Help Needed: Single Family Rental Properties v.s. Stock Market Returns
New to Real Estate · Houston · Member since 2023 · 3 posts · 5 votes
Help Needed: Single Family Rental Properties v.s. Stock Market Returns
Most Popular Reply
Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
2y@Hayden Kerns, it sounds like you have a fair understanding of the differences at a high level. Here are a few things to think about.
1. You can invest in real estate passively as well and still reap the benefits of ownership like depreciation deductions on your taxes. For example, by investing as a limited partner in a syndication.
2. With stocks, you might see 7-10% growth over time, BUT the risks are higher even with an index fund such that if you NEED to use the money for income you end up needing to diversify into more conservative options. At that point you won't see that 10%.
If you didn't diversify, when the market has a prolonged downturn, you will eat up your principle using that money to live and then not have enough to generate the returns you need when it picks back up.
3. Cash-flowing real estate is more consistent for income purposes unlike stocks in #2. You can manage them such that you can have fairly steady income that you can count on.
4. You are concerned about the work involved in real estate investing, but the people who do "active" investing tend to be PASSIONATE about it. You never work a day in your life if you are doing something you're passionate about.
5. A 10% ROI for active real estate investing would not be good.
Do, a BRRRR deal where you rehab a distressed property into a cash-flowing rental and refinance out ALL your money (or MORE). From that point forward you have $0 invested. So, all of the cash-flow, mortgage paydown and market appreciation are an INFINITE ROI!
6. Buying stocks in an index fund is no work, but also NO CONTROL! When you make real estate deals, they are what YOU make out of them when you invest actively. So, you have some real control over how things go.
Control is wealth! The first thing a "wealthy" person typically does is buy back their time aka assert more control over their situation in life.
60 Replies
- Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes2y
@Hayden Kerns, it sounds like you have a fair understanding of the differences at a high level. Here are a few things to think about.
1. You can invest in real estate passively as well and still reap the benefits of ownership like depreciation deductions on your taxes. For example, by investing as a limited partner in a syndication.
2. With stocks, you might see 7-10% growth over time, BUT the risks are higher even with an index fund such that if you NEED to use the money for income you end up needing to diversify into more conservative options. At that point you won't see that 10%.
If you didn't diversify, when the market has a prolonged downturn, you will eat up your principle using that money to live and then not have enough to generate the returns you need when it picks back up.
3. Cash-flowing real estate is more consistent for income purposes unlike stocks in #2. You can manage them such that you can have fairly steady income that you can count on.
4. You are concerned about the work involved in real estate investing, but the people who do "active" investing tend to be PASSIONATE about it. You never work a day in your life if you are doing something you're passionate about.
5. A 10% ROI for active real estate investing would not be good.
Do, a BRRRR deal where you rehab a distressed property into a cash-flowing rental and refinance out ALL your money (or MORE). From that point forward you have $0 invested. So, all of the cash-flow, mortgage paydown and market appreciation are an INFINITE ROI!
6. Buying stocks in an index fund is no work, but also NO CONTROL! When you make real estate deals, they are what YOU make out of them when you invest actively. So, you have some real control over how things go.
Control is wealth! The first thing a "wealthy" person typically does is buy back their time aka assert more control over their situation in life.
- Member since 2024 · 37 posts · 52 votes2y
Quote from @Hayden Kerns:
Real Estate or the Stock Market. For those that have ventured into either avenue of investing, what insights can you share? Have you found real estate to be more lucrative and stable over time, or do you believe that the stock market offers better returns and flexibility?
I understand that residential rental properties can provide positive incentives through loan paydown, tax incentives, cash flow, and appreciation. Based on my research, it is possible to become financially free through real estate investing, but requires hard work and time. Why would I not just invest my hard earned money into an index fund that is generating a yearly return of 10% with no hassle of managing tenants, expensive CAPEX, etc.
I value the insight of everyone and would appreciate your perspectives on the matter. Thank you!
