Gold vs. Real Estate Investment | A Comprehensive Guide

When considering retirement investments, most people stick to the stock market and invest in stocks, bonds, and mutual funds. Gold and real estate provide alternative options for retirement investing.

Both gold and property offer instant diversification from the stock market. As with traditional assets, you can also invest in paper alternatives to physical gold and real property.

Which is suitable for you, if either, will depend on several factors, including your timeline, goals, investment size, and investment purposes. Many of the benefits of gold and real estate overlap or are comparable. For example, both offer portfolio diversification and act as a hedge in uncertain times.

As you read this article, it is wise to take note of where the investment options differ. It is in their differences that one may appeal to your investment goals more concretely.

This article will fully inform you on how to decide which investment option suits your retirement investment goals. Then you can put your gold vs. real estate retirement plan into action.

Difference Between Real Estate vs. Gold Investment

accountant calculating interest rate of gold and real estate investment

Understanding the real-world investment differences between real estate and gold investing is essential to determining the ultimate question of which one is right for you. As you read through the differences, think about your own economic situation and goals.

Return Rates

Return rates measure the amount of capital appreciation you receive from your investment. In short, this measure denotes how much money your investment produced.

With gold, your return rates are subject to the public trading markets. The price of gold fluctuates frequently, and short-term price swings happen. However, gold has steadily increased in value over the long term.

Real estate also has a long history of steady growth and solid returns on investment. Unlike gold or other stocks, property prices are not subject to a regulated market price. However, apart from the financial crisis in 2008, real property has seen steady growth in its historical prices.

Ongoing Expenses

Gold has far fewer ongoing expenses than real estate investment options. Once you buy gold, you are likely to incur storage costs and insurance premiums. Beyond that, however, it does not require much. You store it and watch the price.

Real estate investing, on the other hand, includes several ongoing expenses. For example, to purchase property, you will encounter a down payment, mortgage, interest, property taxes, and legal fees. In addition, if you plan to rent the property, you will incur maintenance costs, repair costs, and insurance. You will also have to account for the shifting prices of building materials.

Volatility

Volatility is a measure of price fluctuation over a set period of time. Regarding retirement investment options, most people will attempt to limit volatility or hedge against it through the diversification of assets.

The price of gold changes constantly, and this feature makes it a volatile asset. Conversely, real estate investments have low volatility. With noted exceptions, typically during financial crises, real estate prices tend to be a steady and predictable long-term investment.

Economic Boost

wooden blocks with launching rocket graphic

Gold investments share a similarity with more traditional assets such as mutual funds: gold has a fixed market price. Any economic boost will come solely from the rise in the price of gold. Gold does not pay dividends or create cash flow.

Real estate, conversely, offers an economic boost. Investors realize this economic boost in many ways. Including, and especially that as your mortgage shrinks, your equity rises. This boost allows you to use your equity to invest in more property and grow your wealth quickly.

Additionally, investors can generate income by renting the property.

Tax Benefits

If tax benefits are an essential concern of yours, real estate is the better investment option. The tax benefits of gold investments are limited.

Gold investments held in a precious metals IRA may be eligible for deferred taxes. However, gold is subject to capital gains tax.

Real estate investments, on the other hand, have many tax benefits, including a tax deduction. Depending on your specific investment, these benefits may include mortgage interest, mortgage expenses, legal services and costs, depreciation, maintenance and repair fees, and property taxes.

Liquidity

Regarding liquidity, gold and real estate are on opposite ends of the spectrum. Gold is acknowledged the world over. It is publicly traded, and the open market sets its price.

Selling gold should take at most a few hours and does not require any special contracts. If you sell gold from a precious metals IRA, you can liquidate for cash or take possession of the physical gold itself. For these reasons, gold is a highly liquid asset.

Conversely, real estate property generally requires months to sell. There is no public market setting the price. Instead, investors rely on comparable (comps) real estate prices from recent sales in the area. Comps are an inexact science.

Moreover, real estate involves escrow, inspections, and constant negotiation about the terms. The process is so cumbersome that most people accept the legal costs and employ the services of an attorney when buying or selling real estate. For these reasons, real estate investments are not as liquid.

Why Should You Invest in Gold?

gold bar and stack of gold coins on growth chart

Civilizations have valued the yellow metal throughout human history. It possesses several unique traits that cause many to view it as a safe investment. First, it has low barriers to entry. You can begin investing in physical gold by purchasing a single coin. Second, it holds its value. When paper money and paper currency weaken, gold tends to rise. For this same reason, it is a solid hedge against inflation and deflation when the stock market crashes.

