Tax Difference: 8% Real Estate ROI to 8% Stock Market ROI.

[William Coet]

Hello,

Which one wins on a 30 year horizon?

When looking at a long term real estate investment (approximately a 30 year rental property hold) that returns 8% annually compared to the stock market that returns an average 8%, are there tax advantages for the real estate investment?

-For Stocks, I know that there are IRA structures that have tax advantages

-For Real Estate, I know there are tax advantages like mortgage write-offs and depreciation write offs

[Bill B.]

@Paul Vail

If you go 30 years with the real estate only appreciating 2.5% per year that means the $500k property is now $1 million, on top of the more than $1million in rental income ( $35k in the worst year #1 times 30 years ) so you have $2million compared to that $589k. Plus. Within 10 years you could pull out your original $100k and do it again. Or put it in that Roth. 

Real estate wins for 2 reasons. The leverage 5X’s your returns. And it’s impossible for the real estate to stay at 8%. It has to keep climbing as interest decreases and rent increases. As an added benefit. It’s putting that $35k per year in your pocket, not locking it up your Roth account. So if you didn’t need the cashflow (since obviously the Roth doesn’t have any cashflow for the entire 30 years) you could buy another property every 3 years with the cashflow. So you could easily turn your $100k in to 10 properties worth between $500k and $million each in 30 years. 

Ps. A real life example is without trying I invested $308k in to real estate over the last 5-11 years and it’s worth a little over $3.6million while brining in a little over $180k/year in cashflow. Equivalent to $103k becoming $1.2million in 11 years and cash flowing $60k/year. It darn well better double if not quadruple in the next 19 years. So my estimate is $100k will become $2.4m- $4.8million while cash flowing between $120-$240k per year in 30 years total. This is 99% hands off investing before BP, before all the free webinars, just buy and hold. I could certainly do some cashout refis and probably double these numbers, but I hit my goal and just started to coast. Life is short. And while the odds are you’ll be alive a year from now, it’s not guaranteed.