Smart Investing: Residential Real Estate vs Stocks

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Multiplying your wealth involves creating a strong investment portfolio, and two of the most popular investment options are residential real estate and stocks. According to a Bankrate survey, 31% of respondents chose real estate as their favorite investment option. They are closely followed by 20%, who favored stocks.

If you don’t have an opportunity to invest in both options to diversify your portfolio, you need to choose which one works better for your unique needs and goals.

In the following article, we’ll discuss the difference between investing in real estate and stocks, their advantages and disadvantages, and how to determine which option is right for your portfolio.

Investing in Real Estate

“90% of millionaires got their wealth by investing in real estate,” — Andrew Carnegie, billionaire industrialist

Even though about a century has passed since Carnegie made this statement, it remains relevant. According to a recent Gallup survey, 35% of respondents say that real estate is the best long-term investment option.

The average ROI of a residential real estate investment is about 10%.

Even with this knowledge at hand, real estate isn’t always the best option for everyone. Before making an investment decision, you should always have a clear understanding of the benefits and drawbacks.

Advantages of Residential Real Estate Investment

These reasons could help you make a decision while exploring real estate investment opportunities.

1. Full Control

When you purchase a property, you become the CEO. You choose how to make improvements, when to cut costs, how to raise the rent, where to find tenants, and more.

Additionally, real estate (unlike stocks) is a tangible asset. You can see and feel the property while making it work to multiply your wealth.  

2. Low Learning Curve

Investing in real estate is generally easy and straightforward. The majority of research needs to be done before you make a purchase.

Once you own the property, all you have to do is keep it in top shape and work with tenants (if any). It’s also easy to calculate realistic expenses and income.

3. Immediate Returns

Once you invest in real estate, you can exploit it immediately. Either by living there yourself or renting to tenants, you start reaping benefits as soon as you finalize the deal.

4. Tax Benefits

Real estate investors enjoy unique tax benefits, such as:

  • Rental income is not subject to self-employment tax.
  • Real estate investors enjoy tax deductions for managing, conserving, and maintaining the property.
  • Investors can qualify for the depreciation deduction

5. High Equity

When you invest in a rental property, you can use the rent to cover your loan payments. This allows you to build equity without substantial expenses. In short, your wealth grows automatically with minimal actions on your part.  

6. Hedge Against Inflation

As the value of money decreases, the prices go up. The annual inflation rate may vary, but the process is unavoidable. Inflation reduces the value of many investments, including stocks.

However, real estate manages to counter inflation. As prices increase, so do rent payments and property value.

7. Passive Income

With the right approach to real estate investment, you can turn it into a passive income. You would need to invest time and money in the initial stages of the process. The effort will pay off by bringing you regular passive income in the future.

Disadvantages of Residential Real Estate Investment

Owning real estate comes with several disadvantages, which may be off-putting for some investors.

The main disadvantages of investing in residential real estate include:

  • Part-time Job — maintaining and managing a rental property can turn into a part-time job. While being a landlord doesn’t require a college degree, you need to be ready to put in a substantial effort.
  • Large Upfront Investment — when you buy a property, you need to make a large upfront investment. It puts this option out of reach for many investors-to-be.
  • Tough Diversification — since residential real estate investment is generally local, it’s sensitive to local changes. A prospective neighborhood can slump while a low-potential area could turn into a thriving location. If you want to diversify your real estate investment to cover such ups and downs, you need substantial upfront capital.
  • Illiquidity — it takes too much time to pull the money out of a long-term real estate investment. In case of an emergency, you can’t count on the equity you’ve built to come to your rescue immediately.

Investing in Stocks

Many people consider investing in stocks as a way to earn big money. Even though this option has a high earning potential, it comes with high volatility, so one’s appetite for risk must strongly be considered.

Historically, the ROI of stock investing (about 12%) is higher than for many other investment options, but like we mentioned above, that comes with a large amount of risk.