I've built the majority of my wealth as a trader and investor of stocks. Very difficult to do IMO for the majority by simply buying and holding index funds or even individual stocks. I trade mostly options and have shorted stocks but it's not my strength. There's nothing wrong with buying and holding stocks and you obviously could accumulate a great deal of money doing so if you start early in life. The way I think about stocks Vs RE would be stocks build personal wealth and Real Estate builds generational wealth, this would be my simple way to explain how I think of it. I have recently started to believe that it is less a choice between the two and more a way to diversify wealth with assets that behave very differently. Real property is also a great hedge against inflation.
The USA has very friendly tax laws for property owners but they quickly swing against you if you decide it's time to exit the investment, passing it on to heirs is the way to create that generational wealth so once you commit to it then its a commitment for life in my opinion.
- Member since 2024 · 18 posts · 5 votes2y
Quote from @Kevin Sobilo:
@Hayden Kerns, it sounds like you have a fair understanding of the differences at a high level. Here are a few things to think about.
1. You can invest in real estate passively as well and still reap the benefits of ownership like depreciation deductions on your taxes. For example, by investing as a limited partner in a syndication.
2. With stocks, you might see 7-10% growth over time, BUT the risks are higher even with an index fund such that if you NEED to use the money for income you end up needing to diversify into more conservative options. At that point you won't see that 10%.
If you didn't diversify, when the market has a prolonged downturn, you will eat up your principle using that money to live and then not have enough to generate the returns you need when it picks back up.
3. Cash-flowing real estate is more consistent for income purposes unlike stocks in #2. You can manage them such that you can have fairly steady income that you can count on.
4. You are concerned about the work involved in real estate investing, but the people who do "active" investing tend to be PASSIONATE about it. You never work a day in your life if you are doing something you're passionate about.
5. A 10% ROI for active real estate investing would not be good.
Do, a BRRRR deal where you rehab a distressed property into a cash-flowing rental and refinance out ALL your money (or MORE). From that point forward you have $0 invested. So, all of the cash-flow, mortgage paydown and market appreciation are an INFINITE ROI!
6. Buying stocks in an index fund is no work, but also NO CONTROL! When you make real estate deals, they are what YOU make out of them when you invest actively. So, you have some real control over how things go.
Control is wealth! The first thing a "wealthy" person typically does is buy back their time aka assert more control over their situation in life.
Hey there on your #1 for syndication, what is typically a good ROI % would you expect and have you ever invested in one before? What are some of the bigger names that are well known?
- Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes2y
I think the big component is leverage.
You buy a $1M asset that is leveraged at 80% LTV. Appreciation is based on the $1M, not the $200K.
The other component is no matter what happens to the property, you always have at least land value. You could invest in a company that goes under and you lose everything. Plus real estate is a necessity. People have to have a roof over their heads. I would make the argument that real estate is safer in a lot of ways.
- 2yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes...and that should just about cover it.
Quote from @Rick Albert:
I think the big component is leverage.
You buy a $1M asset that is leveraged at 80% LTV. Appreciation is based on the $1M, not the $200K.
The other component is no matter what happens to the property, you always have at least land value. You could invest in a company that goes under and you lose everything. Plus real estate is a necessity. People have to have a roof over their heads. I would make the argument that real estate is safer in a lot of ways.
- Member since 2024 · 400 posts · 240 votes2y
Quote from @Rick Albert:
I think the big component is leverage.
You buy a $1M asset that is leveraged at 80% LTV. Appreciation is based on the $1M, not the $200K.
The other component is no matter what happens to the property, you always have at least land value. You could invest in a company that goes under and you lose everything. Plus real estate is a necessity. People have to have a roof over their heads. I would make the argument that real estate is safer in a lot of ways.
In the current market isn't it more like 40% DP and 60% leveraged? It has affected the ROI quite a bit.
- Member since 2024 · 400 posts · 240 votes2y
Quote from @Mark Cotter:
Quote from @Hayden Kerns:
Real Estate or the Stock Market. For those that have ventured into either avenue of investing, what insights can you share? Have you found real estate to be more lucrative and stable over time, or do you believe that the stock market offers better returns and flexibility?
I understand that residential rental properties can provide positive incentives through loan paydown, tax incentives, cash flow, and appreciation. Based on my research, it is possible to become financially free through real estate investing, but requires hard work and time. Why would I not just invest my hard earned money into an index fund that is generating a yearly return of 10% with no hassle of managing tenants, expensive CAPEX, etc.
