Growing your wealth often means stepping into the world of investing. However, you might wonder whether investing in real estate is better than investing in the stock market. Both offer rewards but come with different risks. It is worthwhile taking the time to assess the best investment option that will help you increase your income.

Stocks and real estate are two of the most popular options for modern investors. This article can help those who are indecisive about picking real estate over stock investments. We will outline the reasons why the property industry is the better pick.

6 Reasons to Invest in Real Estate Over the Stock Market

1. Rental Properties Provide Regular Cash Flow

Renting out a property can provide a monthly income, especially if you have long-term, loyal renters. A well-managed rental space provides passive income for a long time.

While being an owner of a rental property can produce income, earning returns can take time. Most people don’t buy properties in cash, so it can take a while to start generating a solid profit. However, once you have renters, you’ll create an income stream.

Classified as long-term investments, stocks earn returns only when you sell them. Although dividends can be obtained monthly, quarterly, or annually, the amount hardly matches the income that can come from renting out a property.

real estate agent placing a "SOLD" sign on a red signpost

2. You Can Outsource the Management of Your Real Estate Investment

One of the best options for owning a rental property is to hire a professional property manager to oversee its day-to-day operations. A property management company can screen potential residents for you, create lease agreements and market vacancies, collect rent from tenants, and perform regular inspections and property maintenance.

Since property management companies are experts on relevant local laws, they can ensure your rental property complies with the current regulations. They can also set the right price since they have their finger on the pulse of the current rental market demand and know how much competitors are charging.

3. Stocks Tend to Be More Volatile

Real estate investments offer an advantage over stock investments when it comes to protection against inflation. If you choose a great location for your property, you can benefit from the value appreciating over time. The increase in property value can outpace inflation.

Stock market movements, on the other hand, can be hard to predict and wildly erratic. Inflation can also affect your stock investment, especially if you choose the wrong stock.

The value of your stock can also vary at any moment. It can decrease by half over the short term, which can be risky for inexperienced investors and lead to a financial loss.

person's hands on a laptop displaying stocks, also holding a phone with sotcks on it

4. Real Estate Value Appreciates More Consistently Over Time

Properties have a distinct advantage over stocks since real estate values are expected to increase over time. Although unforeseen economic circumstances can affect the real estate sector, it tends to recover quickly. Land values tend to rise over time, so the purchase cost will almost always be lower compared to the future value of the real estate investment.

Planning renovation projects can also help increase the value of your property if you ever decide to sell, and while you’re renting the property out, adding new amenities and upgrades can attract new tenants to sign a lease with you.

5. Tax Deductions Are Available to Real Estate Investors

For a lot of income streams, there aren’t a ton of tax deductibles available. Luckily, however, this isn’t typically true for rental property owners. There are various deductions available, as well as options like a 1031 Exchange.

You can apply for deductions on property management fees and property maintenance and repair costs. Stock investments don’t provide tax reductions unless they are linked to charitable donations or contributions to retirement accounts.

Two people carrying moving boxes into a house with a For Rent sign outside of it

6. Real Estate Investors Can Defer Capital Gains Tax

If you decide to sell your stocks, you have to pay capital gains taxes. However, real estate can be a different case since you have the option to pay the capital gains tax later. This is possible if you purchase a similar property after your real estate sale.

The process of swapping one investment property over another for tax deferment is known as a 1031 Exchange.

Examples of properties that qualify for a 1031 Exchange are the following:

  • Exchanging raw land for an apartment building
  • Swapping a ranch for oil and gas royalties
  • Swapping a real property for a commercial, industrial, or residential rental home

Bottom Line

Investors face risks and rewards whether they choose to invest in the real estate or stock markets. However, if you aim to optimize your investment returns and lower your risks by diversifying your portfolio of investments, investing in real estate is a smart move.

What’s more, as an investor, you can gain more peace of mind and free up your time by allowing a trusted property manager to take care of your real estate investment. With more resources, experience, and a trained professional team, property managers provide invaluable services to benefit your rental property.

If you are planning to purchase real estate or are looking for an excellent team to oversee your rental property, McCourt Real Estate & Property Management is here to support you. Contact us today!