Smart Investment: Residential Real Estate vs Stocks

Advantages of Stock Investing

These benefits are some of the reasons people invest in stocks.

1. High accessibility

Anyone with a bank account and internet access can become a stock market player. You can start with very little money and multiply your wealth over time with the right advice and investments.

2. Liquidity 

If you want to withdraw money, you can do it quickly. In an emergency, you have direct access to the funds in your account at any time.

3. Hedge inflation

Over the past several years, inflation in the United States averaged at around 3%.  With a return of 12%, you avoid losing purchasing power.

4. Low transaction fees 

Stock trading generally doesn’t require any fees, which is a great benefit for investors who make a lot of short term investments.

Disadvantages of Stock Investing

Like anything, investing in stocks has its drawbacks.

The main disadvantages of stock investing include:

  • Volatility — stocks tend to experience significant price swings, making this investment option highly unpredictable. Returns aren’t guaranteed.
  • High learning curve — while you don’t need to be a genius to invest in stocks, you must do substantial investment research. This is time-consuming and often tough to achieve for an average investor.
  • Competition — for professional investors and traders, stock investing is a full-time job. These experts have sophisticated tools and specific education behind them. Gaining an advantage over them could be tricky.
  • Taxes — when you sell stocks, you may face a capital gain tax.

Real Estate and Stocks: Diversify Your Investment Portfolio

Considering the numerous benefits of real estate investing, it can be a safe and exciting way to diversify your investment portfolio. This investment option can diversify your portfolio, generate high returns, and turn into a passive income.

While there is no rule of thumb, about 20% of the overall investment amount should go to such assets as real estate. For stocks, numbers vary between 5% and 70%, depending on your experience, capital, and even age.

If you’d like to discuss your residential real estate investment opportunities in Northern Virginia, Washington DC, and Maryland, please contact Nomadic Real Estate at any convenient time.

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Enhanced Reporting

Your portal includes a selection of extremely useful reports. Reports are available in the “Reports” section, and are distinct from the financial statements. Unlike financial statements which are static records, Reports are dynamic real-time records that will update with current data every time you view them. 

Scroll down to learn more about Reports:

Navigate to the "Reports" module in your portal:

Owner Portal Reports
  • Keep in mind, these reports are dynamic records. They will refresh to display current information every time you view them. 

Enhanced Rent Roll Report:

Enhanced Rent Roll Report
  • The Enhanced Rent Roll Report will show the rent amount, last payment date, move-in date, lease expiration date, and security deposit amount for each of your tenants. 
  • It will also show a portfolio summary with occupancy percentage, vacancy loss, and more!

Unit Comparison Report:

Unit Comparison Report
  • If you own multiple units (or buildings) with Nomadic, you’ll get access to the Unit Comparison Report. 
  • This report enables you to quickly compare financial performance between your units at a glance without toggling between individual reports. 

Income Statement Month-Over-Month:

Income Statement by Month Report
  • The Income Statement Detail – Monthly Report serves as a month-over-month record of portfolio performance. You’ll see itemized income and expense categories and can track monthly. This report will update with fresh data every time you view it. 

Financial Statements

Financial statements will be published to your portal on a monthly basis. The statements are found in your Documents library, and provide a historical record of all financial performance. The statements serve as a snapshot of financial performance over a given period, and are static documents (unlike Reports, the statements do not update/change in real-time). 

Scroll down for more info about the Financial Statements in your Documents library:

The Documents area contains monthly financial statements:

Owner Portal Documents
  • The statements in the Documents are are static documents. They are posted to the portal once a month to serve as a historical record of financial performance. 

Download a statement to see month and YTD financials:

Owner Portal Property Statement

You'll also find a month-over-month operating statement:

Month over Month Statement

Portal Communication Tool

You can use your owner portal to communicate with our team. Any messages you send through the portal will go straight to your Account Manager. When we reply, you’ll get an email notification and you’ll also see the message in your portal next time you log in. 