I value the insight of everyone and would appreciate your perspectives on the matter. Thank you!
I've built the majority of my wealth as a trader and investor of stocks. Very difficult to do IMO for the majority by simply buying and holding index funds or even individual stocks. I trade mostly options and have shorted stocks but it's not my strength. There's nothing wrong with buying and holding stocks and you obviously could accumulate a great deal of money doing so if you start early in life. The way I think about stocks Vs RE would be stocks build personal wealth and Real Estate builds generational wealth, this would be my simple way to explain how I think of it. I have recently started to believe that it is less a choice between the two and more a way to diversify wealth with assets that behave very differently. Real property is also a great hedge against inflation.
The USA has very friendly tax laws for property owners but they quickly swing against you if you decide it's time to exit the investment, passing it on to heirs is the way to create that generational wealth so once you commit to it then its a commitment for life in my opinion.
Mark, can you expand on what you meant by "....they swing against you if you decide to exit the investment". Thanks.
- Member since 2024 · 37 posts · 52 votes2y
Quote from @Kevin S.:
Quote from @Mark Cotter:
Quote from @Hayden Kerns:
Real Estate or the Stock Market. For those that have ventured into either avenue of investing, what insights can you share? Have you found real estate to be more lucrative and stable over time, or do you believe that the stock market offers better returns and flexibility?
I understand that residential rental properties can provide positive incentives through loan paydown, tax incentives, cash flow, and appreciation. Based on my research, it is possible to become financially free through real estate investing, but requires hard work and time. Why would I not just invest my hard earned money into an index fund that is generating a yearly return of 10% with no hassle of managing tenants, expensive CAPEX, etc.
I value the insight of everyone and would appreciate your perspectives on the matter. Thank you!
I've built the majority of my wealth as a trader and investor of stocks. Very difficult to do IMO for the majority by simply buying and holding index funds or even individual stocks. I trade mostly options and have shorted stocks but it's not my strength. There's nothing wrong with buying and holding stocks and you obviously could accumulate a great deal of money doing so if you start early in life. The way I think about stocks Vs RE would be stocks build personal wealth and Real Estate builds generational wealth, this would be my simple way to explain how I think of it. I have recently started to believe that it is less a choice between the two and more a way to diversify wealth with assets that behave very differently. Real property is also a great hedge against inflation.
The USA has very friendly tax laws for property owners but they quickly swing against you if you decide it's time to exit the investment, passing it on to heirs is the way to create that generational wealth so once you commit to it then its a commitment for life in my opinion.
Mark, can you expand on what you meant by "....they swing against you if you decide to exit the investment". Thanks.
Sure, I would guess that most people not well-versed in property investments don't understand the amount of tax payable when you exit the investment. All the benefits you have obtained through depreciation must be recaptured leaving you with a surprisingly large tax bill.
- 2yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesNo. Not if you don't want to wait forever to recover your cost.
Quote from @Kevin S.:
Quote from @Rick Albert:
I think the big component is leverage.
You buy a $1M asset that is leveraged at 80% LTV. Appreciation is based on the $1M, not the $200K.
The other component is no matter what happens to the property, you always have at least land value. You could invest in a company that goes under and you lose everything. Plus real estate is a necessity. People have to have a roof over their heads. I would make the argument that real estate is safer in a lot of ways.
In the current market isn't it more like 40% DP and 60% leveraged? It has affected the ROI quite a bit.
- Member since 2024 · 400 posts · 240 votes2y
Quote from @Mark Cotter:
Quote from @Kevin S.:
Quote from @Mark Cotter:
Quote from @Hayden Kerns:
Real Estate or the Stock Market. For those that have ventured into either avenue of investing, what insights can you share? Have you found real estate to be more lucrative and stable over time, or do you believe that the stock market offers better returns and flexibility?
I understand that residential rental properties can provide positive incentives through loan paydown, tax incentives, cash flow, and appreciation. Based on my research, it is possible to become financially free through real estate investing, but requires hard work and time. Why would I not just invest my hard earned money into an index fund that is generating a yearly return of 10% with no hassle of managing tenants, expensive CAPEX, etc.
