New Jersey Real Estate Digest: Real Estate vs Stock

In an ideal world people have both kinds of investments in their portfolios – but our world is not ideal. Generally Americans do not view their homes as part of their investment portfolio. Traditionally people purchase homes to raise their families making their home their single long-term investment. Some homeowners invest in stocks for financial security or to see them beyond retirement. That is changing some, in part because of the downfall of companies like Enron and the fact that people are bombarded with volatility of the stock market daily: online, newspapers and television. Real estate investing appears more stable and many people are turning it away from stock.

In light of these misgivings, some investors may find direct investment in individual real estate projects an attractive alternative to pouring funds into equity shares of corporations, including real estate investment trusts (REIT), or even corporate bonds… Investors in real estate projects have the opportunity to take more direct control of their investments,” reports Charles E. Gilliland.

It would be easy to just encourage people to buy homes (after all I am a real estate professional) but real estate is only one type investment strategy and timing is an important issue. If you are willing to do some homework and have the time and inclination to deal with the tasks in owning real estate then it can be a lucrative business. If you find the volatility of the stock market distressing and want to have better control over your investments then real estate makes sense for you.

In a comparison of real estate vs stock Forbes.com’s Sara Clemence found that in the short term real estate is the better (1999-2004 stats) deal but looking at a term of say 25 years then the stock (S&P 500) is the winner. While it is true that in the long-term the stock market appears to do better, the comparison is not simple and some important numbers did not make the comparison as Ms Clemence freely admits. The dividends homeownership were not factored into the comparison such as rental income. Then again stocks do not have repair costs. The idea is to figure out what is the best way to make your money work. For some that will be real estate and for others it won’t.

Now don’t get me wrong, what I am talking about is not a substitute for professional financial planning advice. A financial planner helps individuals decide what is best for a particular situation. That said collecting the dividend of homeownership rather than giving it away in paying rent makes sense. Do you homework. Know what is happening with you portfolio and remember a home is part of your portfolio.