time.
Additionally, many real estate investors employ substantial leverage in property acquisition, significantly amplifying their return on equity. For instance, if an investor buys a $100,000 property with a 20% down payment and the property appreciates by 3% within a year, they can realize paper gains of 15% on their initial investment of $20,000.
At Cornerstone Commercial Investments, we have recognized a growing need for housing in high-demand, niche markets. Our savvy team of professionals has shown proven expertise in developing, acquiring, and managing assets and redeveloping commercial properties tailored to specific demographics. This includes the growing Millennial and underserved Middle Markets, which are expanding at a rapid rate.
If you are considering an investment in real estate, we would love to discuss your financial goals and dreams. Please contact us today or visit our website at Cornerstone Commercial Investments for more information.