I value the insight of everyone and would appreciate your perspectives on the matter. Thank you!
I've built the majority of my wealth as a trader and investor of stocks. Very difficult to do IMO for the majority by simply buying and holding index funds or even individual stocks. I trade mostly options and have shorted stocks but it's not my strength. There's nothing wrong with buying and holding stocks and you obviously could accumulate a great deal of money doing so if you start early in life. The way I think about stocks Vs RE would be stocks build personal wealth and Real Estate builds generational wealth, this would be my simple way to explain how I think of it. I have recently started to believe that it is less a choice between the two and more a way to diversify wealth with assets that behave very differently. Real property is also a great hedge against inflation.
The USA has very friendly tax laws for property owners but they quickly swing against you if you decide it's time to exit the investment, passing it on to heirs is the way to create that generational wealth so once you commit to it then its a commitment for life in my opinion.
Mark, can you expand on what you meant by "....they swing against you if you decide to exit the investment". Thanks.
Sure, I would guess that most people not well-versed in property investments don't understand the amount of tax payable when you exit the investment. All the benefits you have obtained through depreciation must be recaptured leaving you with a surprisingly large tax bill.
Thanks for your response. I am not well versed in property investment. All my investment is in stocks and like you I have begun to not compare which is better, but as 'diversification'. Now back to your response, doesn't it (tax bill) come due eventually?
- Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes2y
Buy the wrong property and you lose your XXX
Buy the wrong stock and you lose your XXX
But with property , you are in control of how its managed .
- Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes2y
Most of us target active real estate investing returns that are well above passive index investing. Real estate investing is too much work to not achieve outpaced returns.
Phoenix homes have appreciated 60% in the past three years. With leverage, that is a 300% return.
- Investor · Cincinnati/Fort Thomas, KY · Member since 2015 · 206 posts · 183 votes2y
@Hayden Kerns
1.
Leverage- I put $30000 down on a $150000 co-living rental in 2019.
2. Appreciation
It appreciated to $250000
Added a bedroom and my rents are $30000 this year and my loan and taxes and insurance are $12000. Tenants pay water, electric, gas, etc.
3. Tax advantages
I have the expenses and other write offs on my first house and then I bought another coliving rental but in my SDIRA this time.
$135000 in 2019. Added a bedroom, tenants pay all utilities. Rent a little over $26000. property taxes and insurance $4000. But pay no taxes on income/gain since it is in SDIRA (depends on your tax bracket but this is a big benefit to me).
I did some private lending at 12% in the past in SDIRA-so tax free.
Meanwhile my W-2 401k and some of my SDIRA is in S&P 500 index. Some great years since 2019 but also an awful year. I use real estate and index funds to diversify.
- Member since 2018 · 7 posts · 21 votes2y
I invested in index funds since 18 (38 now), I bought my primary in 2010, first rental in 2019, second in 2021, and closing on third in August. Real estate blows away stocks. My big realizations.
1. Leverage is bigger than you think. Getting 100% of rental income, appreciation, loan pay down, and depreciation for 20% down makes 10% annual roi easy to destroy.
2. Depreciation recapture can be avoided, depreciate property, trade up through 1031, live off income, die.
3. Think how difficult it is to get a 1 mil stock portfolio compared 1 mil real estate portfolio in retirement. My experience so far is 1 mil in real estate is easier.
4. You get 4% income from stock and that should last 30 years the experts say. 1 mil real estate cash flowing 40k a year seems pretty conservative and comes with pay raises each year and continued growth of net worth. Zero risk of running out of money in real estate. - Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes2y
Quote from @Kevin S.:
Quote from @Rick Albert:
I think the big component is leverage.
You buy a $1M asset that is leveraged at 80% LTV. Appreciation is based on the $1M, not the $200K.
The other component is no matter what happens to the property, you always have at least land value. You could invest in a company that goes under and you lose everything. Plus real estate is a necessity. People have to have a roof over their heads. I would make the argument that real estate is safer in a lot of ways.
