The stock market was exceedingly unkind to investors in 2022. “Brutal” is one term that experts are using to describe the market’s movement over the past year. “Carnage” is a term that has been offered to describe its impact on investors.
Those who remain faithful to stock investing will argue that investors need to be patient, citing historical data that shows the market always, eventually, trends upward. For those who are losing faith in the market, however, there is an alternative to consider: passive investing in real estate.
“I can’t help but wonder why investors would want to subject themselves to brutal carnage — not to mention the anxiety that comes with it — when real estate provides a much better option for investing,” says Steve Davis, CEO of Total Wealth Academy, LLC. “Investing in real estate provides an overall better return with less stress.”
Steve has mentored tens of thousands of people on how to use real estate to build wealth and create passive income. His organization, Total Wealth Academy, is focused on helping middle America achieve financial independence through one-on-one coaching and his daily radio show.
Those who are curious about how real estate investing compares to stock market investing should consider the following.
Real estate is far less volatile than the stock market
Virtually every investment counselor will tell you that volatility is inherent in the stock market. The question is not, “Will it crash?” Rather, the question is, “When will it crash?”
The stock market has crashed 18 times throughout the past 100 years. On average, that equates to one crash every six years. For retirees living on their stock market investments, that means they can expect at least three crashes during their retirement.
“Investing in real estate gives you the option of having a second stream of income that is not affected by fluctuations in the market,” Steve explains. “By investing in rental property, you continue to have rental income even when the value of the property goes down. In 2007, when the stock market was rocked by the Great Recession, my rental properties dropped in value by approximately 35 percent. But the rental income that I was receiving from those properties did not change.”
Real estate accelerates returns
While some place the average rate of return on stock market investments as low as 7 percent, it is generally considered to be about 10 percent. By comparison, the average rate of return on real estate is 20 percent. If you are one of the unlucky ones getting a 7 percent return on your stocks, real estate investing can nearly triple your rate of return.
In essence, real estate investing allows you to make the same amount of money you could in stock investing, just two to three times faster. If you are nearing retirement age and behind on your investing, real estate is the vehicle that can help you to catch up.
Real estate provides cash flow
Like investing in stocks, investing in real estate gives you an asset that appreciates over time. Although, unlike stocks, investing in real estate properties gives you cash flow — a steady stream of reliable, passive income every month.
“When you invest in rental property, the rent that tenants pay becomes your cash flow for as long as you own the property,” says Steve. “In addition, obtaining that kind of cash flow does not require you to become a landlord. There are a variety of investment vehicles that allow you to invest passively in rental properties.”
Many people wisely invest to fund their retirement. Investing in something like rental properties that provides a monthly cash flow gives you funds for today. In today’s economy, where inflation is pushing up the cost of everyday necessities, having additional monthly cash flow can relieve a lot of stress.
Real estate makes money in four ways
Stock market investments only make money when the market goes up. Conversely, investing in real estate gives you four separate ways to make money:
- Appreciation of the value of the property.
- Income from rentals.
- Paying down the principal on a mortgage, which builds equity.
- Buying property for less than it is worth, otherwise known as “equity capture.”
“Not only is real estate investing a better option, but it is also the right option for 2023,” Steve explains. “The market is correcting after a few years of increases. That means discounted prices for investors who are ready to leave behind the world of brutal carnage that today’s investors are finding in the stock market.”