I’m often asked if real estate is the best investment – better than the stock market. That is not an easy question to answer. I am inclined to say that it may be a more comfortable investment than the stock market for many. Why?
When we purchase stocks, we are doing an important thing for the business community. This is essential capital and it is the life blood of the economy. It is also difficult to say which has a better return as the answer to that depends on if you bought beach front property in California in 1968 versus Berkshire Hathaway versus Nortel. Ultimately, it depends on the real estate and the stock.
Real estate is a leveraged investment so you are making a return on the aggregate value (very cool) and the return is tax free if it is your own residence. We are noticing more of our clients looking seriously at investment properties in addition to their primary residence as part of their investment portfolio.
Whether it is for your principal family home or an investment property, the property is under your control. Typically, the property we buy is local and it is more of an insulated investment and less impacted by what happens to the Greek or Spanish economy than the stock market. Real estate has liquidity limitations, especially in a down market, but if you have rental income, you can usually weather the storm.
When I say real estate is more comfortable for most, I base this statement on the fact that stocks rarely have the same level of transparency as purchasing real estate. When you purchase a piece of real estate (one of the three pillars of survival along with food and water) you are the CEO of that tangible investment. When you buy a stock, you are a minority investor of a symbol, who has little say in the direction of the company including expansion and dividend payment. It is a bit of a poker table and you may be the unsuspecting passenger on the cruise ship.
The most important ingredients in anyone’s portfolio are a good investment advisor, a good real estate salesperson and a good accountant. You may not want to economize on any of those services. If your sales rep is also driving a cab (no offense but this industry requires full-time focus), your investment advisor has no obvious signs of wealth and your accountant is using a tip chart, move on. You need someone who can read the dealer.