Are you thinking about investing in rental property vs. stock but you're not sure which is the right decision to make?
Even though this blog is devoted to investing in multifamily rental property, the reality is that both investments have an equal amount of benefits that investors should consider.
This is why in this article; I'll break down real estate vs. stocks and provide you with insight into which option you should consider investing in.
Understanding The Differences Between Rental Property Vs. Stocks
The first reason why you should consider investing in rental property is that for most investors, it’s easy to understand and manage themselves.
Buying a rental property involves a ‘rinse and repeat’ process that investors have been following for generations.
You have to be able to identify a prime location for investing in rental property, do your due diligence to analyze the property, have the property inspected, review the owner’s financials and if it looks like a great deal, submit an offer.
Once the rental is purchased, some of the typical rental property tasks involve marketing the property, tenant screening, tenant placement, maintenance, and rent collection.
What's also ideal about investing in rental property is that real estate debt is safer to have than margin trading because real estate debt is tied to a physical asset that you own.
Real estate is also more ideal than stock because it can be an excellent hedge against inflation and there are also a wide variety of tax advantages that come from owning rental property as well.
Are there any downsides that come from owning a rental property?
Yes, there are a few.
One of the biggest downsides is that some properties have a high barrier to entry that a beginning investor cannot afford.
The good news is that despite property prices in some areas, many affordable cities across the United States make excellent locations for new and experienced investors to purchase rental properties.
Another ‘downside’ that some investors equate with a rental property is that real estate isn’t as easy to liquidate as stock.
Why Invest In Stock?
Low barrier-to-entry is one of the first reasons why investors should consider putting their money into the stock market because, unlike investing in real estate, it doesn't take thousands to load up on stocks.
Investors of all ages can get started with investing in the stock market, especially on ‘red days’, or during the period of economic instability when stock values are down.
Another benefit that comes from investing in stocks is that many stock trading platforms don’t require investors to pay commissions or brokerage fees. This saves an investor money especially considering that buying real estate can also involve transaction fees like closing costs.
Stocks can and should be a sizable part of every investor’s portfolio, but a word of warning, investors who put their money into stocks must be prepared for volatility.
In 2020, we’ve seen the most volatility in the stock market since 1929, and even though stocks crashed in March, they recovered during the summer and climbed back to record highs.
With the stock market roaring back to 30,000, the reality is that volatility will return and investors must be prepared for future periods of instability in the stock market.
Stocks Vs Rental Property - Which Option Is Better?
Ultimately, your decision to invest in stocks vs rental property is going to be up to you.
This decision should solely be based upon your ability to tolerate risk, as well as the return that you hope to see on your investment over the next 10 years.
As an investor, I would never encourage someone to put their money in just one investment over the other because having a diversified portfolio should be a goal that every investor hopes to accomplish.
2020 is one of the rarest moments in history where the conditions have never been better for investors to hold both stock and real estate at the same time.
Even though we've seen the stock market go up and down this year, most economic analysts feel that the stock market is only poised to continue enjoying sustained growth for the years to come.
The same is true with the rental property because our country has turned into a nation of renter's and this means that more people than ever before are renting properties instead of buying them.
If you own one or more rental properties across the United States, you're setting yourself up to be in a prime position to own an asset that's always going to be in demand for years to come.
At JD Homes, we specialize in local property management and can save you the time, money and hassle of managing your properties yourself.
To learn more about the property management services we can offer you, contact us today by clicking here.