In the current market isn't it more like 40% DP and 60% leveraged? It has affected the ROI quite a bit.
That is deal specific. I could argue if someone is house hacking at 3.5% down then that is an even better return. It just depends.
- Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes2y
I've always used the analogy that when you buy real estate, you are in control. You made the decisions that drive your success. In the stock market you are not even the tail on the dog, more like a flea on the tail of the dog.
Financing, as mentioned above is a big component real estate investing. I have never borrowed less than 80% LTV and have financed 90%, 97%, and 95% at times. You can't do that in the stock market and I've never had a margin call in real estate. I really did start with nothing and the first 11 properties I bought were 100% financed in one way or another. I had to get financing, because I had not money, no savings, no rich relatives and was only on the job 9 months when I bought my first property. (which I talked about in Bigger Pockets Podcast #82). If I didn't get heavy financing I would not have been able to buy any real estate. Can't do that on wall street!
Control and financing are only two advantages to real estate. John Paulsen made $5 billion in 2008 stock market, congrats to him. I would say that opportunity was not available to the average small time investor.
- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes2y
Real estate offers by far greater returns, but is also by orders of magnitude more work. It is really not passive income. Leverage and the ability to force equity are two of the biggest tools.
The catch: you will only succeed in RE if you have the "bug". If you only care about your ROI and you don't have a passion for acquireing land and structures, a passion for renovations you won't last in REI.
- 2yG. Brian DavisPro MemberInvestor · Hatboro, PA · Member since 2016 · 2k+ posts · 850 votes
To me, the question isn't "stocks or real estate," because a diverse, recession-resilient portfolio includes both. The question is "Do I want to actively own properties or passively invest in real estate?"
Passive investments include syndications, notes, funds, and real estate crowdfunding investments. For my crowdfunding investments (most of which are short-term), I aim for 6.5-10% returns. For notes, I aim for 10-12% interest. For syndications, I aim for 15-30% (a mix of cash flow and appreciation).
I invest small amounts in each every month through an investment club, and don't have to do any work beyond the initial vetting. If you're curious, I wrote about this for BiggerPockets recently: https://www.biggerpockets.com/blog/gaining-financial-freedom... - Accountant · San Diego, CA · Member since 2019 · 1k+ posts · 552 votes2y
Quote from @G. Brian Davis:
To me, the question isn't "stocks or real estate," because a diverse, recession-resilient portfolio includes both. The question is "Do I want to actively own properties or passively invest in real estate?"
Passive investments include syndications, notes, funds, and real estate crowdfunding investments. For my crowdfunding investments (most of which are short-term), I aim for 6.5-10% returns. For notes, I aim for 10-12% interest. For syndications, I aim for 15-30% (a mix of cash flow and appreciation).
I invest small amounts in each every month through an investment club, and don't have to do any work beyond the initial vetting. If you're curious, I wrote about this for BiggerPockets recently: https://www.biggerpockets.com/blog/gaining-financial-freedom...In practice, knowing how to vet sydicators and ensure they are not screwing you takes a lot of time. almost as long as buying your own deal. Ask me how I know, I'm part of 9 sydications right now and 1 of them blew up because the operator was risky with bridge debt. These sydicators don't care about you, they just want to make their fees and go.
I would highly recommend for anyone starting out to buy their own deals, and invest in passive index funds until they have a better usage for the capital - 2yIan IppolitoBusiness MemberInvestor · Tampa, FL · Member since 2015 · 1k+ posts · 1k+ votesHayden,
Quote from @Hayden Kerns:
Real Estate or the Stock Market. For those that have ventured into either avenue of investing, what insights can you share? Have you found real estate to be more lucrative and stable over time, or do you believe that the stock market offers better returns and flexibility?
I understand that residential rental properties can provide positive incentives through loan paydown, tax incentives, cash flow, and appreciation. Based on my research, it is possible to become financially free through real estate investing, but requires hard work and time. Why would I not just invest my hard earned money into an index fund that is generating a yearly return of 10% with no hassle of managing tenants, expensive CAPEX, etc.
I value the insight of everyone and would appreciate your perspectives on the matter. Thank you!
