Real Estate Is More Rewarding Than Stock Market, Research Paper Example

Anthony Downs suggest that owning houses was a better alternative compared to owning stock in the period 2005-2009 (Downs 176). Indeed, real estate investment is a field that has grown considerably in the last decade. Most of the people are now caught in the middle, confused whether to choose between investing in real estate or in the stock market. While the stock market is a pre-dominant sector for growing cash, the situation in the commercial world between 2005 and 2009 proved that real estate was establishing a conducive ground for investment, actually better than the stock market.

Investing in real estate allows the investor to gain more leverage. N real estate, investors are allowed to make down payments, and expand the investment using borrowed money. This gives the investor an advantage because, currently the real estate market is not expected to be unfavorable. Thus, if the person puts a down payment of 20% on a property of worth $200,000 and its value increases to $220, 000, the 10% increment reflects as a 50% increment in his equity because the $40,000 down payment becomes $60,000. Having an advantage to borrow money and use it in investing exposes the investor to many opportunities to expand his investments and have more profits. An investor who borrows enough money and invests the money in real estate will have enough revenue to repay the debt, while at the same time have more money to invest more.

Real estate investors are also shielded from high tax rates from the federal government (Downs 176). Due to the ability to depreciate, buildings cancel off the investors profits to some extent so that the investor collects rental income at a favorable tax rate. The value of the building can rise without being taxed until it is sold. There is also a possibility if avoiding tax when selling too. Additionally, if the investor structure a good transaction, he might be allowed by the Internal Revenue Service to sell his real estate and buy more on a tax carry forward basis. This allows the investor to pay tax after cashing out of the investment. Evidently, this creates a merit as compared to stock market where the investor is exposed to high taxes and cannot be excluded easily. Therefore, real estate becomes a preference.

Additionally, a real estate investor enjoys a favorable inflation hedge in his returns. Real estate returns are the rents that tenants pay and are directly related to the returns that go to the investor. Recently, real estate managers have come up with provisions that require the tenants rent to be indexed to the inflation at that time. Alternatively, rental rates are sometimes increase whenever a lease term expires and the contract is renewed (Downs 176). Whichever way, it is evident that real estate incomes tend to increase faster in environments with high inflation possibilities, allowing an investor to maintain its real returns.

Notably, real estate property is likely to appreciate with time. Though real estate prices do not always go up, it is evident that they are going to increase in value as the area around them continues to develop. However, how long the investor is going to wait for the property to appreciate is not relevant to his profits, the most important thing is that the real estate will eventually appreciate and bring him high profits. Compared to the real estate, stock market is very unpredictable and one cannot have a final decision as to what will happen to his investments.

Another benefit that an investor reaps from investing in the real estate industry is the ability to influence the performance of and the income that are likely to gain from their investments. Real estate is a tangible element and the investor have influence on it more that in stock market. For example, an investor may replace a tenant with a more quality tenant who will give him more income. His control is achieved in that he is has some influence in what he can do with his property. Therefore, his incomes are directly influenced by the control and concern he exerts on his investment.

Following the current trends in the commercial market, it is evident that the commercial investors are most likely to incline to the real estate industry. As it is clear, investors have shifted a lot of interest to the real estate industry. A recent prediction on the U.S economic outlook reveals that in the period between 2015 and 2020, real estate business will climax with a lot of investors preferring to invest. On the other hand, the stock market having been abandoned is most likely to be less rewarding. However, after predicted period of two years, the market will gain popularity again. Revealingly, the real estate market will have been more flocked with investors; hence, it will start to lose value. Consequently, by the end 2019, equilibrium will have been established between the two economic fields.

Works Cited

Down, Anthony. Real Estate and the Financial Crisis: How Turmoil in the Capital Markets Is Restructuring Real Estate Finance. Urban Land Institute, 2009. Print.