One of the most asked questions in the investing business is which is more profitable: a real estate property investment or a stock investment? Seeing as every investor seeks to make money from his/her investment, it’s not surprising that they are concerned about their return on investment. Here are 5 reasons why a property investment is more profitable than a stock investment.
The world of real estate investing is vast and offers many ways to make money. A real estate investor can make money from single-family homes, multi-family homes (ranging from duplexes to entire complex buildings), townhouses, condos, etc. Moreover, you can start a real estate investing business for the long-term (traditional) or short-term (Airbnb). Not only that, but real estate investors can make money without direct property ownership through REITs and wholesaling real estate. You don’t have as many options in the stock market.
A property investment provides real estate investors with a stream of cash flow in the form of monthly rent. Cash flow is the profit that property investors make after calculating the difference between monthly rental income and monthly expenses of their investment properties.
This cash flow pays for the real estate investor’s expenses such as mortgage payments, rental property taxes, operation costs, etc. Stock investment can make a good return on investment, but investors don’t see any real money until they sell their shares!
Real estate properties are physical assets, so they’ll always have value. Stocks, however, are intangible assets and can lose all their value any minute. Plus, the longer a real estate investor holds a property investment, the fewer risks of loss he/she will face because home prices and equity build over time. Even though a stock investment is more liquid, it’s very unstable. Stock investors face unpredictable return on investments and buying/selling shares at the wrong time!
Hedge Against Inflation
As the cost of living increases so do market prices for investment properties. This makes a property investment profitable because as inflation increases, real estate investors can raise how much they charge for rent, generating a higher rental income. Also, since mortgage payments are not affected by inflation, they technically decrease as inflation increases.
As a result, with a property investment, inflation will be on the real estate investor’s side. This is not the case for stock investors.
The cash flow that an investment property generates is tax-free. Additionally, when real estate investors decide to sell investment properties and reinvest the profits, they will not pay capital gains tax. Property investors are also able to deduct almost all expenses related to their property investment such as property taxes, mortgage interests, insurance, and operation expenses. These tax benefits and deductions don’t apply to stock investors.
Investing in the stock market does have its advantages. However, owning a property investment is more profitable. For in-depth information on this topic, read this: Is Property Investment More Profitable Than Stock Investment?
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