There's a study on the Federal Reserve website called "The Rate of Return of Everything". It was a groundbreaking study because it was the first to study returns of stock, bonds and residential real-estate since the 1870's across multiple countries. https://www.frbsf.org/wp-content/uploads/wp2017-25.pdf
In the whole period...real-estate had the highest return with stocks a very close second (about 1 percent behind) and bonds lowest.
In the modern era, it was essentially the same but with stocks in first place and real estate a very close second (about 1% behind) and bonds lowest.
And even in the modern era there were many decade long periods where real estate did better than stocks.
Also, there is no way to know what will happen in the future and it's possible that stocks could perform lower for a longer period( or real estate).
So, to me it's a no-brainer that I want the diversification of having *both* in my portfolio (and would never limit myself to just one of the other). Others will disagree and that's fine too.
Also, the above only looks at pretax returns. But post-tax is what matters most to an investor. And certain U.S. real estate tax strategies are very tax beneficial and aren't possible in the stock market. For example: defer, defer and die...essentially allows paying no taxes at all on distributions until a person dies and then heirs don't have to pay taxes either.
So arguably on a post-tax basis (which is what matters most) and to U.S. investors...real-estate blows away the stock market.
But again, I personally prefer to diversify into both.
The Real Estate Crowdfunding Review - 2yJohn MorganPro MemberRental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
@Hayden Kerns
I invest in both. If you can wait 5-10 years to get wealthy off RE then I’d go that route. Leveraging your way to generational wealth in RE is the way to go in my opinion. Rental houses I bought 4-6 years ago are giving me 100% or better returns on my $ when you factor in cash flow, appreciation of 3-5% and principal pay down my tenants are paying off. I can’t get those returns in the stock market. And it’s all tax free passive income due to our tax code. So I’ll take more lucrative RE returns all day long. Plus I like to have tangible assets that hold value over the long run in good times and bad. And this severe housing shortage will keep demand very high for decades no matter what the interest rates are at.
- Member since 2024 · 37 posts · 52 votes2y
Quote from @Kevin S.:
Quote from @Mark Cotter:
Quote from @Kevin S.:
Quote from @Mark Cotter:
Quote from @Hayden Kerns:
Real Estate or the Stock Market. For those that have ventured into either avenue of investing, what insights can you share? Have you found real estate to be more lucrative and stable over time, or do you believe that the stock market offers better returns and flexibility?
I understand that residential rental properties can provide positive incentives through loan paydown, tax incentives, cash flow, and appreciation. Based on my research, it is possible to become financially free through real estate investing, but requires hard work and time. Why would I not just invest my hard earned money into an index fund that is generating a yearly return of 10% with no hassle of managing tenants, expensive CAPEX, etc.
I value the insight of everyone and would appreciate your perspectives on the matter. Thank you!
I've built the majority of my wealth as a trader and investor of stocks. Very difficult to do IMO for the majority by simply buying and holding index funds or even individual stocks. I trade mostly options and have shorted stocks but it's not my strength. There's nothing wrong with buying and holding stocks and you obviously could accumulate a great deal of money doing so if you start early in life. The way I think about stocks Vs RE would be stocks build personal wealth and Real Estate builds generational wealth, this would be my simple way to explain how I think of it. I have recently started to believe that it is less a choice between the two and more a way to diversify wealth with assets that behave very differently. Real property is also a great hedge against inflation.
The USA has very friendly tax laws for property owners but they quickly swing against you if you decide it's time to exit the investment, passing it on to heirs is the way to create that generational wealth so once you commit to it then its a commitment for life in my opinion.
Mark, can you expand on what you meant by "....they swing against you if you decide to exit the investment". Thanks.
Sure, I would guess that most people not well-versed in property investments don't understand the amount of tax payable when you exit the investment. All the benefits you have obtained through depreciation must be recaptured leaving you with a surprisingly large tax bill.
Thanks for your response. I am not well versed in property investment. All my investment is in stocks and like you I have begun to not compare which is better, but as 'diversification'. Now back to your response, doesn't it (tax bill) come due eventually?
The two areas that you should research are "1031 exchanges" and "step up in basis" This should answer your question.
