Help Needed: Single Family Rental Properties v.s. Stock Market Returns
Real Estate or the Stock Market. For those that have ventured into either avenue of investing, what insights can you share? Have you found real estate to be more lucrative and stable over time, or do you believe that the stock market offers better returns and flexibility?
I understand that residential rental properties can provide positive incentives through loan paydown, tax incentives, cash flow, and appreciation. Based on my research, it is possible to become financially free through real estate investing, but requires hard work and time. Why would I not just invest my hard earned money into an index fund that is generating a yearly return of 10% with no hassle of managing tenants, expensive CAPEX, etc.
I value the insight of everyone and would appreciate your perspectives on the matter. Thank you!
RENTALS !
Quote from @Kevin Sobilo:
Quote from @John Clark:
Quote from @Kevin Sobilo:1. You can always pick a different index to invest in.
Quote from @John Clark:
Quote from @Kevin Sobilo:I can choose to buy another stock far more was than I can choose to buy different real estate. This is particularly true given that money is finite and one sells the stock (or real estate) one has in order to buy the new. One can fine tune one’s stock characteristics far more easily than one can one’s real estate’s characteristics.
Quote from @John Clark:
Quote from @Kevin Sobilo:
Quote from @John Clark:
Quote from @Kevin Sobilo:
Buying stocks in an index fund is no work, but also NO CONTROL! When you make real estate deals, they are what YOU make out of them when you invest actively. So, you have some real control over how things go.Control is wealth! The first thing a "wealthy" person typically does is buy back their time aka assert more control over their situation in life.
Lemme get this straight: I have no control when I have a highly liquid, fungible, instrument bottomed on hundreds, if not thousands, of assets across a continental or even global geography, and many asset classes, and I can buy or sell at a moment's notice.
I DO have lots of control, however,when I buy a single asset class in the form of an illiquid, unfungible, single asset class that is highly localized, and subject to the whim and caprice of economically ignorant people and those who cater to them.
No. Real estate is a tax law play and a local economy play. It is also a "this is mine and it's tangible" psychological play. It is not a "control" play.
Correct, when you buy a stock you only have control over whether you sell it but not control over how the investment performs. You ability to sell it does not make it perform better. …
Wrong. My ability to sell a liquid index fund allows me to cut my losses very fast, at low cost. The illiquid nature of real estate investing means a slow sale at high cost. That affects ROI. You don't have to ride the stock market down.
You also conveniently forget the fact that many stock buyers are “buy and hold” buyers just as much as property buyers are.
If one wants “control” the last thing one wants is real estate. It is nonsense to pretend otherwise.
You are right! and also WRONG! lol
Yes, you can cut your losses fast and then have a 0% ROI. Those are you options invest in an index fund or don't invest. If index funds are tanking they are all probably doing poorly and this post was ONLY about passive stock investing in index funds.
Real estate can "lose" value and still be a positive ROI because an income producing properties return isn't only based on market appreciation creating equity.
You're only control with the stock investment is to "not invest" aka sell. With real estate there are infinite options to increase your return. Simply reducing your expenses in real estate IMMEDIATELY makes your equity rise and also your net income. Shopping for insurance, appealing assessed values, shopping utility providers, making energy efficiency improvements, etc. All choices a real estate investor can make but your ONLY choice with stock ownership is to not own them.
Liquidity is NOT control over the investment itself. Sure it is one aspect of "control" over your personal investments but NOT nearly as important as you make it out to be. RARELY does a real estate investor worry about being caught unable to access equity
I noticed you ran right away from the fact that real estate traps you into a vulnerable position regarding economically ignorant people and those who cater to them. Why is that?
Before you answer, make sure that you account for the fact that people could trade stocks throughout the pandemic, but landowners couldn’t evict nonpaying tenents, because I WILL ask you how much “control” you have over your property when you cannot evict or prevent others from freely using your property.Untrue, because the question here was stock index funds to passively invest! In order for you to buy individual stocks you need to be an active investor researching and picking stocks which is outside the scope of this discussion.
