My first investment-Real Estate vs. Stocks

[Dan Giungi]

Hi! I'm hoping there's a few people on here that can give me a little guidance. I'm 26 and just starting to seriously look into real estate investing as a vehicle to become financially independent and fund my retirement. However, there's a few different factors in play and I'm trying to figure out exactly how to strike a balance between them. I'll give a brief background below to provide some context.

Through the course of my work I've worked with a number of landlord, real estate investment and property management groups, so I have a strong working knowledge of the fundamentals and I know it's not as easy as many beginners might think. However, the idea of building my own business through real estate and becoming financially independent is intriguing and what I've always wanted to do.

I've been saving money in a standard savings account that accrues minimal compounding interest. 

I don't have stocks or bonds. However, in another year I'll be vested in a pension through my employer and they will make automatic contributions without a required matching contribution from me. 

I have enough money in my savings account at this point to make between a 10-20% down payment on an investment property with enough left over for a substantial reserve fund.

This is my dilemma: I'm stressing out about not having any money invested in stocks and feel like I might be missing out on compounding interest. Should I take part of the money in my savings account and invest in stocks, then build my savings back up to make a down payment on an investment property? Or should I stay the course, hold steady and purchase a quality investment property with a strong ROI and then begin investing in stocks while building equity in the property so I can use a home equity loan in the future to acquire another property. 

Any advice or experience would be greatly appreciated, thanks in advance!

[Daniel P Willis]

@Dan Giungi  I think that that is an excellent question, but I think you're looking at it from the wrong point of view.  Investing in stocks and investing in real estate have two different goals. With stocks the bulk of your wealth is built through capital appreciation as the stocks that you have purchased grow in value so that they can be sold at a later date, yes there are dividends associated with  stocks however these dividends are usually in the lower percentage yield around 2 to 3%. Another thing to keep in mind is that dividends are not guaranteed, though you can find companies such as Disney that have reliably Paid dividends over a long period of time such as 30 years. 

            Real estate can be used to gain wealth in different ways, you have of course flipping a house or property, but you have rental income which is a passive flow of income that comes from renting the real estate property you own.  That passive income is similar to dividends in the essence that you receive money from money that you've invested but different in the yield you should see from your investment, were dividends would yield somewhere around 2 to 3%, on average a rental property you could yield anywhere from 8 to 20% and higher depending on your area and the way you leverage funding.  There are of course so many different examples that you could fill a book, or many,  but the main point that I'm trying to make is that I would sit down and think about what your goal is for the money that you have set aside. Do you want that money to gain in appreciation or do you want that money to bring in a passive flow of income, yes both real estate and stocks will do both however  stocks are more geared towards appreciation whereas real estate in terms of renting is more geared towards passive income. So if you want a passive flow of income I would consider coming up with a solid real estate plan and going from there, if you'd like to see your money gain an appreciation then I would consider coming up with a solid investment plan  in regards to the stock market with stocks and bonds in similar investments like that. Hopefully this has been helpful, good luck and keep us posted on what you decide and if you have any questions!