Enterprise Realtors Blog

Should I Invest in Real Estate or Stocks/Bonds?

Recently, insurance giant Allstate Corp. scaled back bond holdings and started buying real estate. The reason?

Inflation protection.

“We’re going to shift that to be more into inflation protection, which includes real assets, also into infrastructure, assets with more global content, and real estate,” says CIO Judy Greffin. (You can find the rest of the article on Bloomberg.com).

If you have money to invest, you are no doubt doing a lot of research about your investment options. One question that may arise is, “should I invest in real estate or stocks and bonds?”

Great question! Here are some thoughts: -Real estate can provide a great source of passive, consistent income (think monthly rent checks).

-Real estate is a great way to achieve a high level of leverage. For example, when you purchase real estate, you don’t always have to pay the entire value of the home up front. You control the full equity of the property, but only have to pay a fraction of the value. In most cases, you make a down payment, and then you slowly, over time, pay off the full value of the property. Meanwhile, the value of the property is (hopefully) increasing. Read more about leverage.

-Real estate can, in the right market, guard against inflation. Again, this really depends on the property, the neighborhood, the overall economic status, etc. Often, real estate value rises with inflation, and also, you can match rising inflation by raising rent to cover your expenses.

Now, here are the possible cons:

-If the market crashes, or even just falls, you will feel a greater loss, because of the high level of leverage.

-Managing real estate requires a lot more hands-on work and costs, like maintenance, taxes, possible lawsuits, insurance, etc. You also have to deal with one or more tenants.

“I have some clients who have the time and interest to choose and maintain rental properties,” says Patsy Jones, a financial advisor and registered representative with Shoemaker Financial Services, Inc. “When they choose their properties wisely, maintain them well, and manage their rental business effectively, they create a good stream of income for the present and the future.”

-This one isn’t necessarily a con, just something to consider. Stocks also rise with inflation, so having an investment mix of real estate and stock can be your best bet.

“A good portfolio is well diversified among real estate, stocks and bonds, and among domestic and foreign, among large companies and small, among different industries,” says Jones. “Choosing different types of investments that complement each other means that at any time there should be something that could be sold at a profit when cash is needed.”

Bottom line? Investing always requires some risk. It’s part of the deal. But if you have done your research, and feel confident that you are making a solid investment, real estate can be a great addition to your investment portfolio.

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This post was written by

Ryan Tucker – who has written 31 posts on Enterprise Realtors Blog.

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Tags: Allstate, bonds, investing, Real Estate, stocks