Multifamily Real Estate Investment: Pros and Cons Compared to Stocks and Shares

March 8, 2023

When it comes to investing, it may seem like investing in stocks and shares is more accessible than the world of property investment. However, investing in real estate has its own set of advantages that shouldn’t be overlooked. While both types of investments have their pros and cons, the stability, predictability, and low risk associated with property investment make it an attractive option. In addition to these benefits, real estate investment also offers incredible tax advantages, hedges against inflation, and gives investors greater control over their investment. When considering all these factors, choosing to invest in tangible bricks and mortar over stocks and shares may make more sense.

Let’s take a brief look at some of the pros and cons and Stocks and Shares

Pros:

1. Passive Income: Investing in stocks can be automated, offering a passive income stream that requires little to no management. Similarly, investing in syndicated real estate deals can also provide passive income without direct involvement in day-to-day property management.
2. Liquidity: Buying and selling stocks is a quick and inexpensive process with low transaction costs, making it more accessible to investors than real estate. Real estate transactions typically take months to complete.
3. Diversification: Investing in stocks allows for easy diversification across various companies, which can help reduce the volatility of individual stocks. Conversely, diversifying a real estate portfolio requires significant capital investment.

Cons:

1. Volatility: Stocks are prone to short-term fluctuations based on daily events, making them unpredictable for some investors. However, taking a long-term approach can help reduce emotional toll and ride out market cycles.
2. Risk: Stocks are subject to significant risk, depending on the economy and the company’s performance. If a company goes bankrupt, the investment could be entirely lost, leading some investors to prefer a more controllable investment.
3. Ambiguity: Investing in stocks requires thorough analysis, which can be time-consuming and complex. Stock prices rise when a company succeeds, but fall when it struggles, leading to potential losses.

Real Estate – Positives and Negatives

Real estate is an attractive investment option for many due to its tangible nature and perceived stability. Millions of people have benefited from the consistent wealth and long-term appreciation generated by this type of investment. Real estate also provides a reliable source of rental income, which can remain stable during economic downturns since housing is a basic necessity for everyone. As a result, rental investors are relatively well-protected from market fluctuations.

Cons:

1. Limited Liquidity: Unlike stocks, which can be easily sold with just a few clicks, real estate is an illiquid asset that requires a longer-term commitment. Selling a property may take months or even years, and investors may need to hold onto their investment for a while to realize significant returns. While some real estate investments, such as multifamily properties, can generate income immediately, others may take longer to produce returns.
2. Lack of Diversification: Investing all of your money in real estate can limit diversification, making your investment portfolio more vulnerable to risks. On the other hand, investing in stocks through mutual funds or index funds can offer easy diversification. However, investors can still diversify their real estate investments by seeking the advice of qualified advisors and spreading their investments across different types of properties and communities.
3. High Transaction Costs: Transferring property can be an expensive process that involves various fees, including title fees, attorney fees, agent commissions, transfer taxes, inspections, and appraisal costs. Real estate is also a longer-term investment, which means that investors need to carefully consider the costs of acquiring and maintaining a property before making an investment. In comparison, stock trading has lower transaction costs.

Many investors find real estate appealing as it is a tangible asset that feels more tangible and secure. This type of investment is known for its stability and has generated consistent wealth and long-term appreciation for millions of people.

Real estate investment also offers a dependable source of rental income. Since having a home is a necessity for everyone, rental investors are relatively protected even during economic downturns. This makes real estate a relatively safe and stable investment option.

Pros

1. Reliable Cash Flow: Real estate investment offers the opportunity to invest for cash flow, meaning you can buy a rental property for the monthly income it generates. With skilled management, this cash flow can be increased significantly over time, resulting in a steady source of passive income that can improve your quality of life. Moreover, many investors are able to earn cash flow tax-free, with the right investment advice.
2. Tax Benefits: Real estate ownership comes with numerous tax advantages, including depreciation, which allows you to write off the cost of your property over time. You also receive a tax credit based on the increased value of your asset, as well as deductions for property maintenance and other expenses. Bonus depreciation and 1031 Exchange are additional tax benefits that can make real estate investing truly extraordinary.
3. Inflation Hedge: Inflation can pose a problem for certain types of securities, but real estate investing serves as a hedge against inflation. The value of a property is tied to inflation, as the cost of replacing the property goes up and rent can be adjusted accordingly. This makes real estate a valuable asset that can protect your portfolio from inflationary pressures.

Summary

Investing in multifamily properties can provide high returns with low volatility and numerous financial benefits. One of the main advantages of investing through syndicates is the ability to leverage the expertise of the investment company, including the knowledge and skills of several real estate professionals. This is particularly valuable for investors who do not have the time or inclination to learn every aspect of owning and managing real estate investments, such as negotiating purchase agreements, financing, leasing, and property management. If you’re looking to expand your wealth and achieve financial freedom through multifamily real estate investments, we’re excited to support you on your journey.