- Member since 2024 · 400 posts · 240 votes2y
Quote from @Mark Cotter:
Quote from @Kevin S.:
Quote from @Mark Cotter:
Quote from @Kevin S.:
Quote from @Mark Cotter:
Quote from @Hayden Kerns:
Real Estate or the Stock Market. For those that have ventured into either avenue of investing, what insights can you share? Have you found real estate to be more lucrative and stable over time, or do you believe that the stock market offers better returns and flexibility?
I understand that residential rental properties can provide positive incentives through loan paydown, tax incentives, cash flow, and appreciation. Based on my research, it is possible to become financially free through real estate investing, but requires hard work and time. Why would I not just invest my hard earned money into an index fund that is generating a yearly return of 10% with no hassle of managing tenants, expensive CAPEX, etc.
I value the insight of everyone and would appreciate your perspectives on the matter. Thank you!
I've built the majority of my wealth as a trader and investor of stocks. Very difficult to do IMO for the majority by simply buying and holding index funds or even individual stocks. I trade mostly options and have shorted stocks but it's not my strength. There's nothing wrong with buying and holding stocks and you obviously could accumulate a great deal of money doing so if you start early in life. The way I think about stocks Vs RE would be stocks build personal wealth and Real Estate builds generational wealth, this would be my simple way to explain how I think of it. I have recently started to believe that it is less a choice between the two and more a way to diversify wealth with assets that behave very differently. Real property is also a great hedge against inflation.
The USA has very friendly tax laws for property owners but they quickly swing against you if you decide it's time to exit the investment, passing it on to heirs is the way to create that generational wealth so once you commit to it then its a commitment for life in my opinion.
Mark, can you expand on what you meant by "....they swing against you if you decide to exit the investment". Thanks.
Sure, I would guess that most people not well-versed in property investments don't understand the amount of tax payable when you exit the investment. All the benefits you have obtained through depreciation must be recaptured leaving you with a surprisingly large tax bill.
Thanks for your response. I am not well versed in property investment. All my investment is in stocks and like you I have begun to not compare which is better, but as 'diversification'. Now back to your response, doesn't it (tax bill) come due eventually?
The two areas that you should research are "1031 exchanges" and "step up in basis" This should answer your question.
Thank you.
- Member since 2024 · 37 posts · 52 votes2y"Historically, stocks have offered better returns than real estate investments. "Stocks have returned, on average, about 8% to 12% per year while real estate has generated returns of 2% to 4% per year," says Peter Earle, an economist at the American Institute for Economic Research. However, other variables like economic conditions and emotional purchasing decisions can result in subpar investments and lower returns."
Quote from @Marcus Auerbach:
Real estate offers by far greater returns, but is also by orders of magnitude more work. It is really not passive income. Leverage and the ability to force equity are two of the biggest tools.
The catch: you will only succeed in RE if you have the "bug". If you only care about your ROI and you don't have a passion for acquireing land and structures, a passion for renovations you won't last in REI.
The problem with asking this type of advice in a RE-centric forum is you will get a lot of bias baked into that advice. "Real estate offers by far greater returns, but is also by orders of magnitude more work". That's only true if you think stocks are simply a buy-and-hold asset but if you match your level of hard work and knowledge into stocks the returns can be far greater than RE. The richest people in the world hold most of their assets in stocks. - Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @Hayden Kerns:
Real Estate or the Stock Market. For those that have ventured into either avenue of investing, what insights can you share? Have you found real estate to be more lucrative and stable over time, or do you believe that the stock market offers better returns and flexibility?
I understand that residential rental properties can provide positive incentives through loan paydown, tax incentives, cash flow, and appreciation. Based on my research, it is possible to become financially free through real estate investing, but requires hard work and time. Why would I not just invest my hard earned money into an index fund that is generating a yearly return of 10% with no hassle of managing tenants, expensive CAPEX, etc.
I value the insight of everyone and would appreciate your perspectives on the matter. Thank you!
after 2023 stock market seems would be better, also everything public investment seems would be better than anything real estate including private.
Join the conversationCreate a free account to reply, vote on answers and follow this thread.