It is often that we hear about people amassing wealth through their investments, whether that be real estate or the stock market. The issue with investing in the stock market is that it can erase years of growth without notice with much more on the line. This can happen in an instant if one reads a bad news headline on the stock. We don’t have control of a company’s business plan the same we do as a tangible real estate asset.
One of the benefits of real estate is that it is a tangible asset that is growing in value from actual renovated improvements, appreciation, and rental upside potential. Operators purchase properties with the intent of making repairs and upgrades to justify rent increases which add income to the return and with the property’s appreciation over time. When compared to stocks, one is not able to add any value or have any control over the investment. This also makes Multifamily one of the best hedges against inflation. This is because real estate has the ability to grow in value and people always need a place to live. Debt is also secured by real estate in the form of long-term, fixed-rate loans which keep debt payments stable during periods of inflation.
With real estate, you can start receiving cash flow immediately. With stocks, dividend yields hover around 4%, and even when the stock increases over time, it won’t be until you sell. Real estate investors start getting distribution checks every month since the property is generating income.
One of the major benefits real estate has over stocks is depreciation and capital expenditures. Unlike the stock market where you pay capital gains on profits, multifamily apartments allow you to defer taxes on capital gains from the income of the property. With depreciation, the operator can get the property income and deduct it against expenses to lower the taxable income. When you sell a stock, you’ll pay 100% of the capital gains tax. This is a huge profit for investors that they are unable to access when investing in stocks.