Beginner level, All post

Is Real Estate a Better Investment Than Stocks & Others?

“If you’re not going to put money in real estate, where else?” 

– Tamir Sapir, Business Mogul.

The quotes of the rich and famous do help put things in perspective for us, don’t they? Well, we are in agreement with Tamir Sapir. But like good analysts, we will give you help, dear eager investor, in understanding the ‘where else’. There are many who are curious enough or rebel enough to explore alternatives to Real Estate investing. Well, kudos to your curiosity!

Is Real Estate Investing Worth It?

Before asking this question It’s important to dissect the pros and cons of all investment options. Don’t just go into real estate cause “Dad, Peter or my neighbors did it”. No, go into it with a deeper appreciation of all the other options. We have also done an exclusive article on real estate investing which you can read here. In case you are undecided, then comparing Real Estate Investment with other popular investment options can help you make a smarter investment call.

Let’s begin with a simple question – why use Real Estate Investing as a barometer for comparison? Well because it has consistently remained the most popular long-term investment. As per a Survey1 done between a 10 year period from 2011 – 2020, Real estate has remained the most popular investment option for Americans. Not only that, real estate investing constitutes the biggest portion of net worth for most middle-income American families. In other words, real estate investing has become synonymous with wealth-building for people who are just starting their careers.

Take a look at the total asset values by asset class as per the latest report from US Federal Reserve6.

Real estate – $39 Trillion

Stocks & Mutual Funds – $42 Trillion

Savings & Deposits – $17 Trillion

Bonds & Securities -$7.5 Trillion

As you can see, real estate investing is one of the biggest contributors to a family’s net worth. Understanding why real estate investing continues to remain popular will help you understand the nuances of investing.

So let’s begin!

Real Estate Investing or Stocks 

“Show me the money” 

The reason Real Estate fares higher than stocks is simple – most investors have a goal of consistent cash flow. Real estate investing helps achieve that goal with a primary cash flow from rents. Dividend Stocks2 also have this option but the yield often lies between 1.5% to 5% whereas for real estate it is often on the higher side of that metric. Want to know more about the returns you can expect from both? Then check out our article here.

“It’s What They Call Shaky…..”

In the last 2 decades, stocks have displayed 4 times4 greater volatility than property investments. This period includes the infamous Housing Bubble fiasco of 2008. So you can know Real Estate has held on despite some major setbacks. One of the primary reasons is because it takes time to buy or sell real estate whereas the same can be done in stocks in a matter of seconds. So when the times are tough, panic-driven-trigger-happy investors cause a lot more volatility in stocks compared to real estate.

Should I Invest in Property or In Gold

“All That Glitters”

Though only 8% of Americans have invested in Gold2, it actually is a strong asset class for investments. Since 2012, the value of gold has been rising and has even managed to keep up an upward streak during the Great Recession of 2007 to 2009 and even during the pandemic.

Sounds promising? Well in comparison to real estate not so much!

“It goes up..and up…and up!”

Real Estate has better returns than gold. Since 2011, homes in America have delivered far higher returns than gold. In the last 10 year period, gold prices have increased by 60% approx. whereas home values have gone by 90%7. But you have to remember that home also gives an annual rental yield whereas gold does not. If you consider an annual rental yield of around 7%, then real estate would have outperformed gold 3 times over.

Savings In Bank vs Real Estate Investing

“It’s the same thing, ain’t it?”

If only we got a dollar, every time someone confused investing with saving… Saving and Investing are 2 very separate activities. Having a savings account in banks is integral but only through investing you can take your net worth to the next level. Check out this blog about how much you lose by not investing but keeping too much of your savings in the bank. You do have to keep aside a certain amount of savings in the bank for emergency needs but make sure you regularly invest any excess savings. 

If you are still apprehensive of adding a chunk of your savings to Real Estate investing, then read on.

“It’s just sitting there” 

Savings don’t add anything to your long term financial goals. The average annual interest on your savings accounts is estimated to be at 0.06%5. Also, consider that money can diminish in value over time thanks to inflation. Most banks often pay less interest than inflation. So to beat inflation, you may want to invest in Real Estate.

Is Real Estate Investing Worth It?

We will leave you with the question we asked at the beginning of the article. Only now you have more insights. Keep in mind that Real Estate investing seems the preferred option for many Americans. You can choose to invest in other options listed here or from other sources. It’s important to make a decision based on your own personal parameters, these can include

  1. Expected ROI
  2. Goal or Objective of Investment
  3. Liquidity Needs
  4. Risk tolerance

Once you have assessed your needs based on these questions, you are better equipped to take a call. If after all, you decide that Real Estate Investing is the option that works best for you, then consider LitPoodle. We are a real estate investing app that not only has a wide range of listings but offers comparative insights and ROI metrics with the aid of property investment calculators. Check out our portal to make more informed real estate decisions.

1.https://www.statista.com/statistics/185164/best-long-term-investments-perceived-by-us-americans/

2. https://www.equitymultiple.com/blog/getting-started/real-estate-vs-other-asset-classes

3. https://www.equitymultiple.com/blog/getting-started/real-estate-vs-other-asset-classes

4. https://commodity.com/blog/gold-compared/

5. https://www.valuepenguin.com/banking/average-bank-interest-rates

6. https://www.federalreserve.gov/releases/z1/20210923/z1.pdf (Page 154)

7. https://fred.stlouisfed.org/series/MSPUS

 

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