Help Needed: Single Family Rental Properties v.s. Stock Market Returns

[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!

[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.