Six Reasons Why Real Estate Trumps Investing in Stocks and Mutual Funds
I experienced a drug induced hallucination when I was 10. Laughing gas from my dentist caused me to visualize colorful puzzle pieces crawling all over the ceiling of the exam room. Hopefully, you have never endured this “wacky awake dreamlike state” but take my word for it, you feel out of control.
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To this day, I still feel a lack of control when I’m in the dental chair. Someone else is put in charge of my mouth and calls all the shots. I just sit there trying to “open wider.”
If you haven’t guessed, I like to be in control. I like choice and I like to feel responsible for my own mistakes. With real estate, you can be more in control than when investing in stocks, bonds or mutual funds. Below are a few reasons I choose real estate over securities every time.
Six Reasons Why I Prefer to Invest in Real Estate Over Stocks and Mutual Funds
1 – Control Freak
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. You can offer incentives to potential renters.
With stocks, you are at the mercy of a board of directors, portfolio managers and corporate executives. You can’t even distribute your own funds. Does that P&G Stock take your personal financial situation into account whenever they make decisions? Do they know that you pay extra property tax in February so it might be good to distribute more in the month of January. In a worst case scenario, what do you think the Enron folks could have done?
2 – Options upon Options
With a real estate purchase, you have a ton of options. For me, I take a three-prong approach. I like to find property that is 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, well, I guess I can buy or sell or well, sell or buy. But in either case, I don’t even control the daily price.
3 – It’s Not All Greek to Me
The economy in Greece is not going to affect my rent rates here. Worldwide or even 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 more localized trends that I can anticipate will affect my monthly bottom lines. My rental incomes have leases attached to them that don’t change overnight because China test fired some weaponry in the Taiwan Strait. If I buy right, I don’t have to worry about “malaise,” market “hysteria,” or even another 911.
4 – Pass the Coke
If you own stock in Coca Cola, how can you better your stock’s price? Drink cases of the soda every day? With real estate, you can up your appraisal values and equity by changing the flooring, adding a garage, buying & updating more houses in the area or even convincing other investors to consider your investment neighborhood. You aren’t guaranteed to inflate your property value, but you can certainly help your chances much more than anything you can do to increase any stock prices.
5 – A Rock Solid Building
Let’s say I wanted to invest in stocks for ‘Trust Me Company.’ To get a feel for Trust Me Company, 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 would it 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 go check out the building in one location or area. I can touch the foundation, drive around the neighborhood, double check area 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.
6 – Managing the Managers
I can opt to have a property manager handle a lot of the day to day stuff with my rentals. But even with a property manager, I still have control. I can make 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 for my bond fund?
Real estate brings investors a sense of control. With that control, you can be creative and have fun with your investment. When I invested 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 of course real estate is probably not for you. But for those who want control of their finances, real estate tops stocks hands down.
Photo: Alan Cleaver