Is real estate investing better than stock investing?

[David Benjamin]

With stock investing I can spend a few minutes a month looking at stock prices and entering a buy or sell order in my brokerage account and earn 8% annually on average. To earn the same return with real estate, I would need to get approved for a mortgage, hire a realtor, look at homes, hire an inspector,  buy the house, hire a property manager who I hope will do a good job, and rent it to someone who may or may not tear the place up or pay rent on time. So what am I missing here? How is real estate better than stocks? I appreciate your input.

[JD Martin]

It's "better" , dollar for dollar, because of five facets that stocks don't have:

1. Leverage - 25 of your dollars gives you another 75 of someone else's dollars in order to purchase assets. Normal people cannot do this with stocks. You get to invest 4 times your actual money in assets, and collect the compound on that.

2. Value add - you get to apply your own time, money, and knowledge to the asset to increase its value. You can't do that with a stock.

3. Tax treatment - the US tax code is highly favorable to real estate investors relative to all other forms of investment.

4. Inflation - your asset combats inflation on three fronts - value of the property, increases in rent, and destruction of debt.

5. Death benefits - RE can be passed to your heirs largely without triggering any tax or sell off costs.

Now dollar for dollar the two are about the same, ie if you were going to buy rentals all cash and make it almost 100% passive with property management, contractors, etc, you'd probably be about even. But if you leverage smartly, apply some effort to the properties, and run your taxes right, you will be far, far ahead with RE in the long run. 

The major difference here is that RE is never really "passive" in the sense of owning a mutual fund or even just some buy and hold dividend stocks. If you aren't willing to do any work, you are almost certainly better off sticking with stock.