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Real Estate vs. Stocks—Why Real Estate Wins: Part 1

Choosing how to invest your money can be a difficult prospect, particularly with all the
varying (and often contradictory) “expert” opinions one hears about which method is best. Some claim that real estate is the best option and some swear by stocks. The simple fact is, there is no one-size-fits-all investment strategy that works for everyone, and when experts recommend one strategy above all others, they aren’t taking individual situations into account. While the stock market may be a good option for some investors, it may not be as ideal an approach when you are seeking the best way to utilize your self-directed retirement plan capital.

6988181354_9384f994eb_zWith stocks, one typically invests purely to grow the account value, and then must take distributions from that value once in retirement. Real estate investment allows you to put the principal of your retirement savings into a solid asset that is not subject to the type of fluctuations regularly seen in paper assets, as well as receive a monthly cash flow without having to reduce your account principal. In this two-part blog, we will cover the advantages of purchasing investment property with your self-directed IRA or 401(k) rather than venturing it in the stock market.

Instant Income

One of the primary advantages of investing in real estate rather than stocks is that investment property creates a stream of income right away. This immediate cash flow gives you more control over your capital and the flexibility to do more with it, such as making additional investments.  Very few stocks produce significant dividends, and as a result most such investments are dependent upon appreciation of the stock value in order to realize any gain.  In order to lock in a gain, you need to sell the stock, which then takes your principal out of play and requires a new investment action.

 Nourishing Your Nest Egg

In addition to the immediate influx of cash, investing your IRA capital in real estate can help you plan for retirement more easily. With a few positive cash-flowing properties, you are in a better position to plan for retirement, since the consistent income means you know how much money to expect each month and where it is coming from.

Local Leverage

When you invest your capital in the stock market, you are placing it in a global system. This means that everyone who invests has access to the same information and knows exactly what the market is doing at any given time. The only way to have an advantage in this type of system is to be (or hire) an expert.  When it comes to real estate, however, you have a built in advantage just by living where you live. Your familiarity with your area makes you a kind of local expert, aware of the ins and outs of the housing situation, and you can use this to help inform your decisions.

Easy Evaluation

Chances are, market speculation isn’t your full-time job and if you are like most of us, there are too many demands on your time to devote yourself to meticulous study of the equities markets. Fortunately, real estate is fairly easy to evaluate when compared with other investment options like stocks. The stock market is notoriously abstruse, and even experts don’t agree on the value of any company on any given day. When you are seeking to value properties however, the process is relatively straightforward and the field is full of similar assets to use as comparisons. This makes real estate a much simpler way to line your retirement nest than navigating the complexities of the stock market.

Of course, there are many more advantages to purchasing investment property with your self-directed IRA or 401(k) than we have covered here, so be sure to stay tuned for part two of this blog.


Photo by Philip Taylor via CC License 

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