So, no you can't pick a new stock and even if you want to talk active stock investing and picking individual stocks you're talking about lower on average returns because even most professional stock pickers don't beat index funds long term and have a greater risk of loss.
I collected OVER 100% of rent during the pandemic and had no issues with evicting anyone. So, apparently I had all the control I needed.
You do realize the market has stops in it to prevent trading in certain circumstances. So, of course you can't always sell. So, in that circumstance you have NO control over your stock investment because you can't even sell it. So, you have ZERO choices at that moment.
I didn't skip your statement about vulnerable position of real estate investment. Actually its much the opposite. Because real estate is so important there is LESS nonsense from these things. Much easier to pass laws that affect a publicly traded business. A simple example are the new $20/hour minimum wage laws coming online out west.
2. Less nonsense? Two words for you: Rent control.
3. Minimum wage is untoward control? Sorry, my friend, but prices are passing along costs. Rent control is price control, the stock economy doesn't have it.
4. Consider yourself lucky (as I was) that you collected all your rent and had no trouble collecting rents during the pandemic. Luck, however, has nothing to do with control. Toss a manhole cover around here and you'll hit BP posters who didn't have such "control."
1. So, then the market tanks, you would sell one index fund that is falling to buy another that is falling? Yes, in some cases they don't all fall at the same time, but in many cycles they do.
2. Rent control?!? You do realize real estate investors have control over where they invest. Like any active investment/business evaluating the business environment is part of the CONTROL we have!
3. Prices are not passing along costs in all cases like that! Some businesses will pull out entirely. Some will change their approach and lay people off and implement new technology. Since all related businesses are not affected the same way, some will gain a competitive advantage. If some can implement technology well prices might NOT go up which will hurt businesses that cannot make those changes.
So, for #2 and #3, stocks have no control because you have no control over where the underlying business operates or how they do business, but for real estate the investor can choose where they invest after evaluating the environment for example the likelihood of rent control. So, again real estate investor has "control". Control is CHOICES over taking actions, NOT CHOICES IN THE RESULT.
4. It wasn't just luck. It was in part how one does business aka CONTROL! Because real estate investors have choices in how they operate in any given environment some will do better than others.
Also, MANY landlords did BETTER during COVID but people doing better don't complain! There was TONS of rental assistance money for ~3 years such that anyone who needed help could get it. So, while a landlord might get taken advantage of by a bad tenant, the tenants who honestly struggle had all the financial help they needed. There are a LOT more people who have honest struggles than there are dishonest people taking advantage.
Since, I operate a certain way, I didn't have those dishonest tenants only ones with honest struggles who could tap into all of that free money to help them! The fact that this was my tenant profile was because of my CHOICES aka "control" I had over the investments.
Real estate cratered nationwide in 2008 and thereabouts remember? ANY price can go down, so your example proves nothing.
Rent control applied after the fact kills because you can't get out fast, like you can with stocks. Also, they can change the terms of rent control once imposed. Just ask the landlords getting killed in New York City.Real estate is a tax play. Real estate is a "this is mine" psychology play. It is not a "control" play. Invest in the right area and you make a killing. Invest in the right stocks, you make a killing. Neither has much to do with control. People who bought New York City apartment buildings (rent control) in 2027 got hammered with the 2018/19 rent control law changes. People who bought/are buying in Florida (Miami) are going to get hammered with rising sea levels. Miami's flood mitigation plan will ruin the views of the bay, cost over $5 billion, and will only work for a short while. People trying to get out of Florida real estate will get hurt.
Sing and dance all you want, but illiquidity kills "control."
#1 Legal & Legislation Contributor
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#1 Legal & Legislation Contributor
- Rental Property Investor
- Hanover Twp, PA
Quote from @John Clark:
Quote from @Kevin Sobilo:
Quote from @John Clark:
Quote from @Kevin Sobilo:1. You can always pick a different index to invest in.
