In Spain it has been very fashionable invest in real estate. The terrible phrase "housing never goes down" has caused thousands of people to lose all their money investing in the purchase of houses with the aim of speculating on them and selling them in a few months with incredible returns. It is true that many did well, but it was the result of chance that allowed them to go out of business before the bubble burst.
For me, investing in the Stock Market has clear advantages over buying flats. Here I list the main ones:
- Stock is a very liquid security, while converting homes into money can be an impossible task in some periods. You just have to see the example of houses that have been for sale since 2007 and still cannot be sold.
- The actions have very controlled expenses. You only have to assume the expenses generated by your broker (custody, dividends, etc.) and tax issues. However, the house has very variable maintenance costs (breakdowns, renovations, fires, accidents, deterioration due to use). Many people do not take into account all the money they spend on the home when measuring annual profitability and that makes it seem much more profitable when they do their calculations than it really is.
- Tenants can be delinquent while dividends do not. It is possible that a company decides to withdraw the dividend but it must be borne in mind that it will surely be a specific measure and with an objective that will benefit you as an investor in the long term, while if a tenant stops paying you have a big problem.
- The floors are devalued. It is not the same to have a 2-year-old apartment than a 30-year-old one. To maintain the value or increase it, it is necessary to make reforms and that requires money. Stocks can also be devalued, but at least it is something that depends on the market and may or may not happen, while the aging of a property is something that will happen with total certainty.
Still it is not necessary to conclude that the investment in real estate is a bad decision. It just seems to me a more risky and complex type of investment than investing in the Stock Market, so - in theory - fewer people should enter it. Curiously, in Spain, many people invested in flats because they saw it as safe and simple. Curious, huh?