Is Real Estate Still the Best Asset Class?

Is Real Estate Still the Best Asset Class?

Dave MeyerPro Member
Head of Real Estate Investing at BiggerPockets · Seattle, WA · Member since 2015 · 224 posts · 826 votes

Real estate is harder than it's been in more than a decade -- we all know this. High prices + high mortgage rates + low inventory is making this a challenge. So my question is  -- in an era where you can get a 5% CoCR from bonds, money market accounts, or a high-yield savings account is RE still the best place to put your money? 

I'll give you my opinion below, but curious to hear what you all think. 

Here's my take, and you probably won't find this shocking, but RE is still the best asset class. I am what I would call a 'total return investor' -- which is that I don't care as much about cashflow, or tax benefits, or appreciation in particular -- I'm in it for the whole package. And when you look at it that way, RE is still the clear winner. 

I just put a deal under contract that was on market. It will generate about 4% CoCR, and 2% in amortization. Even with a very modest expectation of 2% annual appreciation, I will earn about 6% there (thanks leverage!), and tax benefits will give me another 1.5%. If I add that all up, I am getting somewhere between a 12-15% annualized return, for an on-market deal that just needs some cosmetic upgrades. 

Compare that to bonds (5%), or the average return in the stock market (8-10% depending on who you ask) and REI is a no-brainer to me. Am I missing something here?!?

Sure you could say that RE is at all-time highs and is going to come down. It's possible, but a big correction in residential RE is not likely, and over a long hold period, RE will appreciate. Plus, I am generating modest cashflow now + amortization and tax benefits.  Also, the same can be said about the stock market. It's also at all-time highs, and its historical far more volatile than RE. 

Now you may be thinking that owning RE is more work than the stock market, and that is undoubtedly true. But the difference between 10% and 12% over a long hold period is enormous. For an investment of $100,000, over a 10 year hold the difference in total return between a 10% annualized rate, and 12% is $51,000. For some that might be worth the work of REI, for others not so much. BUT -- if your hold period is 30 years the difference grows to $1.25M!! Gotta love compounding.


 So, back to my original question. Is RE still the best asset class? For me -- a 36 year old who plans to keep working for the next several decades -- there's no doubt in my mind. I will gladly take on the extra work of owning RE, given that, even with more difficult conditions, RE still has a very high probability of delivering me outsized returns over my investing career. 

What do you all think? 

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Chris SeveneyBusiness Member
Moderator
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
2y
Quote from @Russell Brazil:

In investing, there is no such thing as the best, or the worst. There is no such thing as good or bad.

Investing is deploying capital to get a return based on one's risk tolerance. There is merely varying degrees of risk. There is high risk, moderate risk, low risk. Risk is neither good or bad.

Real estate on average tends towards the low end of the spectrum, but of course real estate runs the gamut of risk.


 I could not have said it better myself. It may be best for person A but not for person B. I have been in real estate 25 years, my wife in finance for 25 years. Real Estate is the best for me, because I like to think I know what I am doing and can use my experience and knowledge along with being active in the space to enhance returns. My wife, she cannot - but she can do it with investing in the markets and other areas that there is no way I could do that. 

I met a guy who does selective breeding of snakes. He sells them for tens of thousands a pop and generates revenue of over $1M a year and has no overhead except his electric bill in his basement for the lighting, a part time employee and of course the food. He has someone take care of the snakes which is like an hour a day. He does whatever he wants. I was sitting next to him along with a group of others in real estate and were like - WTF are we doing dealing with people/tenants/borrowers and this guy is traveling the world while he breeds snakes and generates 7 figures with no debt...

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  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    2y

    If this discussion was even close I could understand the give and take, but it's not even a close comparison. REI is hands down the best investment for the majority of investors.

    How close is the comparison?  
    Two runners start at the same time.  One is running 100 meters and the other is running 1,600 meters.  Who will finish first?  No comparison.

    1.  Risk Reward-  as I stated earlier the S&P 500 P/E ratio is almost twice as high as real estate at a 7 cap.  For a 100% return on the S&P it would need to go from 33,000 to 66,000.   A 200,000 or 2mm house would need to go to $400k or $4mm.  Houses at this moment have a far greater chance of doubling than the S&P.  On the Risk side, again at this moment in reference to the OPs question.  The S&P has a greater chance of losing 1/2 its value than homes do.  I don’t think any of us own &2billion dollar buildings downtown NY, SF, etc, so I will leave that out of the discussion.

    2.  Tax free gains-  primary 2/5 years up to $250k per spouse versus 2% tax free munis.  

    3. Leverage- as mentioned over and over again REI wins. I can take $100,000 and do $1mm deal and make $500,000 in 2 years in REI. In the stock market I can take $100,000 and in 2 years let's say make 30% or $30,000. REI wins. You might say crypto or the next google and I would tell you your gambling. I can rinse and repeat all day long and get the same returns. Can't do that with stock picking. If someone says investing with Margin calls on stocks is comparable, you shouldn't be in this forum with us little guys. You need to be with the
     $50 billion plus crowd.

    4.  Unfair advantage-  homeowners and investors have unfair advantages over Financial investments.  Both from  finance standpoint, deductions, rent for equity, etc.  The US government intentionally made it that way.

    5. Liquidity- normally Financial investment liquidity versus REI would be a good thing on the Financial investment side. Unfortunately people tend to follow the cowherd. They buy high and sell low. It's harder to get in and out of REI so it is better

    For the average investor.

    REI is hands down the better investment from both a Risk Reward standpoint. Even more so to the OPs question about at this time.

    If you have been unsuccessful or dissatisfied with your REI strategy let’s discuss your specific examples.    