Quote from @John Clark:
Quote from @Kevin Sobilo:I can choose to buy another stock far more was than I can choose to buy different real estate. This is particularly true given that money is finite and one sells the stock (or real estate) one has in order to buy the new. One can fine tune one’s stock characteristics far more easily than one can one’s real estate’s characteristics.
Quote from @John Clark:
Quote from @Kevin Sobilo:
Quote from @John Clark:
Quote from @Kevin Sobilo:
Buying stocks in an index fund is no work, but also NO CONTROL! When you make real estate deals, they are what YOU make out of them when you invest actively. So, you have some real control over how things go.Control is wealth! The first thing a "wealthy" person typically does is buy back their time aka assert more control over their situation in life.
Lemme get this straight: I have no control when I have a highly liquid, fungible, instrument bottomed on hundreds, if not thousands, of assets across a continental or even global geography, and many asset classes, and I can buy or sell at a moment's notice.
I DO have lots of control, however,when I buy a single asset class in the form of an illiquid, unfungible, single asset class that is highly localized, and subject to the whim and caprice of economically ignorant people and those who cater to them.
No. Real estate is a tax law play and a local economy play. It is also a "this is mine and it's tangible" psychological play. It is not a "control" play.
Correct, when you buy a stock you only have control over whether you sell it but not control over how the investment performs. You ability to sell it does not make it perform better. …
Wrong. My ability to sell a liquid index fund allows me to cut my losses very fast, at low cost. The illiquid nature of real estate investing means a slow sale at high cost. That affects ROI. You don't have to ride the stock market down.
You also conveniently forget the fact that many stock buyers are “buy and hold” buyers just as much as property buyers are.
If one wants “control” the last thing one wants is real estate. It is nonsense to pretend otherwise.
You are right! and also WRONG! lol
Yes, you can cut your losses fast and then have a 0% ROI. Those are you options invest in an index fund or don't invest. If index funds are tanking they are all probably doing poorly and this post was ONLY about passive stock investing in index funds.
Real estate can "lose" value and still be a positive ROI because an income producing properties return isn't only based on market appreciation creating equity.
You're only control with the stock investment is to "not invest" aka sell. With real estate there are infinite options to increase your return. Simply reducing your expenses in real estate IMMEDIATELY makes your equity rise and also your net income. Shopping for insurance, appealing assessed values, shopping utility providers, making energy efficiency improvements, etc. All choices a real estate investor can make but your ONLY choice with stock ownership is to not own them.
Liquidity is NOT control over the investment itself. Sure it is one aspect of "control" over your personal investments but NOT nearly as important as you make it out to be. RARELY does a real estate investor worry about being caught unable to access equity
I noticed you ran right away from the fact that real estate traps you into a vulnerable position regarding economically ignorant people and those who cater to them. Why is that?
Before you answer, make sure that you account for the fact that people could trade stocks throughout the pandemic, but landowners couldn’t evict nonpaying tenents, because I WILL ask you how much “control” you have over your property when you cannot evict or prevent others from freely using your property.Untrue, because the question here was stock index funds to passively invest! In order for you to buy individual stocks you need to be an active investor researching and picking stocks which is outside the scope of this discussion.
So, no you can't pick a new stock and even if you want to talk active stock investing and picking individual stocks you're talking about lower on average returns because even most professional stock pickers don't beat index funds long term and have a greater risk of loss.
I collected OVER 100% of rent during the pandemic and had no issues with evicting anyone. So, apparently I had all the control I needed.
You do realize the market has stops in it to prevent trading in certain circumstances. So, of course you can't always sell. So, in that circumstance you have NO control over your stock investment because you can't even sell it. So, you have ZERO choices at that moment.
I didn't skip your statement about vulnerable position of real estate investment. Actually its much the opposite. Because real estate is so important there is LESS nonsense from these things. Much easier to pass laws that affect a publicly traded business. A simple example are the new $20/hour minimum wage laws coming online out west.
2. Less nonsense? Two words for you: Rent control.
3. Minimum wage is untoward control? Sorry, my friend, but prices are passing along costs. Rent control is price control, the stock economy doesn't have it.
