08.23.22 | Investing

Stocks Vs Real Estate: What’s Better In A Shifting Market?

For many years, real estate professionals and financial experts have been singing the praises of investing in property. From flipping houses and buying vacant land to acquiring duplexes and apartment condos, real estate has long been known as one of the safest and most profitable investment vehicles. As the saying goes, there’s only so much land, and they’re not making any more of it. It wasn’t long ago that the real estate market was on fire. Houses sold at unprecedented rates, causing property prices to increase as buyers struggled to compete.

What Changed?

You could have purchased a house in January or February only to see its value skyrocket a few months or even a few weeks later. However, like all good things, the robust housing boom may have come to an end.

There’s no question that the market is changing. Interest rates have been steadily rising over the last few months, and inflation has soared. All of this has impacted the real estate market, which is showing signs of a slowdown. Housing prices have fallen all over the country. In Peterborough, the average cost of a house peaked at $885,153. By July, that had dropped to $751,522, a decrease of $133,631. 

Housing prices have dropped, which means it’s the perfect time for some investors to get into the market. Should that be you? These resources can help you decide:

The Trouble With Short-Term Investing

For a short-term investor, those results would be devastating.

In the recent past, it wasn’t unusual for an investor to buy a property, make a few cosmetic upgrades and then sell it for hundreds of thousands more. 

Now, flippers and speculators are in for a struggle, and not just because of lower prices. Right now, capital gains are taxed on 50% of any profits earned on the sale of a non-primary residence. However, both the provincial and federal governments have proposed new legislation to address the housing shortage by discouraging speculation. If this goes through, investors will be taxed on the total profit when selling a house less than 12 months after purchasing it. 

The shifting market is making headlines everywhere. Should you be worried? Here are some posts to set your mind at ease:

Pros & Cons Of Investing In Stocks

In light of the changing market, should you buy stocks instead?

For short-term investors, stocks may be the better option. There are several advantages over real estate:

  • There’s a lower financial barrier to entry. Real estate involves significant amounts of money, and the financing can get complex. You can invest in stocks, however, for a couple of hundred dollars with no need to borrow money.
  • You can get into the stock market quickly. It can take months to finalize a real estate investment, but you can pick stocks online and purchase them after a few hours of research.
  • Stocks can provide passive income. Many companies pay out dividends every quarter. Usually, those proceeds are used to reinvest, but you can take the payment if you want to.
  • Stocks are very liquid. It’s easy to cash out of your investment whenever you want, with no complicated paperwork or hoops to jump through.

The Downsides Of Stocks:

  • You have limited growth opportunities. The average stock portfolio experiences a maximum of 10% growth over time. Unless you have significant amounts to work with, building your wealth can take many years. Real estate also averages 10% profits, but those can add up quickly due to the high dollar amounts.
  • Stocks can be volatile. You can lose much of your investment during an economic downturn. If a company goes out of business, you can lose it all. Real estate can also decrease in a downturn, but housing values bounce back quickly.

The Pros & Cons Of Investing In Real Estate

Real estate is a long-time favourite investment vehicle for many reasons. That’s why there are so many TV shows dedicated to the topic. But is making a profit is never as easy as the infomercial hosts would have you believe. Let’s take a look at some of the downsides:

  • Investing in property requires a significant amount of planning and research. You’ll need multiple professional contacts to succeed, including a real estate agent, lawyer, and mortgage broker.
  • Real estate is not easily liquidated. Real estate transactions take time and a lot of negotiation. You can’t just cash out at a moment’s notice. Selling your investment property is just as complicated as buying it, and closing costs and capital gains can eat into your profits.

The Advantages Of Real Estate:

  • Real estate isn’t just a virtual asset. You actually own tangible physical property.
  • You can enjoy passive income. In the worst-case scenario, the rental income generated will help you hold on to the property by covering all or most of your mortgage payments. In the best-case scenario, you’ll enjoy a stream of income and profit every month.
  • Real estate remains one of the safest investments you can make. Although housing values may fluctuate, they always tend to rise over time. And unlike stocks, there is no company to go under. You don’t have to worry about losing all or most of your investment.

You can earn a significant return if you decide to cash out many years down the road. Housing values have consistently gone up over the years. The longer you hold your property, the more your equity will grow.

You can create generational wealth. Leaving your house to loved ones provides them with a valuable asset and financial stability unlike anything else you can give them. And they, in turn, can pass the home down to their children. 

Going forward, it may become increasingly difficult to succeed with short-term property investments. Real estate tends to favour those who invest strategically for the long term. If you’re in it to stay, you can’t ask for a better way to grow your net worth and your legacy. 

Are you looking to buy or sell your next investment property? We are happy to answer any questions you have – with no obligation! Reach out here, and we can schedule a chat.