Concrete example of how long term rentals beat stocks

[David Yee]

Hello,

I've started pricing out rental properties on Redfin using a spreadsheet I downloaded from the files section here at Bigger Pockets. Something I'm still not understanding is how long term rentals actually beat the stock market. For example, this is my math on a potential property:

$100k property:

- cash outlay = $25k down + $15k for closing costs, repairs, etc. = $40k

- $85k loan to account for improvement

Assuming 7% Cash on Cash Return, I would accrue $2,800 in cash flow at the end of year 1. Assuming I sell the rental and am able to cover the closing costs, repairs, etc. with appreciation, it seems I would walk away with $42,800.  

If I bought and sold stock with the same cash investment and return, I would receive $42,800 at the end of year 1 just like in the rental example above.

I realize I should hold rental properties for longer periods of time, but I'm not sure how the rental scenario beats the S&P 500. 

Can someone please provide an example with concrete numbers that show how the 4 dimensions of long term rental properties beat the stock market? 

Thank you!!!

[Nathan Gesner]

I'm on my cell phone so forgive me for using a dated, low priced example.

in 2004 I purchased a townhome for $67,500. Things were looser back then, so I only invested $7,000. I held that property for 8 years and use the cash flow for improvements over the years. When I sold the property in 2012, I cashed out $78,000 and I had over $5,000 in my bank account. If my math is correct, that's a 985% return or 33% annual. And that does not include the other benefits of owning real estate.

since 2016, I have invested in 33 rentals and a small storage facility. I have a relative that has invested in the stock market since the seventies. Our portfolios were worth about the same a year and a half ago, but he has since lost about 25% value in the past year while my value and cash flow has increased. His annual dividends are about $50,000 while mine are easily three times that. And the real kicker? He's afraid to pull money out because of the taxes while I'm enjoying tax shelters that enable me to make over half a million dollars in one year and pay almost nothing in taxes.

I've read opinions that the stock market and real estate are comparable, but that doesn't jive with what I've experienced in the real world.