When it comes to investments, there are some that simply perform better than others. Take a regular savings account versus an employee-sponsored 401k. With the savings account, you’re making maybe 1% in interest, if you’re lucky; with the 401k, you’re looking at an average return of 8-10%. This is a huge difference, and comparing these two types of accounts is like comparing apples and oranges.
I see real estate and stocks in much the same light. These are two completely different asset types, but in my opinion, one is clearly superior to the other. Of course I’m referring to real estate here, which I believe to be the best choice for most investors. Here’s why:
Real estate investors have much more control over their investments than those who invest in stocks. The stock market is volatile and affords little to no control to those who invest in it. Now, I’m not suggesting that you shouldn’t invest in stocks. I think stocks have an important place in a diverse investment portfolio; rather, what I am arguing here is that real estate is the better choice, especially for investors who want to have more control over their assets. Real estate is a tangible asset, and you can choose to increase its value by making improvements, raising the rent, cutting costs through a refinance, finding better tenants, etc. With real estate, the power is in your hands.
With this added control comes less risk. Stock investors are at the mercy of the market. While market fluctuations can certainly impact real estate investments as well, there’s more of a buffer in place because you have that extra layer of control. Hence, it’s less risky for the investor. Plus, real estate is sort of a sure thing. Land will always have value, and people will always need a place to live, even it the market takes a nosedive. You may lose value, but the chances of being totally wiped out are pretty slim.
Real estate also has a proven history of success. Bigger Pockets posted a fascinating article a couple of months ago that detailed a study conducted by some economists from UC Davis, the University of Bonn, and the German Central Bank. The study looked at 145 years of data for several investment types, including residential real estate, equities, and certain types of bonds. The results showed that real estate had the best return, with over 7% per annum. So yes, history shows that real estate is the best choice for better returns, and you just can’t argue with history and fact-based data like this.
Cash flow is one of the best parts about choosing to invest in rental real estate. Every month your tenant pays you rent, it’s money in your pocket. If you’ve invested wisely and factored in all the expenses, you should experience positive cash flow each month – something you probably won’t get with stocks. Another great thing in addition to this regular flow of income is that rental prices keep steady with inflation. As the cost of living increases, so does your rent price, and tenants understand and accept this.
A great investment portfolio contains a little bit of everything: stocks, bonds, mutual funds, real estate, and other assets. But most investors tend to put a bit more emphasis on one type of asset than the others, and for me, that emphasis is on real estate. With less risk, more control, a history of positive returns and regular cash flow, real estate offers the best option for investors who want steady gains and unlimited potential for success.