Newport Cliffwalk
When people compare investments, they often line up real estate next to stocks, art, and gold as if they’re interchangeable slots in a portfolio, but this is an error. Real estate has a handful of characteristics — practical, financial, and even emotional — that set it apart from every other major asset class.
A Fundamentally Limited Resource
New stock shares can be issued, gold can be mined, and new artworks can always be created. However, the amount of land is constant. There’s only so much of it in desirable locations, and that scarcity underpins much of real estate’s long-term value. This isn’t true of most other assets, where supply can expand to meet demand.
Diversification in Real Estate Is Difficult
With stocks, a few thousand dollars buys a diversified basket across dozens of companies and sectors. Real estate doesn’t work that way. A single property can cost hundreds of thousands or millions of dollars, meaning most investors can usually only afford one or two properties at a time. Building a truly diversified real estate portfolio, spread across multiple cities, property types, and price points, is really only feasible for the very wealthy or for those using pooled vehicles like REITs, which trade away some of real estate’s unique benefits in exchange for liquidity.
You Can’t Dollar-Cost Average a House
One of the most popular strategies in stock investing is incremental, automatic investing — buying a little every month regardless of price. Real estate resists this. However, you can’t as easily expand your house 1% more each quarter. And unlike a stock portfolio, incrementally expanding a property (adding a room, finishing a basement, converting a garage) means living through constant construction, including dust, noise, and disruption, which is a serious deterrent that has no equivalent in owning shares of a company.
Tax Treatment Nobody Else Gets
Real estate benefits from a tax structure unlike other assets: In the U.S., mortgage interest is generally deductible. This means that interest paid on a first (or even a second) home offsets earned income, which effectively subsidizes the cost of borrowing to invest in real estate.
Furthermore, the value of a building depreciates. This means that the building portion of a property can be decreased for assessment purposes over time, generating paper losses that offset taxable income, even while the property’s actual market value may be rising. No other common asset lets you claim a shrinking value on your tax return while the asset appreciates in the real world. Stocks, gold, and art offer no equivalent deductions or depreciation schedules for individual investors.
An Asset You Can Actually Live In
Perhaps the most distinctive feature of real estate is that it’s usable. You can walk through it, sleep in it, host friends in it, and enjoy it every day. A share of stock or a bar of gold sits in a vault, invisible and abstract. A piece of art can be admired, but rarely provides utility. Real estate is one of the only investment classes that delivers tangible, daily enjoyment alongside financial returns — a dual purpose that changes how people should think about it, budget for it, and hold onto it through market cycles.
Real Estate is a Hedge Against Inflation
Like other limited and functional assets, Real Estate is a particularly strong hedge against inflation. As currency is devalued or some assets are overtaken by technical advances, Real Estate tends to hold its relative value very well as people need and want comfortable places to live. It is not surprising that this has become a popular asset class among both wealthy individuals and private equity corporations for this reason.
Taken together, these traits explain why real estate is a unique psychological and financial asset: it isn’t just an investment, it’s infrastructure for living. If you would like to see your New England project designed beautifully and have the design process managed capably all the way through to the successful completion of your project, please reach out to the award-winning team at A4 Architecture to assist you in achieving your personal (and long-term financial) goals.
Ross Sinclair Cann, AIA is a historian, educator, and practicing architect living and Founding Principal of A4 Architecture in Newport, RI. He holds honors architectural degrees from Yale, Cambridge, and Columbia Universities and is a member of numerous committees, commissions, and boards. He has been a licensed and award-winning architect for more than 30 years.