4. Consider yourself lucky (as I was) that you collected all your rent and had no trouble collecting rents during the pandemic. Luck, however, has nothing to do with control. Toss a manhole cover around here and you'll hit BP posters who didn't have such "control."
1. So, then the market tanks, you would sell one index fund that is falling to buy another that is falling? Yes, in some cases they don't all fall at the same time, but in many cycles they do.
2. Rent control?!? You do realize real estate investors have control over where they invest. Like any active investment/business evaluating the business environment is part of the CONTROL we have!
3. Prices are not passing along costs in all cases like that! Some businesses will pull out entirely. Some will change their approach and lay people off and implement new technology. Since all related businesses are not affected the same way, some will gain a competitive advantage. If some can implement technology well prices might NOT go up which will hurt businesses that cannot make those changes.
So, for #2 and #3, stocks have no control because you have no control over where the underlying business operates or how they do business, but for real estate the investor can choose where they invest after evaluating the environment for example the likelihood of rent control. So, again real estate investor has "control". Control is CHOICES over taking actions, NOT CHOICES IN THE RESULT.
4. It wasn't just luck. It was in part how one does business aka CONTROL! Because real estate investors have choices in how they operate in any given environment some will do better than others.
Also, MANY landlords did BETTER during COVID but people doing better don't complain! There was TONS of rental assistance money for ~3 years such that anyone who needed help could get it. So, while a landlord might get taken advantage of by a bad tenant, the tenants who honestly struggle had all the financial help they needed. There are a LOT more people who have honest struggles than there are dishonest people taking advantage.
Since, I operate a certain way, I didn't have those dishonest tenants only ones with honest struggles who could tap into all of that free money to help them! The fact that this was my tenant profile was because of my CHOICES aka "control" I had over the investments.Real estate cratered nationwide in 2008 and thereabouts remember? ANY price can go down, so your example proves nothing.
Rent control applied after the fact kills because you can't get out fast, like you can with stocks. Also, they can change the terms of rent control once imposed. Just ask the landlords getting killed in New York City.
Real estate is a tax play. Real estate is a "this is mine" psychology play. It is not a "control" play. Invest in the right area and you make a killing. Invest in the right stocks, you make a killing. Neither has much to do with control. People who bought New York City apartment buildings (rent control) in 2027 got hammered with the 2018/19 rent control law changes. People who bought/are buying in Florida (Miami) are going to get hammered with rising sea levels. Miami's flood mitigation plan will ruin the views of the bay, cost over $5 billion, and will only work for a short while. People trying to get out of Florida real estate will get hurt.
Sing and dance all you want, but illiquidity kills "control."
Real estate DID NOT CRATER in 2008! For a real estate investor, any distressed condition is an OPPORTUNITY! Unlike a stock, real estate never loses all value. In addition, MANY real estate investors don't focus on equity/property values they make their money on cash-flow, value add, etc. So, property prices falling isn't horrible for real estate investors. Yes, some sill struggle but because real estate investors have SOME CONTROL, when that happens its an opportunity for many to make EVEN MORE money!
You rent control example is EXCELLENT in part because policies like that don't just randomly happen. They are predictable to an extent. So, real estate investors can assess the chances of these things happening and make decisions because THEY HAVE SOME CONTROL!
The examples you gave were also EXCELLENT because the investors who you say are suffering from changes affecting real estate CHOSE to be there. That IS CONTROL! Just because they made choices that may not work out in the near term doesn't take away from that.
With a stock investment you have ZERO control. The only choice is not to invest. No control over the investment itself. Keep in mind stockbrokers/investors etc are literally known to jump to their deaths when things go bad! I don't think they are doing that because they have control of the situation.
