The Stock market has been on an awesome five-year bull run. Experts are starting to speculate as to when it will run out. The founder of Capitalistpig Asset Management thinks now is a good idea to move some money out of megacap US stocks and into cash. The manager of Ranger Equity Bear Fund ETF thinks the usual 20% correction has already started. At 52 Properties, we don’t like to speculate, but history has taught us that after a long bull run, there is always a bear–so why not take some precautions now.
In this blog, we will show you six reasons why we prefer to invest in real estate vs stocks and mutual funds:
Let’s look at rentals. Say you have a unit that is not renting quickly. You have direct control; you can decrease the rent; you can market more creatively; and/or you can offer incentives to potential renters.
With stocks and funds, you are at the mercy of a board of directors, portfolio managers, and corporate executives, not to mention the economy. You can’t even distribute your own funds. Does that P&G stock take your personal financial situation into account whenever decisions are to be made? Do they know that you pay extra property tax in February so it might be a good idea to distribute more in the month of January? In a worst-case scenario, what do you think the Enron folks would have done?
Options upon Options
With a real estate purchase, you have a ton of options. As for me, I take a three-prong approach. I like to find property cheap enough to wholesale. If I can’t wholesale immediately, I can rehab it for a flip. If the flip takes too long, I can put a renter in the unit. With stocks, I guess I can buy or sell, or well, sell or buy. In either case, I don’t even control the daily price.
It’s Not All Greek to Me
The economy in Greece is not going to affect my rent rates here. Worldwide, or even in the U.S., collective emotional shock is just not going to affect my little building that brings in cash flow every month. Granted, national issues might affect my property values long-term, but only the more localized trends that I can anticipate will affect my monthly bottom line. My rental incomes have leases attached that won’t change overnight because China test fired weaponry in the Taiwan Strait. If I buy right, I don’t have to worry about “malaise,” market “hysteria,” or even another 9/11.
Pass the Coke
If you own stock in Coca Cola, how can you better the stock price? Drink cases of the soda every day? With real estate, you can add to your appraisal values and equity by changing the flooring, attaching a garage, buying and updating more houses in the area, or even convincing other investors to consider your neighborhood. This won’t guarantee to inflate your property values, but you can certainly help your chances much more than anything you think you can do to increase stock prices.
A Rock Solid Building
Let’s say I want to invest in the stock of “Trust Me Company.” To get a feel for the enterprise, I’d visit the Trust Me headquarters, manufacturing centers, and office buildings. I’d meet Trust Me owners, board members, and managing staff. How difficult it would be to do my due diligence on Trust Me Company. If I invest in real estate, however, due diligence is simple. The asset is tangible; I can actually touch it. I can check out the building in one location. I can touch the foundation, drive around the neighborhood, double check crime records, do a rent analysis, and bring in a professional inspector. In a handful of hours, I can get an excellent feel for the viability of a rental property.
Managing the Managers
I can opt to have a property manager handle a lot of the day-to-day minutia with my rentals. But even with a property manager, I still have control. I can make all the decisions and even fire the property manager. How do I fire the CEO of my stock? Can I renegotiate terms with the managing members of my mutual fund? How much weight does my little proxy vote have on my bond fund’s performance?
Real estate brings owners a sense of control. With it, you can be creative and have fun with your investment. When I was in securities, I did like updating my portfolio; but I didn’t get to do anything other than buy and sell. I know some people like to have others control their destiny, and thus real estate is probably not for them. But for those who want control of their finances, real estate tops stocks hands down.
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