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Why You Should Invest in Real Estate over the Stock Market

Dora Pinter

When it comes to investments, each one is going to have different results and levels of risk and commitment involved. Choosing the best option can help you increase your annual income in addition to making you more financially stable. But which one should you commit to? 

Today, there is a wide variety of investments available to choose from, including the stock market and real estate. These two investments tend to be the most popular, which leads many people to go back and forth when trying to determine which one will be the most lucrative for their financial goals. 

When it comes to the most beneficial investment that you can make, our team personally believes that real estate takes the cake. Keep reading to see our top 5 reasons why we choose real estate over the stock market!

1. A Real Estate Investment Can Generate Higher Cash Flow

When a rental property is effectively managed, it can generate a steady cash flow and earn you a consistent income for years. With long-term leases, you will know what your rent income will be through the entire term.

These investments do not necessarily have to be residential homes either. While rental homes can be an excellent investment, you can also generate cash flow by investing in commercial rental properties such as strip malls or office buildings. 

With stocks you may receive dividends monthly, quarterly, or annually, the amount of immediate income generated with them will be considerably less than if you were to have a residential investment property. 

hands exchanging money

2. Stocks Can be Less Stable Investments

Investing in the stock market usually does not offer you the same potential for a consistent cash flow the way that a rental property can. Extreme and sudden fluctuations in the stock market are very common, and while it may end up in your favor, the stock market tends to be harder to predict than the real estate market. 

3. The Value of a Property Usually Increases Over Time

If you own an investment property, its value appreciates with the market. While things happen sometimes, properties will usually only dip in value temporarily. If you own it long enough, the investment will likely end up being worth much more than you initially paid for it. 

Furthermore, you will always have the option of increasing the value of a property yourself by making improvements and upgrades to the home.

Just like property values, the rental rates also increase with inflation, so your cashflow also increases with each lease renewal. Investing in Real Estate gives you the financial advantage of riding the rate of inflation with two vehicles: property values and rental rates.

4. Investing in Real Estate Can Qualify You for Tax Deductions

Owning a rental property often means that you will be able to qualify for certain deductions that you would not have otherwise been able to claim.

person doing calculations for taxes

For example, any expenses that are a result of owning and operating a rental property can be written off once tax season rolls around. You may also be able to deduct property taxes, fees from hiring a property manager, the interest on your mortgage, and any costs that come with maintaining the condition of the property.

Depreciation benefits are another excellent way to save money at tax time. No matter how great of condition your property is in, general wear and tear and deterioration will happen.  

The IRS allows you to write off this portion of depreciation and it lowers your taxable income at tax time. If you own multiple investment properties, these savings really add up. 

5. There Are Ways to Avoid Capital Gains Taxes on Investment Properties

When you sell stocks, it results in capital gains taxes – or taxes you must pay for the profit you earned from your investment. However, when you sell an investment property, you may be able to defer these taxes by purchasing a similar property immediately after selling it. This process is called a 1031 Exchange.

By using the profit of one investment to purchase further investments is a great way to expand your investment portfolio.

team of professionals at table

Bottom Line

If done correctly, investing in real estate can result in lower taxes, higher income, and more consistency than investing in the stock market. Your investment is sure to appreciate over time, in addition to generating a solid cash flow. 

If you are curious to know more about how to invest in real estate, contact Service Star Realty today. We would love to help!

Service Star Realty

2929 East Camelback Road #119, Phoenix, AZ 85016

(480) 426-9696

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