Real Estate vs. Stocks: Which is the Best Investment for You?
Investment risk can be defined as the probability or likelihood of occurrence of losses relative to the expected return on any particular investment.
While every investment has risk, some investments have more risk than others. You’ve read this or some variation before every investment you’ve made: “the past performance does not guarantee future results”. Right, so how do you assess the level of risk in an investment, really?
We’ll take a closer look at investing in real estate versus stocks and cover some of the basic risks both of these investment vehicles can pose, the various ways commercial real estate syndications can mitigate your risk and some of the reasons why stocks can be riskier for some than real estate in general.
The key is not to look for investments that are risk-free (that doesn’t exist), but to understand the risks thoroughly, determine your threshold for risk, and ensure that you’re doing everything you can to mitigate risk.
Risk #1 – A Market Correction
One of the reasons why many people want diversification from stocks is the volatility of the stock market. They fear a sudden market correction.
I remember all too well when I was working in New York City, we had one of the biggest stock market crashes in modern history – Black Monday of 1987. For those of you too young to remember, I won’t bore you with the details, but the stock market crashed that day – the DOW lost 22 percent in one day – it was the biggest single-day decline in stock market history. Having a number of stockbroker friends who worked on Wall Street at that time, well all I can is, it was a bad day for a WHOLE LOT A PEOPLE, especially those on Wall Street and those heavily invested in Wall Street.
Inevitably the market always seems to bounce back after a downturn, but most investors will panic and unload their stocks for fear of further decline if a downturn does occur, which only compounds their losses over time.
With real estate, I dare say that even in the 2008 financial crisis where real estate was hit particularly hard, the cracks were starting to show a full year (or more) earlier in 2007, and losses didn’t happen overnight, which gave investors who were paying attention plenty of time to start getting their ducks in a row.
Multifamily Real Estate Syndications
We saw this even during CoVid, that apartment rents continued to escalate during the pandemic and occupancy rates stayed steady or even increased during the pandemic.
Also, during the 2008 crisis, multifamily held its own as people downsized from their homes to move into more affordable housing options such as multifamily apartment communities.
Recessions can work in your favor as an investor in affordable housing. When you fulfill a basic human need – the need for shelter – then it just makes sense that multifamily syndications can be a great option for investors looking to diversify their portfolios in good times and in bad.
Historically multifamily housing options have actually done quite well during recessions because the demand increases which decreases an investor’s risk.
Risk #2 – Consumer Behavior
When you buy a stock, you are buying into a company that in most cases has consumable products. The popularity of those products and the fickleness of consumers today with all of the social media and the various ways in which companies have to not only attract consumers but keep the attention of their consumers is a real challenge for most corporations.
So, that said, as you’re investing in these companies through your stock purchases, it’s virtually impossible to predict how popular these products will remain, and therefore how valuable your stock will remain to be.
Multifamily Real Estate Syndications
People are not going to just stop wanting to have a roof over their head or safe, clean, and affordable housing options, so we probably don’t have to worry too much about consumer behavior in that respect. The fact is that there is, and predictably will be for the foreseeable future, an enormous housing shortage here in the United States.
As long as there is a supply deficit to the large demand, we believe that multifamily syndications will be a good investment.
Risk #3 – Lack of Control and Transparency
When you’re invested in stocks and everything is going along as planned and you open your investment statements and are pleased with what you’re seeing, no problem, right? But when there appear to be the inevitable gyrations or a flat-out decline, can you pick up the phone and call the CEO of the companies that you have invested in? Probably not.
It’s times like these that you can feel pretty out of control as a stock market investor. It’s a helpless feeling, and you have to either trust or bail, and that’s not such a great position to be in when you can’t just call “the powers that be” – the CEO – to find out what’s happening with your investment.
Multifamily Real Estate Syndications
When you invest in a real estate syndication, you have direct access to the deal sponsor and you can reach out to the team directly to get your questions answered. Real estate syndications are a very transparent investment from the business plan that you will be presented to the monthly communications you will receive on your investment to the quarterly reports you will receive for ongoing transparency.
Additionally, it’s a tangible asset that you can see, touch, and feel, so it doesn’t get much more transparent than that. Stocks, on the other hand, are just paper and have no intrinsic value.
When you invest in a multifamily real estate syndication, there are multiple layers of protection for you as an investor, such as reserves and insurance and a team of seasoned professionals who are always working hard on your behalf to ensure the best possible outcome for your investment.
Everyone has their preferences – some people only invest in the stock market and others only invest in real estate.
We’re here to say, that whatever your preference is, just invest for your future. In the meantime, learn as much as you can about the various investment options you have available to you and really delve into learning about the risks of those investments as well. Because if your money is just collecting dust in a savings account, it is losing value every day with inflation.
And one more thing: If anyone guarantees you a return or tells you that an investment is “risk free”, run for the hills.
We hope this helped you learn a bit more about how to Earn Passively & Live Abundantly. Until next time…
Note: we are not financial advisors and are not offering financial advice of any kind. Please consult with your advisors before making any investment or financial decisions.
Ready to Learn More?
The best way for you to learn more about passive investment opportunities in commercial real estate syndications is to join the PCRP Passive Investor Club.
Through the PCRP Passive Investor Club, you’ll get a priority review of all the deals we offer. We’ll work with you to determine your investing goals and then present you with the best deals to meet those goals. We’ll then guide you every step of the way as you invest in those deals.
So if you’re ready to start investing passively in institutional-grade, commercial real estate in fast-growing, climate-resilient markets in the U.S., join the PCRP Passive Investor Club – IT’S FREE! – and get started on your path to EARN PASSIVELY and LIVE ABUNDANTLY!
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