Investing is a crucial aspect of financial planning, and it’s necessary if you want to build wealth for your future. There are different types of investment options available, and all of them come with different risks and rewards. Choosing the right option depends on your personal preference, risk appetite, and financial goals.

Real estate and the stock market are two of the most popular investment options for individuals seeking long-term financial growth. While both can offer significant returns, investing in real estate has several advantages over investing in the stock market.

Here are a few important reasons why investing in real estate is better than investing in the stock market:

1. Real Estate is a Tangible Asset

One of the significant differences between real estate and stocks is that real estate properties are tangible assets, while stocks aren’t. Tangible assets can provide a sense of security and stability for investors. 

In most cases, when you invest in real estate, you typically own a physical asset that you can visit, have developed, live in, or manage should you want to use it as a rental investment.

In contrast, investing in stocks involves buying shares of companies, which are not tangible assets. They are easily influenced by external factors such as market fluctuations, political instability, management decisions, and changes in supply and demand. If something goes wrong, you cannot do much about it except sell your shares—often at a loss.

person sitting at a wooden desk looking at a graph showing projected growth

2. Real Estate’s Value Appreciates Over Time

Real estate values tend to appreciate over time, meaning their prices increase. This makes real estate an attractive investment option for individuals seeking to build wealth over the long term. 

For instance, the real estate appreciation rate in the state of Virginia has historically been steady, with an average annual rate of 5.16% for the past 10 years. As property values increase, investors can sell their property for a profit after a few years, realizing significant returns on their investment.

On the other hand, the value of stocks and other financial instruments frequently fluctuates, making them an unpredictable investment. While some stocks have delivered impressive returns over time, others have become virtually worthless. Because stock market investments are subject to market volatility, it can be difficult to predict their future returns.

3. Real Estate Investors Can Enjoy Tax Benefits

Investing in real estate offers numerous tax benefits, such as tax deductions on interest paid on mortgage loans, property taxes, and depreciation. Mortgage points, closing costs, and insurance premiums may also be deductible. 

Additionally, investors can defer paying capital gain taxes by doing a 1031 exchange, which allows them to sell one property and reinvest the proceeds into another without any immediate tax liability.

These tax benefits can significantly reduce the tax burden on real estate investors, making it a more attractive investment option. On the other hand, the stock market doesn’t offer such favorable tax benefits and deductions, which is why it may not be ideal for long-term investing.

tax forms spread out on a desk with the word tax spelled out in letter blocks

4. Real Estate Offers Steady Cash Flow

Real estate provides reliable and consistent cash flow for investors through rental income, making it a reliable source of passive income. These regular payments allow you to build wealth over time while diversifying your portfolio. 

However, investments in the stock market don’t provide the certainty of regular payouts. In fact, several investments don’t pay dividends at all.

5. Real Estate Works a Hedge Against Inflation

Inflation is an economic principle that erodes the value of money over time. Real estate investments offer potential income streams that keep pace with inflation, making them a great choice if you want to preserve your purchasing power over time.

On the flip side, the price of stocks is not steady. It’s highly possible to experience extreme fluctuations with stocks in the short term. On top of that, there’s also a possibility that you’ll lose the purchasing power of your dollar due to inflation. 

6. You Have Greater Control Over Real Estate Investments

Investing in real estate offers greater control than stocks do. Investors can choose the property they want to buy, negotiate desirable terms with sellers, manage renovations, and decide whether to sell it for a profit immediately, use it for themselves, or rent it out to tenants.

real estate expert going over purchasing documents with buyers

In contrast, investing in the stock market involves buying shares of a company that you have no control over. Also, the value of stocks is determined by company performance, market conditions, and other external factors beyond investors’ control.

7. Investors Can Outsource the Management of Real Estate

If you decide to use your investment property as a rental home but do not want to manage the rental business yourself, you have the option to hire a third-party property management company to handle this for you. 

Since managing a rental property is not that easy, it’s best to work with a reliable property manager to ensure that you maximize your earning potential and get the best out of your investment. 

While you may also hire a mutual fund manager to manage your stock market investments, this service often comes with hefty fees. With property management, however, fees are typically lower and are justified by the returns that you can generate from your rental properties.

Bottom Line

When deciding on where to invest your money, consider how much control you want over your investment, what risks you’re willing to take, and what types of returns are most important to you. That being said, real estate is undoubtedly one of the most stable and profitable investments you can make. 

Real estate investing offers several benefits over the stock market that are useful to your overall bottom line. Most of all, you can use a real estate property in several ways, but getting it rented out is one of the best options available. Talk to the experts at Keyrenter Property Management Hampton Roads if you want to maximize your ROI!