A new study shows that real estate, as an investment, is more popular and more favored than investing in the stock market among younger U.S. adults.
According to data from RealtyShares, 55% of Millennials want to invest (or are already investing) in real estate. Furthermore, Fannie Mae reports that 85% of Millennials view real estate as a "good investment."
That interest in real estate investing among younger Americans seems to have popped a big dent in stock market investing overall. Back in 2007, about two-thirds of Americans had money in the stock market. By 2016, though, that figure fell to about 50%, according to Gallup.
Why real estate over stocks? More importantly, what are the key drivers that make real estate investing more popular than stock market investing?
"Real estate is something you can touch and feel, and stocks aren't," says Abhi Golhar, host of Real Estate Deal Talk, a daily radio program and once-weekly podcast. "Most importantly, with real estate, you can get income, depreciation, equity, appreciation, and leverage. That's something stocks don't offer."Real estate investors can expect to make 15% on their investment by flipping houses, and can make up to 10% returns on home and apartment rentals, Golhar states.
A sense of reliability also tilts the playing field toward real estate, others say.
"Real estate can be favored because it's viewed as something tangible," says Brett Anderson, a financial planner with St. Croix Advisors, LLC, in Hudson, Wis. "Some people may feel a greater control holding real estate versus the stock market where they feel they don't have any control over the volatility and risk associated with the stock market."
Tangibility isn't the only reason for real estate's popularity among investors.
"You get very favorable tax treatment with lots of deductibles, and you get plenty of leverage from banks," says Mike Arman, a retired mortgage broker in City of Oak Hill, Fla. "It doesn't cost a lot to get into real estate, and occasionally you can get in for nothing - something I've done myself."
"Overall, people are comfortable investing in real estate, they have a fairly good idea how it works, and it is tangible, you can touch it, look at it, and say 'This is mine,'" Arman adds. "Securities are much more abstract, and people are nervous about what they don't know about."
"Remember, the vast majority of stocks and bonds in this country are held by a quite small minority," he says. "80% of the stocks are held by 10% of the people. The top 1% owns as much stock as the top 90 to 99%, and those groups together own more stocks than the remaining 90% of the population. Obviously, that isn't the case with real estate."
If you're serious about investing in real estate, Anderson advises knowing what you're getting into up front.
"Market risk, liquidity, occupancy rates, loan payments, maintenance, and upkeep should factor into your decision which investment best suits you," he says. "If you view receiving phone calls about a leaking roof, overflowing toilets or having to find tenants as a cost of investing, real estate might be a good option for you."
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