Hi Hayden,
I would say the stock market can be a little bit more volatile but based on the data and history both tend to recover. What I've learned so far is that investing is a long term game and not a get rich quick scheme lol. I think why not invest in both and diversify. If you can I would do both. Real estate investing can be time consuming and hard work especially in the beginning but once you do a few deals it will get easier and you will learn ways to make your real estate investing much easier. But until then it will take time and work. You can also try looking into syndication deals that's where people basically invest money on a deal like an large multifamily deal that has x amount of units and a group of people come together and put their money in that deal and have someone manage the deal to make sure its profitable. I would suggest to try and look into syndication deals but be careful as some are not that great in your return. Make sure you do your due diligence when looking into syndicating.
Quote from @Kevin Sobilo:
Real estate DID NOT CRATER in 2008! ....
You[r] rent control example is EXCELLENT in part because policies like that don't just randomly happen.
With a stock investment you have ZERO control. The only choice is not to invest. No control over the investment itself.
Rubbish.
Real estate did crater in 2008, alleged rent control randomness has nothing to do with not being able to extricate oneself from the situation once it starts (or pandemics declared so free rent, etc.), and try searching the internet for "activist investors" before you say that the only choice is to not invest. You may send your apologies to Carl Icahn via this forum.
I note that you've run away from the fact that one can find, and invest in, alternative stocks (or indexes) far more easily than one can sell current property and find and invest in a new one.
There is less control when one is in an illiquid investment. Real estate is illiquid.
#1 Legal & Legislation Contributor
- Rental Property Investor
- Hanover Twp, PA
- 2,451
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#1 Legal & Legislation Contributor
- Rental Property Investor
- Hanover Twp, PA
Quote from @John Clark:
Quote from @Kevin Sobilo:
Real estate DID NOT CRATER in 2008! ....
You[r] rent control example is EXCELLENT in part because policies like that don't just randomly happen.
With a stock investment you have ZERO control. The only choice is not to invest. No control over the investment itself.Rubbish.
Real estate did crater in 2008, alleged rent control randomness has nothing to do with not being able to extricate oneself from the situation once it starts (or pandemics declared so free rent, etc.), and try searching the internet for "activist investors" before you say that the only choice is to not invest. You may send your apologies to Carl Icahn via this forum.
I note that you've run away from the fact that one can find, and invest in, alternative stocks (or indexes) far more easily than one can sell current property and find and invest in a new one.
There is less control when one is in an illiquid investment. Real estate is illiquid.
Real estate values dropped ~2008 but real estate investments are NOT just about equity on paper. They are income producing assets! Why would someone want to extricate themselves from a deal where they are MAKING MONEY?!?
Activist investors are "market makers". If you buy a controlling interest in a company that's different and also NOT PASSIVE! So, not part of this discussion because its not passive which was the point of the post.
I have not run away from the fact that with a stock you can change investments faster and more easily. I admitted that up front but real estate investors don't worry about that because a good investment rarely suddenly becomes a bad investment unlike in the stock market.
Also, real estate investors can leverage their real estate and invest the proceeds somewhere else pretty fast. If I have an open HELOC on a property, I can withdraw funds today and invest almost as fast as investing in stocks! Real estate is less liquid but not "illiquid" but as I have said there isn't as much downside to that as you seem to think because real estate investors have so much more control over their deals/investments. Your ONLY control over your stock investment is selling.
Also, keep in mind your liquidity with stocks comes at a cost in that is triggers a taxable event. Again something you have less control over than with real estate investments. Since you can't do anything with your deal to make it better and your only choice is whether to sell or not, you are more prone to trigger those taxable events under duress as opposed to the more planned taxation or more likely the deferral thereof with real estate.
