Real Estate: The Top Investment Vehicle

May 14, 2007

Real estate, despite its ups and downs, is still the preferred form of investment over stocks and bonds for many astute investors. Here are a few advantages: Property values are generally less volatile than stock values. Home prices fluctuate, but have a long history of rising in the long term. Since year 2000, the stock market rose by 15.5 percent, while the real estate market is up by nearly 62 percent. Stocks may go up dramatically at time as they have recently, but they can also drop just as fast.

A key advantage of real estate is that it provides a leveraged investment. One person might acquire a property with an equity investment (down payment) of only 20 percent or less of its current value. Stock investments usually require a cash outlay of the full value of the stock.

There are substantial tax advantages in real property investments. Any interest incurred in financing a property acquisition, along with property taxes in many cases, is deductible from the investor’s ordinary income for tax purposes. The stock investor pays capital gains tax and can’t deduct the interest on any debt incurred for acquiring financial assets. In many cases, the investment property is a second home – perhaps a vacation home where the investor can reside while enjoying a get-away stay at his investment property. Stock purchases offer no such advantage.

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