Real estate markets do rise and fall, but on a more gentle, predictable cycle with lots of leading indicators for a buyer’s or seller’s market. It’s positively peaceful compared to the spikes and valleys that stocks can experience, sometimes with little rhyme or reason. Stock values are susceptible to breaking news, rumor, and insider manipulation. Real estate is insulated from most of that.
When you buy a stock, you are buying a small piece of a big company. Since you are probably not the CEO of that company, you have little control over how that company is run. You are probably not even qualified to understand the operational intricacies. Whether the company soars or tanks is very much out of your control.
A real estate investment, even a single rental house, is a business in itself. But compared to Starbucks or Comcast, it’s a small business, with operational details that a single human brain can keep track of, even a relative novice. You can visit the property, review the bills, screen prospective tenants, and overall exercise a lot more control over your investment’s destiny.
The value of a stock increasing is similar to the value of a house increasing. But a quality rental unit also has the advantage of cash flow, the positive difference of the rental income vs. the expenses. Cash flow creates passive income streams and helps offset the illiquid nature of real estate equity. Stocks have cash flow in the form of dividends, but they are usually far less dependable.
Real estate investments are dynamite when it comes to reducing the investor’s tax liability, often offsetting income that isn’t even related to the investment! This comes in several forms, including:
The only way to manage your risk with a stock purchase is to put a “stop-loss” trigger on your portfolio, or to buy less-risky stocks to begin with. But less-volatile “blue chip” stocks tend to grow slowly compared to the fliers.
Real estate offers more risk management opportunities, while at the same time offering growth potential that routinely beats inflation. Risk-averse investors could: