Three Reasons Investors Prefer Real Estate Over Stocks
Two common forms of investment strategies that smart investors use to grow their wealth with passive income include creating a diversified portfolio of stocks and investing in real estate. While investing in the stock market is beneficial for numerous reasons, investing in private market properties like multifamily provides several advantages. Here are three important reasons why some investors prefer multifamily private placement investments over stock market investments.
#1. Lower Volatility
Stocks can have a volatility that’s not found with most private placement offerings. Real estate provides a long-term cash flow provides passive income and the promise of appreciation (1).
The stock market is particularly vulnerable to several different forms of risk, which include economic, inflationary, and market risks. This volatility can occur because of company-specific or geopolitical events. The real estate market across the U.S. has been strong for more than a decade. Since 2010, the national housing market added $11.3 trillion in value – a more than 50% increase (4).
#2. Your Gains Can Be Deferred
If you sell a property that you’ve invested in and put the proceeds towards purchasing a similar property, your capital gains taxes can be deferred to a later date, which is called a 1031 tax-deferred exchange (3). During this process, a qualified intermediary will hold the proceeds from the sale until the money can be transferred to the other property’s seller. Engaging in a 1031 allows you to avoid the 15-20% long term capital gains tax rate (5).
#3. Can Be Used As Hedge Against Inflation
Over time, the value of a dollar decreases as a result of inflation. While the value of currency will invariably increase over time, the rate of inflation isn’t always consistent. As inflation rises, the cost of everything goes up, including real estate (2). When property values increase, the property owner can charge more for rent, which ensures a higher revenue stream. By keeping pace with inflation, you gain an advantage that is difficult to obtain with stock market investments.
It’s never too early to start generating passive income. Placing some of your money into multifamily private placements could help you balance your portfolio and reduce the potential for losses.
- Investopedia. “Reasons to Invest in Real Estate vs. Stocks”
- Forbes. “How Buying a House Can Hedge Against Inflation.”
- Internal Revenue Service. “IRS 1031 Exchange.”
- Zillow. “Recovery Added $11.3 Trillion to U.S. Housing Value in the 2010s.”
- Investopedia. “1031 Exchange Rules: What You Need to Know.”
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