BY MARTHA WILKIE | Whenever friends begin renovations, I send them a New Yorker cartoon in which an agent shows an apartment to a couple and says, “It’s
Why do so many people invest in real estate even though stocks have higher returns in the long-term, are cheaper to buy and require no maintenance costs?
Stocks don’t have higher returns than real estate !
Your statement that stocks have a higher return is based on a false assumption, not your fault, the media pushes this concept all the time, knowing it is incorrect.
All investing is risky, but stock trading is more risky than real estate.
I’m not even going to get into “High-Frequency Trading” and all the issues and risks associated with that aspect of stock trading.
I know what you will say in response my “stock trading is more risky statement” …not if you know what you are doing.
Well, lets just look at it from the banks perspective to see which one they perceive to be more risky.
If you go to your bank manager and request a loan to buy stocks how much will they lend you?
Probably not much (nothing really) unless you have some other form of security, like real estate.
This is the fundamental lie told to all by the stock market proponents.
Many times, you will see some sort of chart showing stock growth 12% real estate growth 11% thus stocks are obviously better.
Supposedly comparing “apples with apples”.
But they’re not.
This is a blatant lie that the investment analysts understand fully and continue to support as it fits their narrative and supports their cause.
With stocks, you can lose 100% regardless of history or past reliability of the institution (Google “Barings Bank”) or you could lose even more than 100% if you are heavily leveraged.
With real estate, it is almost impossible to lose it all as you will still have land left even if a hurricane removes your house.
This is why the banks won’t lend you money to buy stocks but will lend you money to buy real estate.
The blatant lie is told when someone compares one chart with another, for example, $100,000 invested in the stock market in 1980 would leave you with X amount now since it has improved 12% versus real estate which has only improved 11% over the same time period.
The lie is in that they are neglecting to say in order to buy $100,000 in stocks you would need to have $100,000 cash.
However, if you did have $100,000 cash you could use that in real estate as a deposit.
With $100000 in real estate you are able to leverage it and purchase a one million dollar property with a 10% deposit (your $100,000).
Now if real estate goes up only 11% vs stocks going up 12% it is 11% of one million versus 12% of $100,000 – these sums and outcomes are vastly different.
Plus, you still need to pay taxes on your stock profits, whereas you do not need to pay taxes on your real estate profits you can simply refinance them using the equity to purchase more properties.
This again makes a huge difference in your financial outcome.
To further address the implication that stocks are better…
With stocks you are vulnerable.
You are totally dependent on external entities.
The market determines the value of your stock, other companies, the economy, the weather…
With real estate, you are in control to some degree.
Yes, you are still also dependent on the market, but there are things you can do to increase the value of your investment.
You can renovate a house to improve its value, you cannot renovate stocks.
You can sub-divide the land your house is on, you cannot sub-divide stocks.
You can rezone the house to commercial or office space, you cannot rezone stocks.
You can add features like pools, carports, gazebos, decks… with stocks?
You can add granny flats or extra accommodation … with stocks?
You can become an Air BNB to increase income … with stocks?
There are so many things, outs, options, changes and improvements that you can do with houses to add value that you just cannot do with stocks.
These are all benefits that and reasons why people invest in real estate rather than stocks, since stocks cannot offer any other benefits.
Plus you can live in real estate, it has a practical purpose too.
Real estate and houses, in general, are real, tangible and almost impossible to steal.
You can get someone (a realtor) to look after it for you and to collect the rent making it very easy to manage, (and its tax deductible)
Whereas you cannot outsource your stock management, you need to do that yourself.
I also disagree that it is cheaper.
As I’ve shown above you get much more value for real estate than you do for stocks. (purchasing power)
You get much lower risk, and peace of mind is worth a lot to me. (Banks lending money proves this)
You get stability and don’t need to worry that it’s all going to disappear tomorrow in some stock market crash. (it’s a real asset thus termed real estate, it will be there – even after a war)
All of these add to the extra value that houses provide that stocks do not.
But most of all you don’t need to manage and keep an eye on your real estate every day so it gives you time.
Time is the most valuable asset of all.
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