Buy & Hold Real Estate Investing vs. Buy & Hold Stock Purchases

[Chris Mackey]

Hello,

I am new to this forum and real estate investing. I have been doing some reading and feel that real estate could potentially help me reach my goal of financial freedom so that I have more time to spend with my family. 

After giving the idea some thought, I also felt it was a good idea to review my current stock investments, their performance over the last few years, and the overall stock market return since inception to see which strategy (stock vs real estate) would be the most beneficial option for passive wealth generation. At the end of the day, I want to make sure I am making the best possible decision for my family.

The S&P 500 return since inception is in the 10% range without adjusting for inflation. I feel this is a good benchmark to use to compare to investing in buy and hold real estate. 

With that said, I have ran some different scenarios and feel as if I am missing something when comparing the 2 strategies.

Below is what I came up with.

A recent property deal (a small apartment)  I used as a comparison was this:

Purchase price: $140,000

Approximate value: $155,000

Reconditioning: $5,000 - $10,000

Down Payment: $35,000

Annual Appreciation: 1%

Approx. Positive Monthly Cash Flow: $225 (after deductions for principle, interest, insurance, tax, HOA, 10% of rent for maintenance, 5% vacancy)

The numbers over 30 years I came up with were as follows:

Property value at 1% appreciation: $209,000

Mortgage balance: $0

Positive Cash Flow Accrued: $81,000($225/mo x 360 months w/ no add for rent increases. Not sure best way to figure that)

Initial Cash Investment: $42,500 with upfront reconditioning costs

Using the above numbers my investment would give me all the equity ($209,000) plus the 30 years of positive cash flow ($81,000) for a total worth of $290,000.

I realize I am not factoring the tax benefits, but I am not sure of a good way to do this.

Stock Market Investment:

Initial Cash Investment: $42,500

Rate of Return: 10%

Value After 30 Years: $741,600

As I said, I feel as if I am missing something. I feel that there shouldn't be such a large gap between the two returns ($741,666 vs $290,000).

What am I not factoring?