When the topic of investing comes up, most people tend to look at stocks, mutual funds, and real estate all in a similar light. While all of these investments can be valuable assets, real estate is quite different from the stock market. Unlike stocks, you can use leverage to finance the purchase of your real estate asset allowing you to increase your potential profits. Furthermore, real estate isn’t tied to the stock market, nor is it subjected to the same kinds of volatility.
If you go to the bank and ask for a loan to buy stocks, it won’t be approved. Ask for a loan to buy real estate and chances are good you’ll be presented with several different ways to structure your loan. In the eyes of the bank these are two clearly different assets classes, and they see real estate as far more secure than the stock market.
Banks views real estate as more secure than stocks for many reasons. Property owners have insurance on their homes (or investment properties), which is something you can’t get for shares purchased in the stock market. Furthermore, there is value both in the land that the home sits on, as well as the actual home itself.
Stocks are subject to lots of different factors that make them far more volatile than the housing market. All it could take is one bad product launch to send shares plummeting. Shares can split, companies can file bankruptcy, and there are numerous other factors that could affect price. Although there is risk that comes with real estate, it is often a better choice compared to the stock market.
Invest with Leverage
Many investors agree, that real estate is a smart way to grow your capital. Because the banks see these assets different from the stock market, you can take advantage of leverage. By putting up a percentage of the cost of the real estate asset, you can reap the rewards by collecting the profits gained through appreciation, when you sell the home as well as through rent collected now if it is an income property.
In order to make the most profit, it comes down to finding the right homes in the best neighborhoods around the country. Knowing where to look is key to maximizing your returns, as there are certain markets that are poised for growth and/or are highly desirable for rental properties. Some investors look for growth opportunities while others look for properties that will deliver a high cash flow right away. It all comes down to your individual financials goals, and knowing where to find the properties that line up with up those goals.
Should you invest in real estate instead of the stock market? Or perhaps a combination of both stocks and real estate? Although there are many ways to grow your portfolio, almost any financial advisor you ask will tell you that you should be diversified, and that you should not put all your eggs in one basket. Real estate, that is, actual property and not just REITs, should be part of a well thought out and diversified portfolio, as well as other non-traditional assets.
At HomeUnion® we are changing the way people invest in real estate. We provide our customers with a diverse selection of pre-vetted properties that are tailored to their financial goals. We manage the entire process from property selection and purchase, to tenant and property management, all the way through the final sale. The entire investment process is hands free and easy.
Do you have questions about real estate investing? Download our Guide to Finding Investment Properties for more information, or give us a call at 866-732-3220.