In today’s real estate climate, with housing prices lower than they have been for a couple of years, and the subprime lending crash offering new real estate investing opportunities, inevitably people start considering real estate investing, and wondering how it stacks up to stock investing. As always, what works best for you depends on your individual situation. And the best investment portfolio is a diversified investment portfolio. So a little real estate investing could help balance out your portfolio. But let’s not foreget that stock investing offers the best returns over time. However, real estate can make a very nice addition, and Inman News offers the following reasons why real estate investing may be the “total package”:
- Housing prices fluctuate with less volatility than stock prices. Even though real estate prices have gone down over the past few months, overall the result is less dramatic than a stock crash.
- Leverage comes into play in real estate investing. You can buy a home with a down payment. Then, as that home increases in value, your initial investment offers a greater return. You don’t have to pay it all up front like you have to with stock investing (although dollar cost averaging can allow you to buy partial shares for less).
- There are tax advantages associated with real estate investing. When you finance a second home, you can deduct the interest from your taxes. You can defer (and in some cases eliminate) taxes if you consider your real estate an official investment property (such as apartments). However, you will still be responsible for capital gains taxes (check with IRS for specific tax situations with real estate). Stock investing offers no such tax advantages.
- You can live in your real estate investment. If you purchase a second home, you can live in it. Try living in your stock shares.
Stock investing has one major advantage: thanks to dollar cost averaging, discount online brokers and other great tools, just about anyone can start an investment portfolio with stocks. Real estate investing comes rife with pitfalls, not the least the fact that sufficient capital can be hard to scrape together (and don’t forget you’ll need a credit check!). If you want to get into real estate, but don’t know if you have enough capital, you might try REITs to start.
Disclaimer: All investment comes with risk. I am not an investment professional. Do your own research and/or consult a professional before making any investment.