The stock market hit a rough patch, was there a more reliable alternative?
The stock market can be tempting when you hear about people making millions after buying the Tesla stock in early 2013, but these are only edge cases. The stock market fluctuates in ways that are complex to understand and linked to many factors that are completely outside of the control of the investor. These days, in the mess of cryptoassets like Bitcoin, and an impending legalization of marijuana, investment has become something to “win” but there is an investment asset class that has been more overlooked than its flashier brethren, and that is real estate!
We wanted to detail a few reason why real estate might be a fantastic investment for you to consider.
Returns on the long run
- In the long run, the stock market has occasionally under-performed the inflation rate on a 10 years period. Real estate on the other hand, has never under-performed inflation for that same period. This is a big problem because under-performing inflation means that the money you are left with has a lower purchasing power then the amount you started with, even if that amount has increased in value.
Income taxes savings
- Mortgage interest is income tax deductible. You can also depreciate your property after any renovations that you make, and use that amount to save on income taxes. The stock market on the other hand does not offer these features and advantages.
Taxes for Selling
- When you sell a real estate property, you do not pay taxes on the portion of the property that you occupy. There are also other tax strategies that can be used in Canada and the US that help defer the capital gain tax to be paid. When you sell stocks on the other hand, you are almost always subject to capital gains tax.
Real estate is real
- The stock market has to be tightly controlled to limit volatility due to misinformation by CEOs or even uncontrolled increases in prices due to insider trading. Stocks can also be very dependent on speculation and anticipation. Real estate on the other hand is, as the name suggest, real and is influenced much more by demand and politics than other sources that tend to be more volatile.
According to Investopedia, the layman’s theory of real estate goes something like this: The Pilgrims arrived. They started using land. More Europeans came. The demand for land was so high that Native Americans were pushed out to make room for the newly arriving settlers. More land can’t be built, so demand and prices will always rise, making real estate a great investment.
After accounting for inflation, a well thought real estate investment would expect to perform at least as well as a diversified portfolio of bonds and equities. This type of investment is much simpler and carries an intrinsic value that is real. With refinancing, you can offset the liquidity limitation, which is usually a common concern with real estate, and a good management process would limit the time it takes to maintain and manage the property. Besides, it’s not like stocks are easy. The time you would spend managing your properties will not exceed the amount of time and energy you should spend on reading about the companies you wish to purchase equity from in the stock investment option.
Now whats left for you to achieve financial success is to have a good way of choosing and evaluating a property fit for your real estate portfolio. This is why my team and I built Worth It Labs.
With our tool you can get access to a quick evaluation tool that gives you the ability to see the potential ROI, assess the mortgage you would need, and discover all the hidden fees of any real estate investment. We want to help you find the property that would fit your investment needs and make sure that you get a full picture on how this property will serve your financial goals.
Sources: Landlodology, YAHOO Finance, CNBC Money
