If you ask the average person which of the two investments is sexier and more exciting – real estate or stocks – a majority of people will definitely go with the stocks. The reason is actually simple. Stocks can be volatile, which definitely makes them exciting but not always profitable. Stocks also offer a wide variety of sectors to invest in. For example, you can choose technology stocks (very sexy) or gold stocks or even something very boring such as a blue chip food stock. It also allows you to diversify your investment portfolio and spread your risk across a number of industries to insure some type of profit at the end of the year.
With all these advantages to buying stocks, why would anyone look at real estate as having any advantage at all as an investment. The truth is that the advantages of real estate are so obvious they are often overlooked. This is true of both passive and active real estate investors. An active investor is someone who constantly is on the lookout for new opportunities or may want to flip a house several times a year. A passive investor is someone who just wants to use their real estate investment as a source of passive income that is steady and reliable.
The first major and undisputable advantage is that you have complete control over your investment. For example, if you are an active investor and want to constantly be involved in the buying and selling of properties, you can schedule your time to directly research and see the property firsthand. You can eliminate the massive amounts of time spent on researching a stock and replace it with a far less investment of time while having a personal experience with the real estate seller.
For passive investors, you can decide the amount of time you want to spend improving your property. Active investors can do this as well, but the fact that a passive investor can only accentuates the point. If you own an apartment complex and are receiving regular monthly rents, you might decide to improve the property and upgrade the carpeting or electrical system. You have complete control over when you want to do it, how much you are willing to pay for the service, and whether or not such an upgrade will support the idea of a rent increase.
While companies can also make improvements, it is not certain that those improvements will lead to an increase in the price of a stock or any dividends. As a real estate owner you know exactly where your money is going, and for what.
A second undisputable advantage of real estate is collateral. A piece of real estate has a specific value that a bank or loan company can use to determine your creditworthiness, allowing you to get the cash when you need it. Stock is in a whole different class of collateral, and if you want to get a loan it is not likely you will be able to get an exact valuation of the stock when you need the money. If you want to sell the stock it will take at least one day to convert it to a liquid asset that you can use.
Also, collateral can be physically be seen by potential buyers, unlike a stock that is susceptible to change in valuation within minutes based on the whims of nervous stock market investors. A real estate investment can be seen and appraised, letting the lender or buyer actually see the condition and quality of the asset.
These two “Cs” – control and collateral – make real estate a far superior investment when compared to stocks. In fact, it is hard to imagine that a stock can offer as much control as a piece of real estate. When it comes to the knowledge of a stock versus a real estate property, your knowledge of the stock and stock market is not likely to affect the price of your investment. When it comes to real estate investments, knowledge is definitely power and you can buy and sell for a more advantageous price because of what you know. The more you know, the better of an investor you will become.