How is real estate better than stock market?

Question

Hello from Jeff n Debbie in Jacksonville Florida 88fierojeff in Introduce yourself

We are new here. We have been reading Mark Ferguson's Build a Rental Property Empire, and just ordered "The Blueprint".

We are early fifties and looking for a better way to reach retirement. We attended our first meeting with the local REA.

I am cautious about this process because of the following. My Dad had gotten into real estate investing years ago and had what ended up being three negative experiences.

1)One nice property with what appeared to be a nice couple renting it. They broke up and the woman and her kids squatted without paying rent for about 3.5 months. Ugly eviction---we had to carry her stuff out to the curb with the police looking on. She burned the carpet all over with an iron and they had smashed holes in the sheetrock. Dad fixed it and sold it.

2)He bought a patio home at the wrong time in the market at a high interest rate and had no cash flow as well as no exit strategy Sold at a loss.

3)He bought a quad unit near a college and it cash flowed well. It would turn out to be the best of his properties. However, the market soared and he was keeping his eye on the resale value. When the market took a downturn, he got so discouraged about his imaginary loss that he no longer enjoyed the cash flow. He sold it and got clobbered with capitol gains tax.

After these experiences, he decided that real estate was no longer a game he wanted to play. He worked really hard and saved a good amount of money in the stock market.

So, now you understand where I am coming from with doubts and fears. However, my Dad didn't have the information that we have today. I think that makes a big difference. We have been watching our money in the stock market lose value all year. So, I am educating myself all I can and hoping to find a better way.

John D. · Answer

If you are not prepared to handle 3.5 months of rent not being paid, evicting people, or paying taxes when you make a good sum of money, you are probably in the wrong business. Real Estate is better then the stock market for me, because I make more money at it, and have more control. I feel no emotional burden from evictions, non-payment of rent, and paying taxes on gains, I expect all of these things, and they are already factored into my models. They are a part of the business.

Jeff Irwin · Answer

Prior to 1997 capital gains were taxed at 28%.

David Faulkner · Answer

Which is the better fruit, apples or oranges? There are conditions around which RE is better, and there are ways that stocks are better ... if you want totally hands off, no leverage (debt), and don't want to spend much time or thought, then you'd be better off in stock index funds IMO. Real Estate Investment is more like running a business, but on a business where the business model is well proven and fully developed over literally centuries. However, to do it right and make it perform better than stocks IMO, you will need to be willing to:Educate yourself and become intimately familiar both with your local market and the mechanics of the strategy you employ.Be willing to take on debt ... you can do RE with all cash, but at that point the returns vs stock market are frankly not that appealing.Be willing to be hands on, at least initially until you become familiar enough to contract out and scale up enough where outsourcing makes sense.Be willing to work with others as advisors, mentors, subcontractors, and/or employees.If you are willing and able to do the above, then I believe RE wins. If not, then it is much more questionable as an asset class vs stocks IMHO. Again, as mentioned, it is not for everybody ... but it works very well for some ...

Steve B. · Answer

how do you "get clobbered" on capital gains?

Russell Brazil · Answer

Investing in real estate isnt for everyone, just like investing in the stock market isnt for everyone. The returns in real estate can be quite satisfying....but like any type of investing, you need to divorce yourself from the emotions that come with it. Instead of viewing what is bad about one property...you should buy more and diversify your portfolio. When values go down, you should view it as a buying opportunity.

Jay Hinrichs · Answer

I think your dads experinces are very common and the norm.. not an abberation if those little upsets ruin your day then rentals may not be for you.what would your dad do is his stock portfolio dropped 25% in a year.. would he have panicked and sold at the bottom.real estate rentals is a long game.. and I can 100% assure you you will have all sorts of issues with tenants rehabs and other market swings.. it just goes iwth the game.I have owned quite a few rentals in my day.. from C class to A class.. I have had homes that were my A class completely destroyed by a tenant. B and Lower you have wear and tear.I have almost never given a deposit back EVER in 3 decades of owning rentals.but I do suffer from burnt out landlord syndrome and am selling all my rentals and repositioning into investment grade partnerships and Debt.

Account Closed · Answer

Real Estate is a unique investment because any loses accrued are solely contributed to yourself, especially in SFH. Where as stock investing you put a lot of trust in management and reading annual reports. Individual stock investing takes a special type of person, there is a lot of reading annual reports and finding hidden information, research Warren Buffett and his PetroChina investment, pure case of buying a company worth 2 billion for 500 million, or buying dollars for .25 cents.In real estate, being the buyer is the first part and of course the most important. Like stock investing, you make or break the deal at the purchase, again you are trying to buy dollars for .25 cents. Real estate deals are more abundant on a small scale since you don't have to compete with the institutional money, but your profits (on a dollar per dollar not % basis) are smaller.Specific to your dad, the #2 + #3 he had that cash flowed well tells me he was an emotional investor, even #1 shows he was an emotional investor by selling after 1 bad tenant.Hardert part to real estate is finding the deals, just like the stock market.Or if you want, just invest in the S&P index for a "safe" 7%

Jeff Irwin · Answer

I guess along with the headaches of toilets, tenants, termites and trash, I was actually looking for more information about real life typical money advantages or disadvantages. Over the long haul, the stock market earns 7%.

Michael Lee · Answer

Hello and welcome to BP! With real estate you have more control. You can lose or make money with either way. It matters what kind of a plan you have and your willingness to work hard. They both make you some money and lose money. You just need a good game plan with either one. The best way to make money in real estate is to be a lender. With the stock market you need a good friend in it or a good advisor. I think the stock market is more risky all things equal. I am 59 years old and have most experience in construction management and some in real estate. Since I had. Brain aneurism and a stroke and have had a bunch of time to learn about both and They are both a wild shot. Good luck!

Jeff Irwin · Answer

That's interesting. Also, not very encouraging. But I prefer to hear truth so, it is what it is. No, Dad didn't quit when the market turned down. He worked his ass off teaching full time and driving Greyhound buses part time until succumbing to ALS , aka Lou Gherigs disease. He invested everything he could.