One of the most common questions we get asked from real estate investors is whether it’s better to invest their money in real estate or the stock market.
Once you’re done with debt and you’ve started to save, it’s commonly the case that you’ll start hearing about the risks and rewards of investing in both. Unfortunately, it can be hard to know what type of investment is going to work better for you down the road.
If you’re currently considering what you should put your money into, here are some reasons you may want to turn to real estate.
Want to know how to analyze real estate investments and choose the best? Read our guide.
Real Estate Is Something You Can See
While investing in the stock market will give you the ability to invest as little or as much as you want, a home will take a monthly payment and a down payment in order to make the deal. Fortunately, this means that you’ll be investing money every month into something that belongs to you and that you can see.
A home is not only something you can invest in all the time, it will enable you to avoid putting money into rent that you’ll never get back. Or, you can rent it out, and have someone else pay the cost of your investment while you keep the profits.
Save Money with Tax Breaks
Investing in a home certainly takes savings, but there are many available tax benefits that can save money.
For example, you will qualify for a tax deduction for mortgage interest paid on your home. There also are tax breaks when you sell your primary residence, like an exclusion that may allow you to avoid capital gains taxes on net proceeds of $250,000 if you’re single (or $500,000 if you’re married and filing jointly).
Learn more about the benefits of investing in your owner-occupied property in our guide.
And investment properties can earn tax breaks through depreciation, or writing off wear and tear on the property. Plus, if you own and sell an investment property, you can also avoid capital gains tax through a 1031 exchange (if you reinvest proceeds in a similar type of property).
Learn more about tax breaks related to homeownership in this tax guide.
Leverage Your Investments
For real estate investors, just getting your foot in the door is almost enough to kick-start your ability to rapidly build wealth. You can do this by leveraging your real estate investment.
In a nutshell: you build equity as you pay off your mortgage. And as an investor, you can actually borrow against your equity to grow your wealth and buy more property. This means you have the ability to finance new investments even if you don’t have the existing capital to fund the project! Cool, right?
Leveraging a stock investment is slightly more complicated. You can potentially borrow from your stockbroker to fund new stock investments as a way to increase your position in the market and make more money. However, since the stock market can sometimes be pretty volatile, this strategy can also cause you to lose money. Again, it’s all about your risk tolerance.
In the grand scheme of things, leveraging a real estate investment is usually a much safer option.
Read more tips on how to increase your net worth quickly with investment properties.
Hedge Against Inflation with Real Estate
Real estate investments can serve as a hedge against inflation. Real estate ownership is generally considered a hedge against inflation, as home values and rents typically rise together with inflation, if not faster.
In today’s times of high inflation, it’s never been a better time to use a property as a hedge against it.
Real Estate Gives a Sense of Security
Many people want to invest in a home because it offers a piece of something that they can really own.
However, another appealing aspect of having a home is that you’ll be insulated from the day-to-day rumblings of the stock market. Investing can make people more than a little stressed, even if you’re knowledgeable about the markets. This can cause you to sell off and lose money when the going gets tough.
The same is usually not true for real estate, where you are likely to hold for the long term. Here, you can have a sense of security that your investment will never decrease to zero.
Bottom Line: A Home Should Be Your Priority
Investing in real estate and the stock market both involve some degree of financial risk, but you might not be aware that there are several added benefits of buying a home.
From the tax break incentives to the sense of security, real estate can often be the better financial route to take.
If you’re currently considering a home…
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