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Understanding why Real Estate Investing Continues to Beat The Stock Market

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Over the years, there have been endless debates over which is a profitable and better investment between real estate and stocks. Both have their unique features, pros and cons.

Therefore, before setting up your real estate business and start investing in it or stocks, you must have a deeper understanding of the positives and negatives of the two.

The Takeaways

Real estate investing has, for many decades, consistently generated wealth. It has earned long term appreciation across different parts of the globe.

Stocks allow you to receive company ownership, and it is profitable during good times. As company earnings drop during tough economic times, profits diminish. As such, working on a long term approach and striking a balance in different areas can always help you to remain financially stable in stocks investment.

When deciding between real estate and stocks investing, you need to make informed decisions based on current and future predictions. Even so, real estate investing has continued to provide more returns through income tax advantages, capital appreciation from investing below expected or prevailing market value and rental income.

Why and How Real Estate Investing Is More Profitable than Stocks

  • Real Estate is Diverse

Real estate is diverse. It is tangible, and as an investor, everything in this field feels real. It has continued to generate long term and consistent source of income for millions of people. You can enjoy sizeable returns on your commercial or residential investment.

In real estate, you can invest in malls, residential and commercial apartments, new construction developments, mobile home parks, single-family homes and storefronts, among others. It is, therefore, possible for you to make profits without necessarily being a direct property owner.

  • Continuous Cash Flow

As a real estate investor, you can enjoy the continuous cash flow in the form of rent from investment properties. Generally, your cash flow should cater for different property expenses including;

  • Tax for your rental property
  • Mortgage payments and
  • Operation charges among other related expenses

The ability to enjoy cash flow in real estate is a plus compared to stocks investment where you have to wait until you sell your shares to touch real cash.

  • Fewer Risks involved

Property is a physical asset. As such, there are fewer risks involved when you invest in real estate, which includes equity build and home prices that could change over time. Stocks, on the other hand, are liquid and you face unpredictable returns.

  • Inflation Benefits

Real estate investing continues to beat the stock market because of inflation benefits. You can make a hedge besides inflation and capitalize on your investment. As the inflation rate increases, you can increase what you charge for monthly rent which generates a higher income.

What’s more, the price of mortgage payments doesn’t usually skyrocket because of inflation. Technically, it reduces inflation. As a result, inflation benefits investors, unlike in the case of stocks where inflation negatively affects your profits.

  • Tax Benefits

The profits you enjoy from property investment is tax-free. You can decide to sell your commercial or residential investments and reinvest in the industry without capital gain tax payments. Furthermore, you can deduct extra expenses related to your property investment including;

  • Mortgage interests
  • Operational expenses
  • Insurance and
  • Property taxes

Similarly, new or updated tax laws allows real estate investors to make hefty deductions on their taxable income on a reduced scale including a 20 per cent deduction for investors filing $315,000 joint income and $157,000 individual income. If you have a higher joint taxable income of $415,000, and individual income of $207,000, you qualify for more deductions or bargains on a reduced scale.

Therefore, tax legislation makes real estate investment more desirable. It is even more attractive for investors in areas with high property value because there are more deductions for property and homeowners.

With such deductions, it means that real estate investors continue to enjoy increased net returns. The new legislation also includes real estate investment business ‘tax changes’ that work to the advantage of property investment.

With the diversity and specialization of real estate investment, you can enjoy diverse portfolios for increased profits. You only need to efficiently manage your properties for good, reliable and steady profits.

How the Federal Tax Rules Create Further Advantages for REITs

Federal tax rules make real estate investment more attractive to stocks because of the huge tax deductions. There is no income tax when you invest in the real estate industry. This is an exception that makes a huge difference between real estate and stocks investment.

Similarly, to qualify as a REIT, you only need to pay 90 per cent minimum of your shareholder profits in distribution. This is your taxable dividend and return of capital. This is not applicable in stock investment.


The law also allows for lower capital gains, especially when you make long term investment options.

Investors are allowed to make depreciation claims on real property. This is because property value depreciates over time. You can claim residential property after 27.5 years and 39 years for a commercial building. This happens while you still enjoy the appreciation value of your investment.

You can also refinance your property to improve your cash flow. You can also consider a cash-out refinance for a cash balance that allows you to get a loan and use extra cash tax-free.

What’s more, under the Tax Cuts and Jobs Act enacted in 2017; real estate investors can defer capital gains and use the proceeds to invest in properties. Property investors say it is a useful feature that allows you to use profits from other investments to invest in more profitable properties qualified in the opportunity zone.

The updated tax law also reduces the maximum allowable amount for the property purchase price. The interest deduction for the property is $1million and $750,000 for investors selling their properties. It is vital to keep on top of trends.

Last but not least, tax advantages can save you a lot of money every year. It helps you to build property equity for huge profits that you can enjoy over a long haul. The profits and the deals you make in property investment usually perform better than stocks investment.

We thank Marsha Kelly, an entrepreneur and small business consultant, for her contribution.