Everyone knows that buying a house is one of the best investments you can make for you and your family’s future. Not only do you build equity and have an incredible asset to your name. But did you know you can also genuinely build wealth through real estate investing?
One of the most common questions we get asked from real estate investors is whether it’s better to invest their money in real estate or the stock market.
In this post, we’re looking at some of the pros and cons of investing in 2021, and what options might be right for you. Keep reading to learn more.
It All Comes Down To Your Personal Decision
While we can certainly give advice and share our own opinions on whether it’s better to invest in real estate or stocks, the truth is that it’s an extremely personal decision. Your choice depends on a number of factors such as your investment goals, risk tolerance, financial situation, and more. Keep that in mind when reading about the pros and cons of each option.
Real Estate is Often a “Safer” Investment
For many investors who choose to spend money on real estate, the relatively low-risk nature of real estate investing is one of the main driving factors for their decision. Unlike the stock market that can fluctuate greatly, the housing market can be more stable. This might be surprising considering how the past year and a half has gone, but if you look at the big picture, a real estate investment is almost always going to appreciate in the long term.
Stocks, meanwhile, are subject to changes that can be impacted by a company’s decisions, geopolitical happenings, and even things like interest rates and regulatory processes changing in the country where they are located.
Real estate investors can also force appreciation and impact the value of their investment by renovating or redeveloping their property. In the stock market, you have no control over your asset, and therefore, are more so in the passenger seat when it comes to appreciation.
Ready to invest in real estate? Check out some of our other helpful resources to get started:
- Which Rental Term Should You Choose
- Our Guide to Condo Assignment Sales
- Costs You Should Account for When Flipping a House
Real Estate Investing Provides You with a Tangible Asset
Another reason many people prefer real estate investing is the fact that it provides them with a tangible investment, ie., a house, duplex, apartment building, etc. For many people, stocks are kind of a vague concept, and they much prefer to see the fruits of their investment in real life. Many investors are also landlords, collecting rent from tenants every month.
Again, from a different point of view, your stock portfolio will never need a new roof or have a pipe burst. So for some, the maintenance and upkeep of a real estate investment are undesirable.
Stocks Might Be Riskier, But They are Easier
Buying stocks is pretty easy. The initial investment can be quite low, and your investment grows as the value of the stock increases. Stocks are also relatively liquid, meaning you can sell them quite quickly and reap the benefit of the investment right away.
However, on the flip side, real estate investing usually requires a much higher initial investment, since you have to save money for a down payment and then go through the mortgage process. In this sense, real estate investing could be considered more of a long-term game.
Leveraging Your Investments
For real estate investors, just getting your foot in the door is almost enough to kick-start your ability to rapidly build wealth. You can do this by leveraging your real estate investment. In a nutshell: you build equity as you pay off your mortgage and investors can actually borrow against their existing mortgage to grow their wealth and buy more property. This means you have the ability to finance new investments even if you don’t have the existing capital to fund the project.
Leveraging a stock investment is slightly more complicated. You can potentially borrow from your stockbroker to fund new stock investments as a way to increase your position in the market and make more money, however, since the stock market can sometimes be pretty volatile, this strategy can also cause you to lose money. Again, it’s all about your risk tolerance.
In the grand scheme of things, leveraging a real estate investment is usually a much safer option.
Keep Your Portfolio Diversified
If you’re still unsure about whether real estate or stock investing is right for you, consider your current portfolio. Do you already have a lot of real estate investments? Is a lot of your money currently tied up in the markets?
Many people assume that as real estate agents, we would be strong investors who owned lots of property. But in reality, that wouldn’t be a smart investment. It would put “too many eggs in one basket” so to speak. Since our income is connected to real estate, if all our investments were also real estate-focused, we would have no safety net if anything like the housing market bubble in 2008 happened again. It’s smarter for us to invest our money elsewhere to ensure a diverse portfolio.
At GoWylde Real Estate, we’re experts in investing. With a deep knowledge of the Landlord-Tenant act, and experience working with real estate investors across Guelph and the Tri-Cities area, we can help you build real estate wealth through investing. Learn more here.
