- Case study: Probability of Real Estate Appreciation
- 1. Everything is real
- 2. Minimal fluctuations
- 3. Easy to understand
- 4. A good investment for retirement
Making an investment decision is hard for both experienced and startup investors.
And it is even harder when choosing between – arguably- the most lucrative industries of the past century: stocks and real estate.
As a matter of fact, most of the experienced stock investors dread real estate investment and they will in most cases avoid discussions that would potentially challenge their stand. And, this is pretty much the same case with real estate gurus when stock trade is mentioned.
To be honest with you, there isn’t a clear answer to the real estate vs. stock question. It is a case of an individual’s level of risk tolerance, return objectives and other personal preferences.
The best we can do, therefore, is to highlight the benefits of investing in one over the other and then leave you to determine whether those benefits would actually work for you.
In this post, we give you 4 solid reasons why real estate would be a better investment option for you. But first:
Case study: Probability of Real Estate Appreciation
The probability of commodities- gold, oil, vehicles, etc.- going up or down is always a 50-50 chance. But this is hardly the case in the real estate world.
According to statistics, the random probability of the value of a property increases with time.
The probability of the value of a rental property appreciating within a year, for example, is about 50%. Have the property for another five years and its value will have grown by not less than 70%.
If you are to consider the amount you paid when buying your home back in the day versus what you would receive if you were to sell it today, for example, you will quickly realize that its value has been increasing steadily over the years.
Now that you have seen the probability of growing your real estate investment, which other reasons make it better to invest in real estate than stock?
1. Everything is real
Buying your home or even buying a rental property is quite real; your investment is tangible.
If it appreciates, you can see why. If it depreciates, you can physically count the flaws that have led to that decline in value and, as a matter of fact, you can easily make the necessary amends.
In stock investment, you buy a small percentage of a company but you can’t exactly apportion a physical percentage of that company. It is more of virtual ownership.
Whether the value of your shares appreciates or depreciate, you may never truly understand why. If you are to get any profits from your investment, a board decides how much you deserve without consulting you.
2. Minimal fluctuations
A real estate investment doesn’t fluctuate within short intervals. The stock market is pretty much the inverse.
If you are a new investor, you will be more comfortable knowing that your land or house is safe from sideways market conditions.
In the case of market downtime, you have all the time in the world to absorb the shock and make a sound decision. With the short run fluctuations that the stock market throws at you, chances are that you will panic and end up making not so smart decisions.
3. Easy to understand
Even before you chose to become a real estate investor, you already knew a thing or two about real estate.
The same cannot be said about stocks. Market valuations, tax systems, and transaction costs are all too complex to understand in both industries, but the stock market is the harder of the two.
Plus, stocks depend too much on middlemen and management teams. These people can easily throw you off control.
4. A good investment for retirement
Even if you are in your early 30’s, you need to start thinking about your retirement plan.
Stocks will surely entice you because of the high rewards they promise in the long run, but you need to know that this investment option is too volatile for a retirement plan.
Think of what would happen to your money if the company that you invested all your money in fails within the next 30 years. And that is the time you need the money most.
As for real estate, your assets are least volatile. If you invest in a rental property today, for example, your tenants will still be paying you rent even after retirement. This is an assured income source that will earn you a regular income.