Multifamily vs. The Stock Market: Which Is Best For You?

Dec 21, 2023

Financial freedom is achieved through mastering the art of budgeting, saving, and ultimately investing. Simple, right? But jumping into the investment world opens up a huge pool of options, each accompanied by its unique risks and rewards. Where does a new investor even begin?

Let’s take a look at a couple of powerhouse investment opportunities; the stock market and multifamily real estate investing.

Each offers up the potential for cash flow, stability, long-term growth, and, of course, risk. In this article, we’ll break down the pros and cons of stock market and multifamily real estate investing and which option is the best for you.

The Stock Market: Pros and Cons

There’s something exciting about investing in the stock market. Even in 2023, many of us still conjure up the image of busy stock exchange floors full of hyped-up, suited men bellowing “buy, buy, buy” or “sell, sell, sell.” And though many of those yells have been silenced with new regulations and technology, there’s still a great thrill in investing and growing with our favorite companies.

Advantages of investing in the stock market

Thanks to that aforementioned technology and growing interest, investing in the stock market is more accessible (and more popular) than ever. Advantages of investing money in stocks include:

Liquidity and ease of entry
- Many stocks are considered to be highly liquid; in other words, they can be bought, sold, or converted to cash relatively quickly. These days, you can invest in the stock of your choosing with the right app and a few dollars.
Diversification options
- Going into 2024, there are over 2300 companies listed on the NYSE, encompassing nearly any kind of enterprise imaginable. Not only are stocks easy to get into, but with so many options it’s easy to keep a diversified portfolio.
Potential for high returns
- We’ve all heard the statistic: the average stock market return is 10% per year. Keyword? Average. Not every year is going to be good for stock market investors, but for those who can keep their cool and, more importantly, keep their stocks, the payouts over time can be significant.

Drawbacks of the stock market

Most of us have survived multiple turbulent dips and dives in the market. Thanks to the housing crash, COVID-19, and recession after recession, the volatile and cruel reputation of the stock market is common knowledge. For the risk-averse, this may not be the best basket to place your fiscal eggs in for many reasons.

Volatility and market fluctuations
- Anything from a bad news day to a pop star announcing a new tour can cause upswings and slumps in the market.
Lack of control over individual investments
- Unless you’re a major shareholder, you’ll have no sway in company dealings.
So much information, so little time
- There are a lot of stocks – good, bad, and ugly – out there. Without an advisor or ample time to research, it’s difficult to keep up with changes in the market and individual stock performance.
Indirect investment through funds
- Many individuals invest in stocks through retirement accounts, often in mutual or index funds, limiting direct connections to individual businesses. This contrasts with the essence of true investing, where supporting businesses directly is the goal.

Multifamily Real Estate: Advantages for New Investors

Multifamily real estate is very popular amongst investors. Owning an apartment complex, condominiums, and/or duplexes offers multiple spaces to rent – which means multiple rental income streams for investors.

Many new investors initially give multifamily real estate investing a miss. The reasons are understandable: if you can’t afford real estate for a single family, how can you possibly invest in larger properties? The answer, though not obvious, is simple. Through multifamily real estate syndication, investors pool their funds together to fund the development of properties. This tactic offers stability, long-term growth potential, and access to passive income.

Stability and Consistent Cash Flow

In times of economic turmoil, such as inflation, how many investments provide returns over losses? Investments like multifamily real estate are considered safe for the simple reason that during these times of economic uncertainty, people still need a place to live. While demand for retail and office space often decreases in hard times, the demand for residential rentals rarely falls. An investor in multifamily real estate can expect:

Dependable rental income
- Month after month, year after year, rents are a predictable and steady source of income.
Long-term tenant relationships
- The rental market has surged since 2020, with more families opting to stay in rental properties long-term – which translates to a long-term income stream.
Weathering economic downturns
- In tough economic times, multifamily properties have historically demonstrated resilience and stability.

Control and Appreciation

An investor in a multifamily property has much more control over their individual investment compared to someone who invests solely in stocks. While rental prices are majorly affected by demand and location, small to medium changes such as landscaping, renovations, or a fresh coat of paint can help boost revenue streams for multifamily real estate investors.

Tax Benefits

While stable cash flows via steady rental income are easy enough to comprehend, they don’t necessarily paint the entire return-on-investment picture. Multifamily investors have the potential to save a lot of money and get more bang for their investing buck by appropriately utilizing specific tax benefits, including:

Depreciation
- In accounting, depreciation is a concept that allows property owners to account for deterioration by expensing a portion of the property each year. The greater the depreciation, the greater the tax benefit.
Cost Segregation
- Properties are typically depreciated the same amount each year for 27 years in a process regulated by the IRS. However, this process can be accelerated through a cost segregation analysis. This involves a consultant inspecting a property, breaking it down into four categories, and in doing so potentially shortening the depreciation period to as little as 5 years (for personal property classifications).
1031 exchanges
- Who’s afraid of the big, bad capital gains tax? Most of us, frankly. But those willing to reinvest profits from a sale into a “like-kind” property may qualify to defer capital gains taxes via Section 1031 of the Internal Revenue Code.

Risk Considerations

As with any investment, multifamily property investment does come with risk. While these properties tend to be a safer bet than other types of investments, particularly in times of high inflation, they are still prone to market risks such as local demand and vacancies, population growth, competition from other properties, and current rental rates. Owners and investors of multifamily real estate also need to be wary of asset risks, such as the need for capital improvements. These can be costly and have the potential to negatively influence rental income. It’s also important to note that multifamily investments are not liquid like stocks; your money is tied up for the length of the holding period of the property, which is typically around five years.

What about barriers to entry? Multifamily properties come at a much steeper cost than single-family homes, making them the less obvious choice for new investors. However, there are options to invest through syndication, where a group of investors can come together to invest in a single property and reap the rewards as a unit. For more information about this type of investment, check out our Beginner’s Guide to Multifamily Syndications.

Making the Decision: Which Is Best for You?

So the question remains: stocks? Multifamily properties? Or both?

Determining the best type of investment boils down to each investor’s individual financial goals and risk tolerance. The stock market is a great and simple option for new investors to get in the game, but it’s highly volatile and can be difficult to keep up with.

Multifamily real estate offers more stability, consistent cash flow, and long-term growth for new investors, making it a great option for those who crave resilience and like to play a little less loose with their cash. An option like multifamily syndication may enable new investors to access a rung of financial growth previously thought out of reach.