Here’s an overview of using the communication platform:

Click "Communications" and navigate to "Conversations":

Commincation Dashboard Screenshot
  • The communications module will contain a record of all messages that you create through the portal. 

Click the "New Message" button and send your message:

Owner Portal New Message Screenshot

Responses will show up in the conversation ticket:

Portal Conversation Response Screenshot
  • You’ll get an email notification whenever you get a response, and you’ll also see the message in your portal next time you log in. 

You can reply in-line using the comment box:

Owner Portal Comment

Each conversation will be logged in its entirety:

Portal Conversation Snapshot

Understanding the Ledger

Your portal includes a ledger with all transactions. The ledger is populated with data in real-time as transactions flow through our accounting software. Much of this information is also available in the Reports area, as well as the Statements in your Documents library, but the ledger is the most comprehensive resource for diving into the details. 

Please scroll through the sections below to get a better understanding of how to interpret the ledger. 

By default, transactions are sorted chronologically:

Owner Ledger Dates
  • The date reflected in the lefthand column is the actual transaction date, not the “bill date”. This is the date the transaction was actually processed. 

If you have multiple properties with Nomadic, you'll see the address for each transaction in the "Location" column:

Ledger Property Column
  • You can filter the ledger to look at just one property, all properties, or specific sets of properties. 
  • If you only have one property with us, you’ll just see the ledger for that property. 

The Description column displays the transaction type:

Owner Ledger Description Column
  • BILL: this is an expense transaction, such as for repair costs or management fees.
  • CHARGE: this is a transaction  billed to the tenant, most typically a rent payment. 
  • NACHA EXPORT: this is a credit we processed to your distribution account. This type of transaction is how you get paid! 

The Amount column shows the dollar value of each transaction:

Owner Ledger Amount Column
  • Positive Amounts: if an amount is positive, it reflects a transaction that is payable to you. Typically, this will be a rent payment that we collected from your tenants. On occasion, a positive number could also signify a journal entry or credit adjustment. 
  • Negative Amounts:  if an amount is negative, this is a transaction that is either payable to Nomadic or is an amount that has already been paid to you. Typically this will be for repair costs or management/leasing fees. Owner draws (net distributions into your checking/savings account) also reflect as negative amounts, since they have already been paid to you. 

The Account Balance column shows a sum of positive/negative transactions at a given point in time:

Owner Ledger Account Balance Column
  • Account Balance should always equal zero after a net distribution has been processed. When the balance is zero, this means that all expenses have been paid and you’ve received the remainder as net operating income, leaving a balance of zero (meaning: no one is due any money, as all funds have been distributed appropriately). 

Navigating the Propertyware Owner Portal

Your portal includes some extremely useful features that help you understand your property’s financial performance at a new level, with real-time transparency into every transaction.

Scroll through the snapshots below for an overview of portal navigation! If you need more help or have specific questions about using the portal, you can reach out to your Account Manager any time for a screen share. 

You can filter all info by date range or property:

PW Portal Filters

View a snapshot of income and expenses on your dashboard:

PW Owner Dashboard View

See every transaction in real-time on your ledger:

Owner Portal Ledger View

Statements and forms will be posted to your documents library:

Owner Portal Document Library

View a suite of real-time financial reports:

Portal Reports View

See a running list of all bills, and drill down for more detail:

Owner Portal Bills View

Under Bill Details, you'll find dates/descriptions/amounts and more:

Portal Bill Details

You can also communicate with your Account Manager through the portal:

Owner Portal Communication Tools

How do net distributions work?

Net distributions keep your accounting clean and simple. Each month we’ll collect rent from the tenants, deduct any repair expenses for the previous month and any management/leasing fees for the current month, and credit the remaining net operating income to your account. 

Net Distribution

You’ll receive a statement via email each time a net distribution is processed, and can view all transaction details in your Propertyware owner portal.