Home Buying – Preferred Over Stocks?-Why?

House Property OR Stock is one of the most discussed topics in personal finance.They both belongs to two different asset classes, but their comparison is obvious due to various reasons, by investors.

Stock investing usually gets secondary preference, property holds a special place in everyone’s financial life. Owning a home is the first goal or dream of majority of people. Many people deny importance of property over stock but it’s a truth that ‘Dream Home’ is more preferred than stock or any other investments. Buying a home for living gets counted as ‘investment‘ for future, that’s why it’s popularly known as ‘house property.’  Property/real estate gives financial security, sense of independence and safety which no other asset class can offer.

Following are a few reasons on why people prefer house property over stock:

Ownership Control

People are more comfortable when they have maximum control over things or situation. In stocks, volatility refuses to hand over control and therefore, people get uncomfortable with market fluctuations. Real estate market also has fluctuations, but they are not sudden, and investors can have more control over:

• Deciding about property as per budget, location, personal preferences
• Expenses
• Deciding rent amount in case renting
• Tenant selection

Mental Satisfaction

Property provides pleasure of ownership through physical possession. It also provides mental satisfaction that you are holding a tangible asset which you can see and show off too. This pleasure is surely unmatchable with the feeling of holding a piece of paper of stock ownership.

Emotionally Rewarding

Property is not only rewarding financially but is also emotionally. It increases the sense of responsibility and independence.

Safety

Being an owner of a house not only gives an extensive sense of satisfaction but also provides mental security that you have a safe place to live.

Strong Asset

House property is an asset that gives benefits of long term investing same as stocks investment. Even though mortgage on property is a liability, in long run your debt ratio decreases with the increase in profit. One gets the ownership, growth in value, possible source of passive income and a strong asset to pass on to the next generation.

Power of Decision Making

The decision-making process of buying a home is not as complicated process as researching a stock with different graphs, ratios etc. One can analyze the market, area, current situation or do some simple research in order to buy a property. The decision-making power is more in the hands of a buyer.

Other Benefits

The other major benefits of property include

• Tax Benefit
• Value Appreciation
• Availability of financing option for long term
• Can provide passive income source

All above points do not mean to ignore the disadvantages of property like low liquidity, high cost of purchase, higher mortgage payments, extra expenses in case of no tenants etc. Real estate also has its own volatility risk and downside.

It can struggle for long when markets are down. But property market is more driven by the ‘Need’ and factors like demand & supply. The Need will always keep the demand increasing with the increase in the flow of people to any particular location, city or area. That’s why a few cities have high growth trend even in stagnant market conditions. Increasing demand will automatically improve the supply.

People will always be looking for a place to live in due to reasons like change in job location, moving for career growth/education, even changes in personal situation or for investing. Whatever the reason is, to fulfill the need they may cut down on expense to save more money.

People might stop investing in stocks or mutual funds SIPs when it comes to buying a home and that may be a reason, property is more preferred over stock investments.

Sources

• Buy it, rent it Profit- Book by Bryan M. Chavis, Internet