Anyone who can take advantage of a traditional 401k or stock portfolio absolutely should. A large percentage of investors seem comfortable with picking individual stocks or selecting the types of funds that will comprise their 401(k)s. However, if these same investors are asked about real estate, they would likely reply that they do not feel comfortable in that area for a variety of reasons.
Investing in real estate can offer potential advantages that are unlikely to be seen in stock market investing. If you’re an investor seeking to grow your asset base, Primior understands the value of real estate investing and can explain how it can fit into your individual portfolio.
One of the aspects of real estate investing that may appear to be a negative factor is that it typically can involve long-term holdings, with an apparent lack of liquidity. However, this makes real estate all but immune from emotional buying and selling. Compare that to the individual stock buyer who has difficulty capturing the right timing in the market. Potential gains are regularly wiped out by buying and selling stocks at the wrong time for the wrong reason.
On the other hand, real estate tends to be a less emotional investment. Because it’s independent from the stock market, for the most part, real estate can weather a lot of storms. Depending on how you invest, if you purchased a residential income property with a 30-year fixed mortgage, it doesn’t matter what the stock market does because nothing really changes with that financial commitment.
The real estate investor also typically takes more time on the initial purchase to gather facts and information. In general, the longer real estate is held, the less risk is involved as an investor. Equity increases and real estate values tend to go up over time. In contrast, the risk for holding stocks as an investment can fluctuate, sometimes dramatically, over time. You can still take some bold risks on single-project developments, or you can invest in commercial properties, residential properties, or REITs.
As always when analyzing an investment’s potential, past performance is no guarantee for what is to come. But, historically, rental rates rise with inflation. This aspect, coupled with a consistent mortgage payment, offers protection to the real estate investor.
Availability of Opportunity
All investors know the benefits of buying low and selling high, but how often that is possible becomes the practical issue. Real estate, more so than stocks, has niche markets that provide an opportunity during different conditions. And it’s almost always possible to acquire distressed property and through improvements add instant equity.
Rental income from real estate provides more consistent cash flow to investors than shareholders typically receive from dividend-paying stocks that may be vulnerable to changes in their competition and marketplace.
The real estate market is set up to take advantage of leverage. It’s unlikely an investor will find a broker to purchase $100,000 of stock for $25,000 down, but a real estate investor should be very able to purchase four $100,000 properties for $25,000 down each. Leverage allows the real estate investor to control more property and therefore experience a much higher rate of return on the investment than would otherwise be possible.
Perhaps the most advantageous tax benefit for real estate investing is depreciation. Unlike other business expenses, depreciation is, in fact, a paper loss. No money is spent, but the investor takes the deduction. Of course, ongoing expenses like mortgage interest, taxes, insurance, and maintenance are tax deductible, as well.
As with all forms of investment, there are risks associated with real estate investing and no assurances of success. However, with the right knowledge, choice of properties and tactics, it can provide significant opportunity. As one of the fastest growing real estate investment firms in California, Primior has experience and expertise in delivering real value to its clients.
If you seek to maximize your income potential through investments in real estate, connect with the firm today.