The Azucena Take: Investing in Real Estate Over the Stock Market
We have said it before and we will say it again, investing requires to have a long-term mindset.
Why? Because we have to constantly remind investors (be it seasoned or new) that they need to look to the future and not the present. This was true in 2020 and it's also true now looking at the stock market's reaction to rising interest rates. But what about the investment real estate market? That is a little different when compared to the stock market and it's why many prefer to invest in real estate.
This is a look at why investing in real estate is seen as more ideal than investing in the stock market.
Stock Market: 2021 to Now
2021 saw an economic boom the moment people got vaccinated. Bussines started to recover, demand was up but supply could not keep up. This was reflected also in the stock market as it recovered most of the losses from 2020.
However, the stock market peaked in December and has been having a downward spiral in 2022. From January 2021 to December 2021, its value rose by +27%. As of September 2022, it has dropped by 24% with the biggest dip being the -10% during the last week of September.
Investment Real Estate Gains
Compared to the stock market, real estate didn't make such massive gains but it has been holding momentum. Here is a look at how each property type performed in 2021 compared to 2022.
Industrial in 2021: +17.9%
Industrial in 2022: +13.0%
Self-Storage in 2021: +13.6%
Self-Storage in 2022: +15.5%
Apartments in 2021: +8.1%
Apartments in 2022: +10.3%
Office in 2021: +6.8%
Office in 2022: +3.8%
Hotel in 2021: +4.1%
Hotel in 2022: +13.7%
Retail in 2021: +2.8%
Retail in 2022: +3.8%
Stocks vs. Real Estate
When looking back; the stock market can be rewarding but also very volatile. Money invested in the S&P 500 could see gains up to +13%, but they don't last. Capital invested in real estate will see positive growth over the course of 5 years. During times of market volatility, real estate will see a minor dip but it will be short-lived. Over the course of 20 years; investment real estate has had a compound annual growth rate of 7.8% while the S&P 500 has seen 5.3%.
This is made possible because investing in real estate presents numerous advantages such as:
Inflation Resistant: The cash flow or value is more resistant to inflation.
Passive or Hands-On: Properties could either require direct management or little involvement from the landlord.
Options in Leasing: The lease could be long or short term.
Tax Advantages: Real estate offers a variety of tax breaks.
What it Means for Investors?
The big takeaway for investors should be that real estate offers many advantages over the stock market. However; it requires one to think long-term and look beyond what is happening now. At the same time; don't just dump your stocks as you want to keep your investments as diversified as possible.
The Azucena Take provides an inside look into the investment real estate market using the research done and data collected by Marcus & Millichap