By MARCO RUFO Special to the Palisadian-Post Which market is your money on? The week of July 23-27 was hard to swallow for many stock investors. After the market plummeted more than 525 points over five trading days’including a 311-point drop on Thursday’the Dow Jones industrial average doesn’t seem to know which way is up. The truth is, most experts would say that real estate is still the most secure form of investing. Despite the slowdown in the housing market, which has been contributing to major stock-market losses on Wall Street, home prices haven’t collapsed. The National Association of Realtors reported the average sales price of an existing single-family home actually increased 5 percent since the start of the year. More than two-thirds of households own homes, as compared with only half owning stocks or bonds. Moreover, many stock-owning households have their stock funds tied up in a retirement account. All of the above indicates that housing has a substantial impact on economic activity, and is a good bet for investment purposes. Yes, you can attain considerable financial gain from either the stock market or real estate, but that doesn’t make deciding which one to invest in any easier. However, there’s a reason why sophisticated investors are becoming increasingly more comfortable with owning property. There’s an inherently large amount of risk associated with investing in the stock market and, as smart investors will tell you, real estate provides a controllable and even predictable source of wealth generation. Everyone knows someone who has made a good investment in property, someone who got in at the right time. Certainly the same can be said for stocks and bonds. It’s not unusual for financial reports to include “documented results” or testimonials from investors who have reaped significant gains through strategic planning and accidental market timing. Still, the risk factor is high. The stock market is an inconsistent, unpredictable, intangible asset that has little, if any, tax benefits. For decades, real estate has been the most reliable and dramatic wealth generator for millions of people. Despite the slump experienced in some recently booming areas, many parts of California continue to experience price appreciation. Real estate markets with steady, solid growth present little risk to mortgage lenders, so it makes sense for them to loan money to investors on attractive terms. And while banks may also loan money for other purposes, they are more willing to loan it to real estate investors because of the safety of the collateral: if for some reason the investor doesn’t pay, the bank still has a physical asset that has significant value. Another benefit of investing in real estate is that a property’s value will never go to zero, as some stocks have. That’s because it’s in limited supply, has universal demand, and is constructed from materials that are increasing in price, such as lumber, copper and stone. Real estate investors also have more control over their investment than stockholders. Although stock investments do boast high potential for lucrative returns, they’re unfortunately afflicted with volatility and suffer unpredictably sharp price fluctuations that often have nothing to do with the quality of the company or the competence of its management. In addition, the real estate market is stabilized by the simple fact that housing is a universal need. And with the population rising, and labor and building materials becoming more costly, real estate prices have nowhere to go but up in certain markets over the long term. In many areas of the country, real estate is appreciating at around 6 percent a year. And let’s not forget the added bonus of tax benefits when investing in real estate. When you sell stock in which you have a gain, you’ll be paying taxes– there’s just no way around it. But sell appreciated property and, if you do it right, you can defer your tax indefinitely. When you combine all the benefits of investing in real estate as compared to investing in stock, it’s apparent that real estate provides an ideal and profitable investment vehicle for those whose comfort level lies somewhere between low and no risk. Marco Rufo is managing broker at Miramar Coastal Properties in Pacific Palisades. Contact: (310) 552-3017.
This page is available to subscribers. Click here to sign in or get access.
