Everyone knows there is no such thing as a risk-free investment so the key is to understand the risks thoroughly, determine your personal threshold for risk, and do everything you can to mitigate it.
Let’s take a close look at investing in stocks versus real estate and the four basic risks of investing.
Risk #1 – Market Correction
Stock Market
Sudden market corrections can result in wild swing in stock prices and during a downturn, investors may exit quickly which only solidifies their losses. Others try to ride it out but a bear market during a recession can last for months, or even years.
Multifamily Real Estate Investments
Recessions can actually be good for commercial multifamily real estate investments, especially for workforce housing. During a recession, many people forego buying a home and choose to rent instead. This increases the demand for apartments, thereby decreasing the risk.
Risk #2 – Competition
Stock Market
Consumers don’t have insight into technology development or companies’ operations. At any point, a new competitor can disrupt the market with a new approach or new technology and 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. In addition, the demand for multi-family housing continues to outpace supply so apartment vacancies are at record lows.
Risk #3 – Consumer Behavior
Many stocks are consumable products that may be affected when consumers cut down on their spending. In addition, changes in technology and consumer behavior can drastic impact stock prices
Multifamily Real Estate Investments
Real estate is a basic human need that will never go away. Everyone needs a place to live and that need has only strengthened over time, especially with rising population trends.
Risk #4 – Lack of Control and Transparency
Stock Market
Investing in stocks is like buying a train ticket. There are hills and valleys but the conductor (CEO) is unreachable so you’d better buckle up and hang on!
Multifamily Real Estate Investments
In a real estate syndication, you know exactly who the deal sponsor is, and you can reach out directly to ask questions. In addition, there are multiple buffers in place to protect investor capital, such as reserves and insurance, and experienced professionals to handle the unexpected.
Conclusion
Whatever investment you choose, 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.
There’s certainly no one “right” way to invest. The key is to invest. Period.