People tend to be afraid of investing during bad economic times because of the fear of making losses. Some want to hold their cash in order to have a fallback plan in case their current source of income gets affected during the bad times. However, if you choose to invest during challenging economic times like the recessions we are currently experiencing, real estate is usually a better choice than most alternatives, including stocks.
In today’s article, I will discuss why it is safer to invest in real estate over stocks, especially in challenging economic times.
The prices of real estate properties don’t fluctuate as much, even during challenging economic times. On the hand, stocks are very volatile, which means you can make a lot of money when prices go up or lose when they go down. For instance, Meta lost over 70% in stocks in a space of just one year. That means Portfolios of investors that had put their money in Meta and other similar companies have been significantly affected by this massive stock depreciation.
During a recession and other hard economic times, it is always best to invest in markets that are more stable year over year. The real estate market appreciates at an annual rate of about 10 to 15%, which is a good enough return considering its stability.
Due to the ever-increasing demand for properties, their value is always assured to increase almost every year. The annual appreciation may vary depending on the location and the type of property you invest in. However, an annual appreciation is always a given unless the property is physically damaged by unpredictable natural disasters like earthquakes.
Even in 2020, when most of the assets lost value, the value of homes saw an average appreciation of 6% throughout the year. The reason besides this growth is the fact that people will always prioritize paying for homes or their commercial workspaces even if the economy is struggling. Housing is one of the last things anyone would consider putting off, even when the times get hard.
The year-over-year inflation rate in the USA went over 8% during 2022, which is the highest rate we have seen since 1982. That means any investment with a return lower than 8% is losing money. For instance, stocks for most companies have actually reduced year over. The valuation for most of the leading brands in the world, including Google, Amazon, and Microsoft, has dropped (year-over-year).
That means anyone who invested their money in any of these companies in the last 12 months will make a loss if they choose to sell now. Even those who invested in the S&P 500 expect to see only a 5% increase in their investment. However, things are a little different in real estate. The year-over-year growth of the real estate market in 2022 has been over 10% this year. This makes real estate one of the few long-term investments with an appreciation rate above the record-breaking inflation rate in the USA.
It is much easier to predict the fate of a real estate investment as compared to stocks. For instance, it would be hard to predict the potential value of Amazon or Meta’s stocks one year from now. This prediction becomes even hard during such times when most of the companies are panicking in anticipation of tougher times come 2023.
On the hand, even a less experienced real estate investor has a rough idea of what things could be like come 2023. This makes real estate a more friendly investment for people not willing to put up with the stress of always having to be updated about the market.
If all your properties are occupied to full or close to full capacity, you will be assured of earning consistent income every month. So, real estate investors can earn a profit almost every month if they manage to rent out their properties to full capacity. For stock investors, monthly income will usually fluctuate depending on the performance of the company.
Stock investors usually earn through dividends and capital gains. Most companies will still pay dividends even if they made losses during that period. However, the dividends in such periods are usually very low. If you are looking for an investment that can earn you a consistent income even during hard times, real estate is a better alternative.
When you choose to invest in real estate, there are several property options that you can invest in depending on your lifestyle and budget. Your choice of what real estate property to invest in can also be influenced by what experts predict could happen in the future. For instance, investing in the hotel property would be a good idea if it is located in an area that expects to get many visitors in the near future.
Even if stocks have different investment options, bad economic times like this recession will significantly affect the valuation of most companies. That’s why we have had stocks of several companies drop in the last 12 months, even if their performance has not been the same. With real estate, a drop in valuation doesn’t usually cut across all the different kinds of properties.
That is why it is safe to invest in different kinds of properties to get an average increase in value every year.
Despite being a better investment in hard times, real estate investment is also affected by the recession and other economic disruptions, such as high inflation levels. It should be noted that real estate investment is highly also affected by location, which may not be the case with other investments like stocks. If you want to get the full benefits of real estate investment, it is always best to choose a location with assured demand all through the year, no matter the economic challenges that may arise. Of course, some unprecedented events like the covid19 pandemic can affect your real estate investment even if it is the best location. But overall, properties located in strategic areas will always generate income even during tough economic times.
If you want to invest during this recession, it is safer to invest in real estate than stocks. It is pretty hard for anyone, including experts, to predict what will happen in the Stock market in the next couple of months. This makes it very risky to invest in stocks, especially during these times when every penny in your pocket counts.
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