“One of my new year’s resolutions is to start investing. Do you recommend stocks or bonds?”
***ANSWER:
With both markets being so hammered, either may be good to invest in. Not being a stock expert, you don’t really want me advising you about stocks.
But I can share with you 5 advantages that real estate has over stocks:
1. You can personally impact the value of your real estate. In other words, you can fix it up or raise the rents, and your value will go up. I don’t care how often you shop at Wal-Mart, you’re not going to increase the value of Wal-Mart stock
2. Real estate isn’t an “efficient market” like stocks. Unless you’re a stock wiz or well-connected (Martha Stewart), 99% of the info out there is already factored into stock prices. By the time you hear news that will impact a stock’s value, it already has. But luck, hard work, smart negotiation, &/or the right connections can get you a “better deal” on a piece of real estate
3. To receive income from stocks (other than a small amount from dividends), you have to sell and pay taxes. But with real estate you can receive a positive cashflow. Even if your cashflow starts off negative, over time you can pay down the mortgage and raise the rents and get a positive cashflow.
4. You can “change horses” in real estate without paying taxes on your gain. Via a “1031 exchange”, you can sell one property and buy another without paying a nickel in taxes. I’ve personally done them and hundreds of my clients have too. You can’t do that with stocks unless you’re trading inside your IRA.
5. There are other creative ways to avoid taxes. Under current tax laws, you can move into your rental property for 2 years, converting it into your personal residence, and then sell it and likely pay very little taxes.
Of course, real estate has its downsides, such as the hassle or expense of managing rentals. And many people have made a fortune in stocks. You need to invest in ways that fit your needs. And it probably makes sense to diversify.
Good luck.
How to Trade Up Your Investment Or Rental Real Estate & Pay ZERO Taxes
