stocks v. real estate article

One small thing they leave out of the article is leverage, try getting the bank to loan you $500,000 with 10% down so that you can buy stock.

Compare the two using the figures in the article

50,000 on a 500,000 loan, at an appreciation of 8.6% is a gain of $43,000 in equity for year one divide that by 50,000 for a equity vs cash return of 86%. This does not even include the tax savings on depreciation.

or you could put 500,000 in the s and p for a 13.4% gain and see a return of $67,000 and a cash on cash return of exactly 13.4% , with no real potential for tax savings.

Thats just the tip of the ice burg when it comes to why real estate is the best way to go.

They do mention leverage…

The article is a good case for asset diversification. A well diversified portfolio of stocks, bonds, RE etc. will generate a superior return given the level of risk.

Leverage is not always necessarily a good thing. If you don’t considering levering up as increasing risk, then real estate will always win. However, leverage IS an increase of risk. Leverage is a two way street.

Yes, there are many failed RE investors that thought leverage was the path to wealth. It’s a risk that must be understood and managed.

I’m pretty anti stocks though. You don’t have control over how those companies perform. The IB firms get rich no matter what happens. Do you think those IB firms really care about your best interest?

I should add. Remember who buys all the ad space in magazines like Money…

OPM - was one BIG thing not mentioned in the article.

If you buy $100k worth of stock…who pays for that in full? You do.

If you put $20k down on a $100k rent house, and rent it out where you get positive monthly cashflow…who pays for 80% of that? Someone else…but you own it.

There are ways to leverage yourself in the stock market. Easiest way is the use of stock options. My portfolio is up almost up 10% this week because I leveraged 3% of my money into options. Real estate and stocks, you can make money either way and most of the same rules apply such as you make your money when you buy and you need to know your exit strategy while your are THINKING of buying. Im off to enjoy the nice NYC weather now.

You are right and those monthly dividend chechs are really nice on your options…oh I forgot, you don’t get any cash flow from options. The mail box rule still wins. Does the investment send you checks every month.

Bluemoon and everyone else-
Realized I came off wrong with my last post and want to put the flames out before this takes off. Not trying to argue are stocks better vs. real estate. I do realize this is a REI forum after all, probably the best around too. Just saying that there is money to be made either way if you know what you are doing and that there are ways to be leveraged in stocks as well. My thoughts are is that you can learn a lot on how to be successful from one and apply it to the other, and vice versa.

FYI- My options trades are usually on the 1-2 week time frame. More similar to birddogging than to buying-renting a property.

Steve has a point, the stock market is much more complex than simply buying and holding. There are call options, put options, futures, dividend yield, margin borrowing and all sorts of other derivitives. There are more similarities between RE and stocks than meets the eyes. While we are all into RE investing if you ignore the opportunities in the equity market you are ignoring potential income and the risk-reducing benefits of diversification.

I guess I missed the part of the article where they mentioned leverage, thank you,

I have one other HUGE problem with stocks, I hate the fact that you have to make decisions on whether or not to buy a companies stock off of price to earnings ratios that can be completely B.S. These numbers are manipulated way too often. With real estate I can find out the financials for most buildings on my own.

I did realize that you can leverage yourself in the stock market, but you cant walk into your local bank and get 100k for buying stocks with 5% down.

Thanks for backing me. I remember last summer when CNBC had the townhall special about real estate and what prices were going to do. Remember being in awe that you could substitute ‘real estate’ for ‘stock’ and would have been 90% the same if there had been a market sell-off.

Stocks are a very counter-intuitive investment. Mainly because we aren’t taught anything useful about them in school, and our culture has some rather incorrect assumtions about how to ‘invest’ correctly. Just like REI, can be very profitable though.

Hey Motivated, is that a Cramer picture from his younger days? Owe a lot of getting into stocks to him. Did you know he is a huge RE investor too? Even has some developments in Mexico.