Stocks Vs. Real Estate: The Good, Better, and Best

by | Jul 14, 2022 | Investing Advice

Both Julie and Russell were fortunate to have been exposed to real estate early on in our careers.

We didn’t start as real estate gurus or even full-time real estate investors. Instead, we were like most of you, working hard, climbing the corporate ladder, honing in on our entrepreneurial skills, and wondering how we could possibly leverage our money in the stock market to help maximize our financial growth.

We primarily focused on our careers for many years with busy families in tow. Julie worked overtime running a trucking company while Russell started in commercial real estate specializing in land development. Periodically, we would each look at our stock portfolio and try to learn how to make better trades with hopes of becoming financially independent from our jobs one day. Unfortunately, in light of recent world events, stocks that we’ve owned forever are on a negative trend down, and many other investors are experiencing the same.

Having an investment portfolio is essential, but the constant ups and downs of stocks, and the risks of investing, can make anyone look for another option.

Let’s take a look at

  • A Primer on Risk
  • The 4 Risks of Investing in Stocks vs Real Estate
  • Stocks or Real Estate? Which is the Right Investment?

    As you review the 4 Risks of Investing in Stocks vs Real Estate, take note on how commercial Multifamily real estate investments mitigate risk and how the stock market can be much riskier than real estate Once you understand these points, it will be much easier to decide which type of investment is best for your financial goals.

    A Primer on Risk

    Each type of investment holds an element of risk: a new car, a new home, a new stock, a new ETF, and real estate. No investment is going to be risk-free.

    That is why you do not want to look for a risk-free investment. You’ll come away disappointed, because entirely risk-free investments do not exist. But, if you understand the risks associated with your investment, determine how much risk you are willing to take, and make sure you are doing everything you can to mitigate the risk, then finding a suitable investment will be easier for you.

     

    THE 4 RISKS OF INVESTING

     

    Risk #1 – Consumer Behavior Could Change

    Stock Market

    Stock market investors bet on the success of companies who create products for people to use. Facebook, iPhones, Happy Meals, and soap are all consumable products.

    However, it’s impossible to predict the length at which those products will remain in favor and continue a companies’ popularity. For example, Blockbuster had a long reign, but when technology and consumer behavior changed, the company stagnated, dragging investors down with it.

    Multifamily Real Estate Investments

    When you invest in real estate, you’re investing in a basic human need; the need for Shelter. A need that will never go away. As long as humans have existed, we’ve required a roof over our heads, and that need has only increased over time, especially with rising population trends.

    We currently are working within a rural part of Michigan, north of Detroit. We do not have much as much competition in this area, and many people need apartments to rent. This area is full of good ‘value-add’ properties (like fix-n-flip properties). We believe the demand for these communities will strengthen as more properties are renovated and improved.

    Risk #2 – The Market Could Turn

    Stock Market

    One of the most common fears and possibly the most prominent reason would-be investors remain on the sidelines is the fear of a sudden market correction.

    During a downturn, investors may exit quickly (which only solidifies their losses). Others aim to accept short-term losses in exchange for long-term gains. Historically, the market bounces back, but clinging to that “trust” is challenging during the downward trend.

    Multifamily Real Estate Investments

    Recessions are actually good for commercial Multifamily real estate investments, especially for workforce housing. Workforce housing targets middle-income workers which includes professions such as police officers, firefighters, teachers, health care workers, retail clerks, and the like.

    There are different classes (A, B and C) in the Multifamily space. In good times, incomes and savings rates typically rise, which means more people tend to move up to class A (luxury) apartments.

    When faced with layoffs or pay cuts, homeowners may sell, and renters of class A apartments may downgrade to more affordable apartments (class B or C).

    Hence, demand for apartments tends to go up during a recession, thereby decreasing the risk.

    Risk #3 – Competitors Could Come on the Market

    Stock Market

    When Netflix stormed the scene, it beat out Blockbuster because it targeted the same audience and got ahead of the technology and consumer trends.

    Consumers don’t have insight into technology development or companies’ operations. Thus, new competitors can have a significant impact on investment returns.

    Multifamily Real Estate Investments

    Multifamily competitors don’t just pop up with newly-built, Class A apartment communities. Limiting factors like lack of land in proper locations, zoning approvals, permits and financing are just a few of the challenges that new construction Multifamily developers face.. When there are new apartment buildings being developed, these are usually class A (i.e. newer luxury tier).
    Since the demand for workforce and affordable housing is rising, the risk of having a high vacancy in well-maintained class B and C apartment buildings is relatively low.

    Many of our current holdings are in a rural part of Michigan, north of Detroit. We have less competition in this area, while there is still a demand for housing and apartments. This area is full of good value-add apartment properties, and this community will surely strengthen as more multifamily complexes are renovated and improved. We are also focused on the southeast for new opportunities, including Texas, Florida, Georgia, and Alabama. These are still strong, growing markets for us to invest in class B and class C. We are focused on markets that have less competition and strong upside with a keen eye on keeping our investors profitable.

    Risk #4 – Not Having Control and Transparency

    Stock Market

    Investing in stocks is like buying a train ticket. The train is leaving, with or without you. Whether you’re on board or not is up to you.
    When the market is sailing upward, the ride is smooth and exciting. During a correction, a terrible, helpless feeling takes over. The conductor (CEO) is unreachable, and you better buckle up.

    Multifamily Real Estate Investments

    When you invest in a real estate syndication, you know precisely who the deal sponsor is, and you can reach out directly to ask questions and provide feedback.

    Further, when you invest in a solid syndication, you can be assured that there are multiple buffers to protect investor capital, such as reserves, insurance, and experienced professionals to handle the unexpected.

    Plus, you have ongoing transparency into each deal with monthly and quarterly updates with monthly and quarterly updates.

     

    Stocks Or Real Estate? Which Is The Right Investment?

    Of course, we’d love to tell you that syndications are the best way to go, hands down! But that is not how we exactly see things for a specific investor. There is no “right” investment that’s perfect for everyone, and there is no “right” way to invest.

    Some investors will make money in the stock market, while others are uncomfortable with large swings in their stock portfolio. Some investors will move some of their money over to real estate. Some may even profit in both!

    When beginning to invest or deciding whether to alter your investment plan to include commercial real estate syndications, the critical factor is to assess your financial goals and risk tolerance. Exploring these two factors will help you choose a path that will help you meet your specific investing goals!

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