Stocks or Real Estate?

by | Feb 9, 2022 | Uncategorized | 2 comments

My grandma didn’t buy into the lie that she should work hard, climb the corporate ladder, and invest in the stock market to survive. 

As a Russian immigrant, newly widowed in the 1940’s with only an 8th grade education, she was able to see that real estate was the key to generating an income, putting food on the table, and creating wealth. She put all her kids through college as a single mom and never did have a “real job.” 

Her story will continue to be a cornerstone of inspiration as long as I live. Luckily my parents continued the trend and bought multifamily properties to generate passive income and showed me the ropes of real estate ownership. 

I never wanted to be put in a box and was always too bold, outspoken, or unpredictable to be pinned down to any one career or role. I knew from a young age that I didn’t fit in because I was made to stand out. 

My modest portfolio of single family homes and multifamily property slowly accumulated steam across Texas, Florida, and Alabama until 2019 when I decided to put the pedal to the metal. 

All along, I’d catch little glimpses of what my friends and their families were up to – the job, the constant fight for a raise or recognition, and the stock market. Sometimes it seemed like I was missing out, but the constant ups and downs of the stock market reassured me that I was on the right track. 

Since most folks follow that traditional route and that’s probably your experience with investing thus far, let’s take a close look at investing in stocks versus real estate. In this article, we’ll walk through the four basic risks of investing, how commercial multifamily real estate investments mitigate risk, and why the stock market can be much riskier than real estate.

 

What Do You Know About Risk?

Risk is like your shadow – it’s always there, even if you can’t quite see it. Maybe we need to illuminate the scene to make it visible or perhaps you’re so used to seeing it that you don’t notice it anymore. 

Every move carries an element of risk. Just as you could have been hit by a bus this morning, unexpected things come up in life, in the stock market, and in real estate.

The key is not to look for risk-free investments (they don’t exist), but to understand the risks thoroughly, determine your threshold for risk, and ensure that you’re doing everything you can to mitigate it.

 

Risk #1 – Consumer Behavior Alters

Stock Market

Stock market investors bet on the success of companies who create products for people to use. Facebook, iPhones, Happy Meals, and soap are all consumable products. 

However, it’s impossible to predict how long those products or companies will remain popular. Blockbuster had a long reign, but when technology and consumer behavior changed, they couldn’t or didn’t pivot fast enough, dragging investors down with them. It’s all an illusion of value based on trends.

Multifamily Real Estate Investments

When you invest in real estate, you’re investing in a basic human need that will never go away: the need for shelter. As long as humans have existed, we’ve required a roof over our heads, and that need has only strengthened over time, especially with rising population trends. Our team loves investing in work force housing and improving communities.

 

Risk #2 – The Market Could Dip

Stock Market

One of the most common fears and possibly the biggest reason would-be investors remain on the sidelines is for fear of a sudden market correction.

During a downturn, investors may exit quickly (which only solidifies their losses). Others aim to accept short-term losses in exchange for long-term gains. Historically, the market bounces back, but clinging to that “trust” is challenging during the downward trend.

Multifamily Real Estate Investments

Recessions are actually good for commercial multifamily real estate investments, especially for workforce housing.

In good times, incomes and savings rates are higher, which means more people tend to move up to class A (luxury) apartments.

When faced with layoffs or pay cuts, homeowners may sell, and renters of class A apartments may downgrade to more affordable apartments (class B or C).

Hence, during a recession, demand for apartments actually tends to go up, thereby decreasing the risk.

Risk #3 – Competitors Might Appear

Stock Market

When Netflix stormed the scene, they beat out Blockbuster because not only did they target the same audience, but they also got ahead of the technology and consumer trends.

Consumers don’t have insight into technology development or companies’ operations. Thus, new competitors can have a significant impact on investment returns.

Multifamily Real Estate Investments

Multifamily competitors don’t just spring up out of nowhere, because space, zoning, and permits are limited. When new apartments are built, they’re always class A (i.e. newer luxury tier) apartment buildings. 

Since the demand for workforce and affordable housing is on the rise, the risk of having high vacancy in well-maintained class B and C apartment buildings is fairly low.

 

Risk #4 – Lack of Control and Transparency

Stock Market

Investing in stocks is like buying a train ticket. The train is leaving, with or without you. Whether you’re on board or not is up to you.

When the market is sailing upward, the ride is smooth and exciting. During a correction, a terrible, helpless feeling takes over. The conductor (CEO) is unreachable and you better buckle up.

Multifamily Real Estate Investments

When you invest in a real estate syndication, you know exactly who the deal sponsor is, and you can reach out directly to ask questions and provide feedback.

Further, when you invest in a solid syndication, you can be assured that there are multiple buffers in place to protect investor capital, such as reserves, insurance, and experienced professionals to handle the unexpected.

Plus, with monthly and quarterly updates, you have ongoing transparency into each deal.

 

Does Investing In Stocks Or Real Estate Carry More Risk?

I’m not going to tell you there’s just one “right” way to invest. I’ve followed the path toward truly passive income, equity, and tax breaks with multifamily real estate because it has allowed me to unapologetically lean into my outgoing personality and pursue freedom in every aspect of life. 

You’ll still hear from some people that investing in stocks is the only way to go, and I bet you’ll hear from others that small rentals are the best way to get your foot in the door with real estate income. 

I’ve mentioned it before and it’s worth mentioning again – the only way you’ll know which path is best is to assess your own goals and risk tolerance first. You have to know WHY you’re investing and WHAT you want out of it. Only then can you confidently choose the path that will best help you meet those goals.

 

2 Comments

  1. FMagal

    What are the requirements to join real estate buying investors?

    Reply
    • Ruth Hiller

      Hi FM,

      It depends on the kind of deal you are looking to invest in. The kind of deals that we present and that we are invested in are 506B which is defined by the SEC. You must have a pre-existing relationship with one of the sponsors for you to invest. The minimum amount to invest in these syndications is usually $50,000. Due to the nature of the 506B we can take sophisticated and accredited investors into the deal. I always suggest getting to know the sponsor through zoom and phone calls if you don’t live nearby.

      Reply

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