#4 Syndications & Passive Real Estate Investing Contributor
level 1) your question , which is better, answer: Depends, please read Brian Davis excellent article,
Real Estate vs. Stocks (What 145 Years of Returns Tells Us) (biggerpockets.com)
level 2) what should you do next 50 yrs, answer: Whichever one gives you an EDGE. you need to study both, then find which one you really can't stop thinking/dreaming about, then study/breathe/chew/swallow/digest everything about that one and better yet a narrow focus within, so you can develop an informational EDGE. Publius Ovidious Naso or "Ovid" once said 2000 yrs ago "Ipsa Scientia potestas est." "knowledge, itself is power."
not sure what to do buy VNQ/VOO (50/50) US REITs/SP500, over last 20 yrs they have returned 11.5%/9.5%, good luck :)
Quote from @John Clark:
Quote from @Kevin Sobilo:
Buying stocks in an index fund is no work, but also NO CONTROL! When you make real estate deals, they are what YOU make out of them when you invest actively. So, you have some real control over how things go.Control is wealth! The first thing a "wealthy" person typically does is buy back their time aka assert more control over their situation in life.
Lemme get this straight: I have no control when I have a highly liquid, fungible, instrument bottomed on hundreds, if not thousands, of assets across a continental or even global geography, and many asset classes, and I can buy or sell at a moment's notice.
I DO have lots of control, however,when I buy a single asset class in the form of an illiquid, unfungible, single asset class that is highly localized, and subject to the whim and caprice of economically ignorant people and those who cater to them.
No. Real estate is a tax law play and a local economy play. It is also a "this is mine and it's tangible" psychological play. It is not a "control" play.
You have the least control if you're just buying into the paper of it. You have the easiest form, and likely the most liquid. Control and liquidity are not synonymous. Think about a REIT versus owning physical real estate; REIT is the most liquid, physical is the most control. In the REIT what input are you giving to manage the debt, manage the tenants, manage the acquisition process? Zero. Versus getting into physical real estate? You're doing it all, or at least giving direction on how to do it all.
Buying equities with leverage is not the same as buying physical real estate with leverage. Equities with leverage from your brokerage is an instant tap versus your lender who you may be underwater, they won't ask you cover the difference unless you realize the loss. Equities come with consistent and constant mark to market valuation, real estate does not. It's apples to oranges, not a great comparison.
Real estate is now, more or less, a scarcity play.
Leverages is the biggest advantage with real estate. An index fund will only appreciate from the amount you bought it, unless you are a day trader that is very experienced in using leverage and profiting from it (this takes many many many years and tons of patience and work).
I can put down as low as 5k (15k if investment property) on a 100k property and it will appreciate around 3.8% a year. An index fund will average around 7% on only what you put in. So lets hypothetically say you bought 15k worth of a stock, you would have about 16k at the end of the year 1k appreciation that will be susceptible to taxes if lets say you sold it, with a property at the average appreciation rate you would have $3800 of appreciation, you would have paid down some principle (maybe $1000 or more), hopefully got some extra money from renting it, and you would also most likely pay no taxes as the end of the year if you had sold it.
There's a lot more factors that go into play, but real estate definitely wins in my opinion. I did day trading and invested in many stocks, and index funds. I wish I had just done real estate instead earlier.
This has been an interesting thread. I do both real estate and stocks but my portfolio is heavily weighted towards real estate. Like the others have said, leverage is a huge factor with real estate and there are tax benefits.
On a smaller scale, anecdotally, I know 3 people who have quit their W2 jobs early from rental property that bought pre-2008 in California and another investor in the Midwest, who bought before 2017, all right around 40. I don't know anyone who has no real estate (except a primary residence), who was able to quit their jobs early from stocks. There are probably exceptions but this is just the small circle of investors I know. There are thousands of people in the Bay Area who were middle class, not high earning tech workers or doctors, that are millionaires from owning one to two properties going way back to 1970s to 1980s.
With some of my stock picks haven't gone well - bought cannabis stock since I thought it would go up in value as marijuana is legalized in more states. I have no influence over if Apple or Google stock goes up or down, other than to buy more or sell. I do think there's less headache factor with stocks than dealing with rental property.
I feel that I have more control with real estate: picking the location, the property, contractors, property manager, can value add with adding a room, kitchen/bathroom upgrades, etc. That being said, I'm not trying to scale more right now and try to remain liquid and looking into other investing strategies and buying more tech stocks cautiously... should've bought NVDA over a year ago lol