Stocks Versus Real Estate: What Are The Risks?

by | Sep 6, 2022 | Investing Advice

In this post, we’ll explain how stocks and real estate investments differ, introduce you to the four basic risks of investing, and explain how real estate investment trusts can mitigate risk. 


Introduction To Risk

We all know that any investment made has a level of risk. Unforeseen things happen, in both the stock market and real estate.

The trick is to come to terms with the level of risk you’re willing to take, and make sure that you are making the best decisions to lessen the possible risks.


Risk #1 – Consumer Behavior Could Change

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 length those products will remain in favor, and a 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 and community. 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 to minimize & realize their losses. Others aim to accept short-term losses in exchange for long-term gains. Historically, the market bounces back, but remaining patient in the market is challenging during the downward trend.

Multifamily Real Estate Investments

Recessions can actually be good for commercial multifamily real estate investments. In good times, incomes and savings rates are higher, which means more people tend to move up to class A (luxury) apartments.

Our premium, sustainable, and new urbanist designs attract tenants that don’t rely on the same financial resources as most. So while during a recession, you may see other high-end buildings experiencing lower occupancy, our tenants have historically remained stable.

Premium Property Trusts’ properties’ tenants fully embrace the new urbanism lifestyle and enjoy the “live, work, play” components they bring. We generally attract people who, as a result of paying near top of market rent, tend to take better care of our property over the long term.  

For these reasons and more, during a recession demand for the new urbanism lifestyle actually tends to go up, thereby decreasing the risk.


Risk #3 – Competitors Could Come on the Market

Stock Market

When Netflix first started, they beat out Blockbuster because they got ahead of the technology and consumer trends while targeting the same audience.

Consumers typically have limited insight into technological developments or a company’s strategic operations. Thus, new competitors can challenge a company’s success by targeting the same audience with a better offering, without the consumer knowing which company will succeed over the long term..

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. 

Our well-designed, community-centered properties are unique in comparison to the typical class A apartments, with a focus on walkability and providing tenants everything they need within close range. 

Sustainably-designed communities such as these require extensive planning and resources beyond your average apartment complex, setting us apart from competition naturally with high-end shops, upper-class tenants, and prestigious design. 


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 real estate investment trusts, you know exactly where we are and you can reach out directly to ask questions and provide feedback.

Further, when you invest in a solid REIT, 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 regular touchpoints and quarterly updates, you have ongoing transparency into each deal.


The Last Word

There is no magic way to invest.  Some people have great success in the stock market, while others have success investing in real estate. 

The point is, to know your limits, and evaluate your investment goals. With those in mind, you can decide which option will benefit you the most and fulfill your desire to create a positive impact on the environment and the world in which we live.