Real Estate Volatility vs. Stock Market Volatility

Computer graphic of chart with the words "real estate" above a line that steadily moves up and to the right.

With platforms like addy breaking down barriers to real estate investment, more people are adding this asset class to their portfolio. For those who traditionally invest in stocks, putting money into real estate is a different way to earn some passive income while diversifying one’s portfolio.

One of the key advantages of investing in real estate is the decreased volatility as compared with the stock market. We’ll take a look at how volatility works and why real estate provides a bit more comfort when you’re looking to invest.

What is volatility?

Volatility as it relates to investments refers to the range of value a particular asset has over the course of a specific time frame. Essentially volatility explains where something is stable or unstable. It can be measured in a couple different ways, but generally stability in price means an asset has low volatility, while an asset that sees big fluctuations is said to have high volatility.

Volatility is often associated with the stock market, where prices fluctuate daily and investors consider volatility when buying and selling. There is volatility as well in real estate, but it doesn’t tend to endure wild swings the way the stock market might. High or low volatility isn’t necessarily a good or bad thing. Those big swings means the potential for higher rewards, if you can endure the high risk. For those seeking to #GetRichSlow, low volatility over a long period of time is ideal.

Real estate volatility

There are a few reasons why real estate isn’t particularly volatile, at least not relative to the stock market. There tend to be fewer transactions than in the stock market, where countless trades take place on a daily basis. With real estate, the process of buying and selling is somewhat involved – you’re not just buying and selling properties, or even the same property across a day or week.

Most notably perhaps is that real estate – essentially land – is a physical and finite asset. As demand increases, supply decreases. While more properties can be built over time, there is only so much space available. Value continues to increase as demand increases. Similarly, while some stocks may see big swings in day, any real estate value changes in the same period are minuscule and may not even be noticeable at all.

Lastly, a real estate investment can be controlled and even leveraged, potentially providing a steady financial stream (often through rent) while also appreciating in value.

This is not to say that real estate doesn’t see any volatility. National and international events, like the Great Recession or the onset of Covid-19, negatively affected prices. As anyone looking to buy a house now knows, housing prices have skyrocketed after some brief shock at the start of the pandemic.

Real estate investment barriers

With low volatility and a potential to earn passive income over a long time, real estate investing can be quite lucrative. However, traditional barriers to real estate have long prevented the average person from investing.

These barriers include high down payments, bidding wars, financial acumen and lots of time. There are also risks involved with managing, maintaining or flipping a property. Due diligence is required so you know any potential risks, which may include soil contamination, structural deficiencies or poor tenants. A lot of research is required to make a savvy investment.

addy is breaking down these barriers to make real estate investing easy and accessible.

Investing with addy

addy crowdfunds institutional grade commercial real estate, allowing many Canadians to invest. addy acts as a limited partner in an investment and lets members join in on the agreement. addy and its members do not operate or manage the property. What’s more, for members, all the due diligence is done ahead of time. They can learn more about the property and area, read the offering memorandum, and decide what, if anything, they want to invest.

Members can invest as little as $1 or as much as $1,500; this range is in place to allow as many people to get involved as possible. Every dollar invested goes right into that property as there are no hidden fees. There is also no risk that a property won’t be fully funded. It’s that simple.

Join the addy crowdfunding real estate community:

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