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Stocks Versus Real Estate: The 4 Risks You Need To Know Before You Invest

Updated: Apr 9




Any time “investing” is brought up, peoples’ minds flash between images of

Warren Buffet, memories of the Great Recession, and those #goals filed in

their “someday” folder.


Unfortunately,​ 60 percent of Americans find investing to be scary or

intimidating,​ according to a new independent market​ survey​. Alternatively,​ 60 percent also recognize that “someday” they will need greater financial security​than what they currently have​.


Too many people are putting off to tomorrow what they should be doing (or

investing) today. For the next several minutes, set aside any preconceived notions you may

have, and take an honest look at the risks associated with investing.


Let’s take a close look at investing in stocks versus real estate, 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.



A Primer on Risk

As with any investment, there’s an element of risk. Just as you could have

been hit by a bus this morning, unexpected things come up in life, the stock

market, and in real estate.


The key is​not​to look for investments that are​risk-free​(that doesn’t exist),

but to​understand the risks​thoroughly, determine your threshold for risk,

and ensure that you’re doing everything you can to mitigate risk.


Risk #1 – Consumer Behavior

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 the term length of those products’ and

companies’ popularity. Blockbuster had a long reign, but when technology

and consumer behavior changed, the company stagnated, dragging

investors down with it.


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.


Risk #2 – The Market Could Turn

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 Could Come on the Market

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 – Not Having 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.


Conclusion

There’s certainly not one “right” way to invest.

The key is to invest. Period.Understand the risks going in, and just do it. Because that money you see sitting in your savings account? It’s losing value (because of inflation) with

every passing second. Get out there, and start achieving your “someday” today.


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