Gold’s value does not correlate with the stock market’s movements. In fact, this yellow metal often appears inversely related to the stock market. Thus, when the volatility of the stock market appears and the market nosedives, gold increases its value. Therefore, gold is an excellent way to diversify your investments.

In addition to performing well in uncertain economic times, the yellow metal has a history of outperforming other investments during times of geopolitical uncertainty. It is sometimes referred to as the “crisis commodity” because people return to it during times of doubt, which drives up its price.

Gold is subject to the economic principles of supply and demand, as with any asset. Supply requires mining, and mines take about a decade to construct on average. However, demand has increased as emerging markets in Asia, Latin America, South America, and Africa arrive on the world’s economic stage.

Why Should You Invest in Real Estate?

Real estate offers the investor a plethora of advantages. Real estate tends to have excellent cash flow because a rental property can generate regular income from rental yields and capital appreciation. Apart from the passive income from monthly rentals, it offers a fantastic tax advantage. In addition, you can leverage your equity into increased purchasing power.

This confluence of events — the ability to generate passive income, price appreciation, rental income, positive cash flow, diversification, leverage, and numerous tax benefits — makes real estate an attractive long-term investment.

Real estate can also hedge against inflation. As the economy grows, so too does the demand for real estate. The increased demand leads to increased capital appreciation and rising rentals.

Real estate investment trusts (REITs) offer an investor the ability to invest in real estate without enduring the day-to-day administration of the property. In addition, REITs will reduce your operating expenses on your property — thus creating a lower bar for investment than purchasing a property.

Real estate allows the investor to invest in a low-volatility market. Investors build wealth and equity while remaining diversified.

Capital Requirements Between Gold and Real Estate

stack of hundred dollar bills on black background

The capital requirements for gold are lower than for real estate property purchases. You can get started investing in gold and precious metals for the price of storage, insurance, and a single coin.

Real estate investing, especially if you are buying property yourself, requires tremendous capital, including housing finance. However, investors can reduce the outlay of capital if they invest in pooled real estate investments, such as REITs, or indirect real estate investments with a management company.

What are the Advantages of Investing in Gold and Real Estate?

Gold and real estate share several advantages. Both investment options offer the potential for incredible profits while at the same time providing immediate portfolio diversification to protect yourself from the volatility of the stock market.

These two investment products also provide different structured tax benefits. With real estate, you can benefit from write-offs, deductible expenses, and cost depreciations. While physical gold has fewer tax advantages, gold IRAs can allow for tax-deductible contributions and tax-free qualified withdrawals.

What are the Risks of Gold and Real Estate Investment?

Every investment carries financial risks. Gold and property are no different. Gold prices could decline, and property value could decrease.

Real estate investing carries counterparty risks, which gold does not. Counterparty risk involves the risk that another party defaults. In real estate investing, this means that the tenant may not be able to pay rent. Counterparty risk may prevent you from paying your mortgage, property taxes, or other real estate fees.

Gold does not have these counterparty risks because it is not contingent on the actions of another party. You simply buy the gold, and you own it.

Real Estate vs. Gold: Which is a Better Investment?

house model and gold bars on balanced scale

Better is a subjective determination. Since both investments offer portfolio diversification, hedging against the market, leverage, security, and long-term growth potential, the way to approach this question is to examine the differences between the two options.

Gold has high liquidity. It is the better investment if you need to convert your investment to paper money quickly. Gold also has short-term price volatility but has demonstrated long-term growth.

Depending on when you need to liquidate your investment, you may be subject to its short-term fluctuations. Gold also enjoys minimal ongoing costs, especially when compared to real estate.

Real estate is not very liquid. It could take months to liquefy the investment, whereas gold will take hours. However, real estate’s low volatility makes the investment more stable on a day-to-day basis.

Real estate has significant tax benefits, but with them come enormous ongoing costs. It also has much higher capital requirements but can produce regular income through renters.

The better investment is the one that better suits your goals.

What Is the Right Investment for You?

In analyzing real estate vs. gold and determining which investment option is right for you, think critically about your investment horizon and needs.

Ask yourself the following questions:

  • Do you need liquidity?
  • What is your tolerance level for volatility?
  • What is your investment size?
  • How vital are taxation benefits?
  • Do you require passive income from a rental property?
  • Are you concerned about the ongoing expenses of an investment?

Answering these questions should inform your ultimate decision concerning which investment option is right for you.

If a gold investment is on your horizon, our team at Oxford Gold Group can help. Contact us today at 833-600-GOLD to learn more about our physical gold and gold IRA investments, or browse our blog for expert resources.

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