Is real estate a better investment than the stock market ?

[John Lane]

If I'm getting about getting about 12% ROI in the stock market can I do better in real estate? After paying management fees? I'm interested IF I can do better!

[Joe Villeneuve]

Originally posted by @John Lane:

@Joe Villeneuve

Could you explain or give me an example?

 Say you start with $100k and reinvest all returns back into investment over a 5 year period.  

We'll give you a 12% annual return in the form of value of the Stock on your Stocks with the understanding that the initial value of the stocks are equal to the cost of the stocks, and...

I'll take only a 5% annual return in the form of value of the REI with the understanding that my $100k is only 20% of the actual value of the REI. In addition, I also get $4k/year in cash flow (that I will NOT reinvest).

Stocks:
5 years of 12% returns equals $176k in value...and a Return/profit of $76k

REI:
5 years of 5% returns, but based on an original value of $500k equals $638k in value...and a return on just the value of $138k.  Keep in mind though, when you first invested, you had already gained 400% in value.
When you add in the $4k/year in cash flow (which was not reinvested) you get a Total Return of $158k over that same 5 year period...investing the same $100k at the start.

Add to the REI return the equity accumulated per year from the pay down of the principle that the tenant is paying for you, and you have even greater returns.

In addition, since we would be accumulating (not reinvesting) the cash flow returns, at the end of the 5 year period, you would have enough cash ($20k) to invest in a $100k property with 20% ($20k) cost/investment...and add that to the next 5 years.