Real Estate Consultant · Irvine, CA · Member since 2009 · 102 posts · 24 votes
I can't say how many times people have told me this once I tell them I work in real estate. I've done my research and I think I have a pretty good comeback especially when they throw articles from CNN like this at me:
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
16y
If someone actually referenced that specific article, my comeback would be the fact that that article ONLY considered market appreciation levels in RE and not all the other factors that could contribute to a higher return.
For instance, in addition to market appreciation, you have forced appreciation, tax advantages, leverage advantages, and the fact that you can buy RE at a discount at acquisition and you can not with stocks. The price you pay for a stock is 100% retail market price that day whereas, in RE, I can buy something that is currently valuated at $100k in it's existing condition and only pay $60k for it. I just got a 40% return on day one - how much did the stock buyer gain that same day?
Lastly, buy and hold is not the only way to make money investing in RE. You can flip as I do and make 100% annual returns very easily if you know how. Show me any stock broker that can consistantly do that year in and year out.
Investor · Morgantown, WV · Member since 2008 · 207 posts · 33 votes
16y
I think you should invest in what you are knowledgeable about and good at. Some people may have a knack for the stock market or may prefer a more passive investment. Just read a headline on AOL about a lady who bought 3 $60 shares of a company she worked for years ago. When she died, they were worth 7 million. I definitely believe in plowing some RE earnings into the market and other investments, if possible.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
16y
If someone actually referenced that specific article, my comeback would be the fact that that article ONLY considered market appreciation levels in RE and not all the other factors that could contribute to a higher return.
For instance, in addition to market appreciation, you have forced appreciation, tax advantages, leverage advantages, and the fact that you can buy RE at a discount at acquisition and you can not with stocks. The price you pay for a stock is 100% retail market price that day whereas, in RE, I can buy something that is currently valuated at $100k in it's existing condition and only pay $60k for it. I just got a 40% return on day one - how much did the stock buyer gain that same day?
Lastly, buy and hold is not the only way to make money investing in RE. You can flip as I do and make 100% annual returns very easily if you know how. Show me any stock broker that can consistantly do that year in and year out.
Real Estate Investor · Oklahoma City, OK · Member since 2009 · 86 posts · 39 votes
16y
The basis for the comparison seems a little silly...It's a bit like making the claim that overall athletes who compete in the summer Olympics are better athletes who compete in the winter Olympics. When you don't have head-to-head competition in the same sport, it's just really hard to make that type of comparison.
The article seems aimed more at reassuring the long-term buy and hold stock investor that they are indeed making a good decision with their resources. It's a little like watching a presidential debate. There is little attempt at an actual debate...mostly, they speak to their base trying a to paint a pretty picture for their side appearing all the while to unbiased.
However, I have serious misgivings about the relevance of this type of approach (i.e., if one were to focus on the stock market) for the average person. The average person doesn't have the discipline to just leave their money in an index fund and forget about it.
When I was investing in stock, I picked individual stock - and got absolutely slaughtered. My problem is that I didn't really understand what was going on for these companies.
I defy any average investor to claim they have a true understanding of the companies in which they invest their money. Even the employees of these companies have a hard time figuring out what's going on.
It's totally different when you are at the helm of your own company. Most people are not cut out to take that on...but I've gone from loosing money in just about very investment (stock market guessing) to understand how to put together a money making machine (real estate).
I'll never go back to stock guessing...thank you, real estate.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
16y
Scott makes a very clear and valid point here and I agree 100%. Comparing the two investment startegies, while reasonable, is just no comparison at all, as both are entirely different.
Furthermore, the example he laid out with his stock investing experience, which I would venture to guess is a high percentage of all stock investors, goes to show that RE, when done correctly and when you as an individual, take control of the investments (and have an understanding of it) trumps any guesswork from not only the traditional and average stock investor, but even the stock investing pros.
Rental Property Investor · Baltimore, MD · Member since 2009 · 624 posts · 559 votes
16y
What a great discussion. i am always intrigued when I check out the magazine section of a book store and the only investing rags are those that focus on stocks and equities.
Don't get me wrong... we just lived through the lemmings reading about how great real estate investing was... and once all of the get-rich-quick crowd entered the market we saw how that worked out.
Yet... after reading this article, I am convinced that the authors just like the magazines are only pouring more koolaid for their thirsty readers...
Leaving the real estate investment field un-encumbered for those who are informed.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
16y
Peter, you too amke a good point, but I would add to your example that the "so-called" RE investors who played the boom market were not investors at all, just riding a frenzy. True investors made money then, and conmtinue to make money today in a depressed RE market.
More over, I am making more money now than ever in the midst of the biggest recession of all (and damn close to the big depression).
Title Representative · Tampa, FL · Member since 2010 · 4 posts · 1 vote
16y
The stock market and the real estate industry are two different entities. One must invest in something he/she is more knowledgeable of and more inclined to. Besides, we've always considered real estate investing more challenging as it has more facets to it.
Residential Real Estate Agent · Orange County, CA · Member since 2009 · 289 posts · 95 votes
16y
I would add control to this list. If I own a house, there are plenty of things I could do that would directly influence the value. I could paint, add a room, landscape, etc. If I own a stock, I'm completely at the mercy of the market as to what the value is.
Rental Property Investor · Baltimore, MD · Member since 2009 · 624 posts · 559 votes
16y
Christopher... your "contol" point is dead on. It is the primary reason my wife Vicky encouraged me to get involved with real estate vs. the stock market.
Also... please accept my appologies for double posting...
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
16y
Good point Chris! I agree.
To add, in history, have we ever seen a home lose 1/2 its value in one day or even one month? In the stock market, have we seen it happen? - Many times!
Accountant · Sydey, NSW · Member since 2009 · 105 posts · 24 votes
16y
I think it is good to have a balanced, diversified portfolio no matter what you invest in.
