Why You Should Invest in Real Estate Over the Stock Market

Investing in real estate can be an extremely lucrative venture. After all, investment properties enable you to earn a stable passive income while also building your long-term wealth. This is why many investors are choosing real estate over the stock market.

While stocks, mutual funds, and ETFs can be great investments, investing in real estate has ample benefits that these choices lack. This includes a stable passive income, leverage opportunities, and even tax benefits.

However, you must ensure that this investment fits your long-term goals before making any decisions.

To help you make the most out of your money, the experts at McKenna & Vane Property Management have written this guide. Keep reading to learn about the benefits of investing in real estate and why this type of investment can be superior to others.

Rental Properties Offer a Stable Passive Income

One of the most common ways to invest in real estate is to purchase or convert your home into a rental property. With the rising demand for housing, rentals make a sound investment in the long run.

Even if you don’t outright buy your rental property and are making monthly mortgage payments, you can still make a profit at the end of the month! All you need to do is ensure that your rental earnings surpass your expenses.

Rows of miniature suburban houses.

There Are Many Ways to Invest in Real Estate

Although buying an investment property is the most common route, this is not the only way you can invest in real estate. Some other options include:

  • Real estate investment trusts (REITs). REITs are indirect investments that are very similar to mutual funds. They are great for those looking to invest in real estate without worrying about maintaining a property.
  • Residential properties. The demand for housing keeps growing steadily every year. This means that residential properties are always a great investment. Though renting or selling offers a better ROI, you can still grow your long-term wealth by simply buying a property and living in it.
  • Commercial properties. There are always new companies looking to expand their physical reach. By purchasing a retail or office space, you can make a lot of money on rent in the long run, even without being a landlord full-time.
  • House flipping. Some investors purchase run-down properties at a low price to fix them and sell them at a much higher cost. Although it requires a big initial investment and a lot of work, these often earn a great ROI.
  • Land. Purchasing a piece of land can be a great investment in the long run. Because it is a finite resource, your investment can always increase in value over time.

Less Volatility

The real estate market is fairly stable. Unlike the stock market, where you can make or lose a lot of money in a short span of time, real estate investments have a slow but steady appreciation potential.

A piggybank with its nose in some coins.

The cyclical nature of the market allows for more predictable trends. This stability can be particularly appealing for risk-averse investors looking for steady, long-term growth.

The simplicity of making money from these investments can be further expanded by hiring a property manager, which many landlords choose to do.

Hedge Against Inflation

Real estate investment can be an effective hedge against inflation. As the cost of living and interest rates rise, so do property values and the price of rent.

Even if you’re still paying your mortgage, you can benefit from inflation. This makes real estate an attractive option for investors seeking to preserve and grow their wealth over time.

Tax Deductions

Most investments are considered capital assets and are taxed accordingly. Despite this, real estate investors can enjoy plenty of tax advantages.

For instance, deductions can be made to account for mortgage interest, property depreciation, and operating expenses. This will significantly reduce your taxable income.

Additionally, money earned on the sale of your primary residence can be tax-free up to a certain limit. Investors can defer capital gain taxes by buying a like-kind property through a 1031 exchange.

Leverage Potential

When you’re investing in the stock market, you can only invest the money you already have. On the other hand, real estate investors can make use of leverage to finance their investments. This means using borrowed funds, whether it’s a mortgage or a private loan, to purchase a new investment property.

The exterior of a large farmhouse.

With this strategic use of leverage, investors can exponentially grow their portfolios in a short period. By making the right investment, they can quickly pay off the loans and, more importantly, magnify the return on their investment in the short term.

Portfolio Diversification

A golden rule amongst investors is to never put all of your eggs in one basket. If, for instance, you put all of your money in stocks, you run the risk of losing all your money if the market crashes, which is always a possibility. Instead, you must invest in various assets, markets, and industries.

Real estate investments are one of the best ways to diversify your portfolio. Because the real estate market is fairly stable, you can be certain that your money is safe.

Bottom Line

Both real estate and the stock market can make beneficial investments. While both have their merits, though, the benefits offered by real estate make it a better option for investors seeking stability, diversification, and long-term growth.

However, it’s important to remember that real estate investments don’t come without risks. You must do your research and due diligence before making any type of investment.

Are you looking to invest in the Maryland real estate market? Contact McKenna & Vane Property Management today! Our team can help you find the perfect property to meet your investment goals.