Real Estate vs. Stocks...Hmmm

[Scott Allan]

I have had a big volume of inquiries on whether I think real estate or stocks make a better investment. A lot of people have asked if I heard the Warren Buffett quote, "When investors are greedy, be fearful. But when investors are fearful, be greedy." Keep in mind that us normal people do not get the same benefits as Mr. Buffett does when we invest in the stock market. He has guarantees, kickers, etc...So for someone looking to begin investing and have the stocks vs. real estate questions I'll mention something very simple.

Take a condo purchase for example for $250,000 and assume you put down $50,000 as a down payment. Then your other option is to purchase stocks, bonds, etc in the amount of $50,000. Calculating a rate of annual appreciation or gain between 2% and 10% using increments of 2, your actual total return in real estate is always 5 times greater than the return on stocks, considering all things being equal.

For instance if you calculate 10% appreciation per year in real estate and 10% gain on a stock over 10 years, your total return in real estate is 500% compared to 100% in the stock market. If you calculate a 2% annual return over 10 years, your total return on real estate is 100%, versus the stock which will give you a 20% return.

It's simple math to me. Investing in the stock market is said to be investing in America's future with the DOW being so low. But it is pure speculation, just like trying to speculate on the housing market. Only thing I am trying to get across is that it is interesting to note that all things being equal, leveraging allows a 2% annual appreciation in real estate to equal a 10% annual rate of return in the stock market.

Scott Allan