If you are in shares, putting all of your eggs in one basket is just asking for trouble. For example, I remember seeing the news after the crash and investors crying saying they’d lost everything because all they owned bank shares. If that’s all you owned you were a fool! Just my 0.02 anyway...
Developer · Phoenix, AZ · Member since 2010 · 2 posts · 0 votes
16y
Hey guys, does anyone happen to know a resource/place to find the average returns of various investment alternatives? (i.e. stocks, bonds, mutual funds, bank interest, etc.)
Real Estate Consultant · Irvine, CA · Member since 2009 · 102 posts · 24 votes
16y
Wow! Great discussion, guys.
@Jay-- That's a really good question, I'll ask my mutual fund/stock broker/financial planning friends and get back to you.
@djjk1-- I completely agree, we've seen the follies of the lemmings in both real estate recently and stocks in the late 90's. Having too many eggs in one basket will destroy you.
@Peter & Christopher-- Really good point about the control part, I didn't really think of that.
@Will--your posts are always great. What can I say.
I took a business statistics class in college, and one of the only thing I remember from it was my professor saying that they compared the average returns of some of the most brilliant stock analysts and a monkey throwing darts at stock listings from a newspaper spread across a wall. They found that the returns were on the whole the same. Go figure.
Flipper/Rehabber · Los Angeles, CA · Member since 2009 · 1k+ posts · 732 votes
16y
Ask them if they are really doing so well with stocks? If you look at how the vast majority of self made millionaires and billionaires made their money it is mostly through real estate (or owning their own business) Even Warren Buffet who is often heralded as someone that made their fortune in stocks didn't really create that fortune as an independent individual investor using his own money. He basically created his OWN business ..a fund in which he invested other people's money (and profited off of that money).
Also , while stocks are viewed as a passive investment.. In order to really make high returns you do need to spend a great deal of time actually researching a company.
Also we have seen people lose their entire investment in the recent stock market crash. The same situation doesn't really happen in real estate. That property you bought for $60,000 doesn't go to $0 the next day.
I think it all comes down to commissions. There is a great deal of money spent on marketing services to stock buyers. Especially considering the large amount of money in 401k and similar plans.
In real estate, there are few realtors that specialize in marketing to investors. Also all real estate is local..which is another important point. The stock market is global.
The local nature of real estate investment prevents any large firm from "dominating" the industry so to speak. The way that a large company such as Morgan Stanley ,etc can.
Real Estate Investor · Las Vegas, NV · Member since 2009 · 19 posts · 1 vote
16y
Actually you can buy and sell stock as fast as you want. If I have 60 grand in my account, buy 60K worth of a stock and it miraculously shoots up to 120K, I can sell it right then.
Some online brokers won't allow you to buy again until the funds settle.
Real Estate Consultant · Irvine, CA · Member since 2009 · 102 posts · 24 votes
16y
@Jawsette and Will-- Agree with you there.
@Ted--Thanks for the article! I found this statement pretty shocking: "While the S&P 500 returned an average of 9.5 percent annually for the 50-year period, the comparable figure after all the adjustments was a mere 1.3 percent."
Whoever's happy making 1.3% off of any investment must be crazy.
Real Estate Consultant · Lansing, MI · Member since 2010 · 117 posts · 32 votes
16y
Originally posted by nationwidepi:
you can buy RE at a discount at acquisition and you can not with stocks.
I"d have to fundamentally disagree with this statment. You CAN buy stocks at discount. The question is WHEN you buy the stock. In 2002 I was working for a telecom equipment company whose stock was about $1 a share. The share price had nothing to do with growth prospects or financial condition of the company and everything to do with the state of the economy and market sentiment. About a year and half later the same stock sold for $18. The same thing happened in the stock market from late 2008 until March 2009. The stock market decline based on negative economic conditions and market sentiment. Since then it's been the general market has been up about 60% and many stocks have done much better than that.
Changes in market conditions and the economic climate affect stock valuations just like real estate valuations. In my experience stocks tend to appreciate much faster and give you a bigger bang for the buck than real estate in terms of investment returns. The issue is the risk. Stocks can also decline faster than real estate. In order to be a good stock trader or investor you have to be very active and aware as to what is going on with the economy in general and in particular industries. With real estate the focus tends to in the general economic climate and regional market conditions which affect real estate.
I think real estate is the ideal investment vehicle for people who may be less risk adverse as opposed to stocks.
Real Estate Consultant · Lansing, MI · Member since 2010 · 117 posts · 32 votes
16y
Originally posted by jawsette:
Only as long as there is a buyer willing to buy at that price.
If I have 60 grand in my account, buy 60K worth of a stock and it miraculously drops to 1K, I cant sell it right then because there will be no buyers.
Now I have nothing but a piece of worthless paper.
Is that any different than people who brought houses either to live in or as investments at the top of the market in 2007 and now can't find buyers for these houses and are paying for mortgages that are underwater? The advantage of investing is stocks is the liquidity. Somebody out there is ALWAYS in most cases willing to buy a particular stock it just might not be at the price you want to sell it for. With real estate the risk is a property can depreciate in value AND you might not be able to find a buyer for it. That is way many people are just walking away from homes and why the short sale market is booming.
Real Estate Consultant · Lansing, MI · Member since 2010 · 117 posts · 32 votes
16y
Originally posted by Christopher W.:
I would add control to this list. If I own a house, there are plenty of things I could do that would directly influence the value. I could paint, add a room, landscape, etc. If I own a stock, I'm completely at the mercy of the market as to what the value is.
I got news for you. You can landscape, paint and add a room to your heart's content. If you can't find a buyer for your house and the overall market for housing is declining the market is still dictating to a great extent what your property is worth.