Lifepoint Financial Design – LifePoint Financial Services – Mike Metzger Financial Planning

Let’s be real! Most financial advisors have a strong bias towards traditional investments like stocks and bonds.

But without bashing financial advisors, can we agree that most real estate professionals would recommend real estate over traditional investments?

It makes perfect sense to have a bias towards what you know, live, and breath.

As financial planner who works with real estate professionals, I personally own a bit of both. For me, there is value in owning both real estate investments and traditional investments.

When people ask me which one is better, I say it depends.

Both are completely different and can benefit an individual differently depending on their personal circumstances.

To give a fair evaluation, let’s take a look at the benefits of each:

Real Estate Investments

When looking at true real estate rental investments, the benefits are often hidden to the average investor. Those that consider themselves real estate investors clearly know the powerful hidden returns that in can provide. But novice traditional investors get left in the dark. If you are one of those people, I’m here to shine a light of some of the benefits real estate can potentially provide.

Long-Term Appreciation

Although nationally it’s modest, if you choose the right markets, it can be pretty appealing. The national historic housing price index appreciation is only 2.2%. This was the best 30 year period over the course of time (the typical mortgage length). However, most of us know that it is dependent upon time frame and specific market.

Rental Income

Just like traditional bond investments, in addition to potential appreciation, you also have passive income. Dependent upon the market your rental is in, you can be receiving income that exceeds the principal and interest payment paid out to the mortgage company. So, you are literally getting paid by someone else to own an appreciating asset!

Pass-Through Deductions

Created by the Tax Cuts and Jobs Act (TCJA), passive rental income may qualify for a pass-through deduction which allows investors to deduct up to 20% of their net business income and thus reducing their effective income tax rate by 20%.

Here’s how it works. Let’s say you have $12,000 of income from one rental property and $8,000 of loss on another. The $8,000 loss will reduce your net income to $4,000; the difference between the two.

Now instead, let’s reverse the two giving you a net loss of $4,000. The TCJA act will allow you to reduce employment income now as a result of that net loss and effectively reducing your overall tax rate. This can provide a pretty nice strategy to reducing taxes in a high-income tax year.

1031 Exchange

With a lot of my audience being real estate agents, this is a concept already very well known. The IRS code section 1031 allows an investor to defer a capital gain from selling a property in exchange for purchasing another property that is equal or greater in value. This could provide tremendous value to a client’s tax situation and asset side of the balance sheet.

Traditional Investments

Traditional investing in stock and bond markets can potentially offer much to desire. Especially when coupled with IRS tax advantaged accounts. Those that consider themselves stock market investors would tell you that you can potentially earn significant gains while having control over your liquidity in the investment itself. However, the “crashes” and “corrections” are made very public, and it can spook many people from wanting to get involved. Here are some of the benefits that well-informed investors may experience:

Long-term appreciation

Stocks have famously done very well on an average over the course of its history, but the downturns have been covered just as much. If not more! The average historic S&P 500 return since 1926 is around 10%. The stock market downturns can be quite large on a short-term basis, but as the saying goes, “its time in the markets, not timing the market”.

The average historical bond index return is more subdued at little over 5%. However, by diversifying between both bonds and stocks, it can potentially help stabilize the returns over time.


One of the great features of traditional investments, is the quick time frame of converting those investments back into cash. Investments can be sold and liquidated within a few days when needed. (Although this can potentially trigger taxation).

Varieties of Account Types

Traditional investments can be held in many different account types. There are many tax advantaged accounts within the IRS code that help put more money towards retirement, while potentially reducing down the amount of money you would typically owe Uncle Sam.

Tax Loss Harvesting

Somewhat similar to the 1031 exchange for real estate investments, it is possible to rid capital gains tax within a taxable investment account. If you are a diligent investor or have a proactive financial advisor, by selling specific shares of stocks or funds at losses and gains throughout the year, you can potentially cancel out the tax burden owed.

This is by no means a comprehensive list of benefits for either real estate or traditional investments. But, its something to consider when evaluating investments. As I mentioned, I personally have both and think a diversified approach is best. Especially when we’re talking about tax advantaged investment accounts to go along with your real estate investing business. There is no doubt there is massive upside advantages to owning real estate investments, and I focus on individuals who prioritize that.. But don’t overlook the value in other, more traditional, investments too!

If you have a specific scenario that you would like further evaluation, don’t hesitate to reach out!


Asset allocation does not ensure a profit or protect against a loss.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

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