    Yes today's REI market is harder. We get to see who has swimming trunks or is naked at this point.

  • Member since 2019 · 7k+ posts · 4k+ votes
    2y
    Quote from @Henry Clark:

    If this discussion was even close I could understand the give and take, but it's not even a close comparison. REI is hands down the best investment for the majority of investors.

    How close is the comparison?  
    Two runners start at the same time.  One is running 100 meters and the other is running 1,600 meters.  Who will finish first?  No comparison.

    1.  Risk Reward-  as I stated earlier the S&P 500 P/E ratio is almost twice as high as real estate at a 7 cap.  For a 100% return on the S&P it would need to go from 33,000 to 66,000.   A 200,000 or 2mm house would need to go to $400k or $4mm.  Houses at this moment have a far greater chance of doubling than the S&P.  On the Risk side, again at this moment in reference to the OPs question.  The S&P has a greater chance of losing 1/2 its value than homes do.  I don’t think any of us own &2billion dollar buildings downtown NY, SF, etc, so I will leave that out of the discussion.


    This is where things get very interested. From a historical perspective the appreciation of real estate and stock market index is just following money supply in circulation, so they should react the same.

    However if I can put additional Pro and Cons for each.

    Advanced Stock Market and Index Pro
    - we invest with other people so it's "bit" safer, meaning if the market is crashes it would not take too long to recover
    - there's always an opportunity whether the market is up or down to make money
    - position can be hedged, market tank by 50% no problemo , in real estate this is hard to do, not to say almost impossible
    - could create an almost riskless position to create our own dividend > 15% annualized. 
    - I could create an arbitrage position where 7% margin to be re-invested into 15% dividend.

    Advanced Real Estate Pro
    - if one has a good biz plan, either BRRR or flip or whatever active business we do, the result is phenomenal, 50% IRR is not impossible.
    - Real Estate is an amazing tool, buy right and just do DSCR 0.9 and that's it keep it for forever
    - We are the sub 3% rate owner basically we're living for free paid by the US gov/lenders



    Again both investment has its own techniques to mastery both skillsets, we can become Ninja in Stock or Sam Zell-like in Real Estate, the trick is to keep learning and educating ourselves.

    And I am not selling any class lol

    Just want to point out that if market crash tomorrow (other than 401k), it is okay, we can make money either way. For residential RE the option is to go up.

  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    2y

    @Carlos Ptriawan

    No one in my neighborhood knows what arbitrage means.

    As the OP said at this moment.  
    PE ratio 25 versus 14. Or cap rate 4 versus 7. I would rather be in REI.
    .   
    Plus I get to use my rent money to invest.  Plus tax free on sale.  

    Will definitely agree REI is harder now. And not everyone should be in REI past their own home.

  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    2y

    We are retired.  So each person will investment based on where they are on the continuum.

    We have about 10% of our wealth in money markets.  20% in the stock market. 

    MM is for liquidity and not returns.

    Stock is for more passive and for beyond the next 20 years.  Wealth preservation versus generation.  In 5 years we could quadruple that amount, but we don’t want that much more active investment.  

    Financial investments are great also.  

  • Member since 2021 · 401 posts · 254 votes
    2y
    Quote from @Carlos Ptriawan:
    Quote from @Henry Clark:

    If this discussion was even close I could understand the give and take, but it's not even a close comparison. REI is hands down the best investment for the majority of investors.

    How close is the comparison?  
    Two runners start at the same time.  One is running 100 meters and the other is running 1,600 meters.  Who will finish first?  No comparison.

    1.  Risk Reward-  as I stated earlier the S&P 500 P/E ratio is almost twice as high as real estate at a 7 cap.  For a 100% return on the S&P it would need to go from 33,000 to 66,000.   A 200,000 or 2mm house would need to go to $400k or $4mm.  Houses at this moment have a far greater chance of doubling than the S&P.  On the Risk side, again at this moment in reference to the OPs question.  The S&P has a greater chance of losing 1/2 its value than homes do.  I don’t think any of us own &2billion dollar buildings downtown NY, SF, etc, so I will leave that out of the discussion.


    This is where things get very interested. From a historical perspective the appreciation of real estate and stock market index is just following money supply in circulation, so they should react the same.

    However if I can put additional Pro and Cons for each.

    Advanced Stock Market and Index Pro
    - we invest with other people so it's "bit" safer, meaning if the market is crashes it would not take too long to recover
    - there's always an opportunity whether the market is up or down to make money
    - position can be hedged, market tank by 50% no problemo , in real estate this is hard to do, not to say almost impossible
    - could create an almost riskless position to create our own dividend > 15% annualized. 
    - I could create an arbitrage position where 7% margin to be re-invested into 15% dividend.

    Exactly, people in real estate compare advanced real estate techniques requiring a lot of capital and 10 year old investments to basic passive market returns because they don't understand it. Comparing apples to apples, you can't say RE hands down because you can easily 10x your stock portfolio as well.

  • Member since 2021 · 401 posts · 254 votes
    2y
    Quote from @Henry Clark:

    If this discussion was even close I could understand the give and take, but it's not even a close comparison. REI is hands down the best investment for the majority of investors.

    How close is the comparison?  
    Two runners start at the same time.  One is running 100 meters and the other is running 1,600 meters.  Who will finish first?  No comparison.

    1.  Risk Reward-  as I stated earlier the S&P 500 P/E ratio is almost twice as high as real estate at a 7 cap.  For a 100% return on the S&P it would need to go from 33,000 to 66,000.   A 200,000 or 2mm house would need to go to $400k or $4mm.  Houses at this moment have a far greater chance of doubling than the S&P.  On the Risk side, again at this moment in reference to the OPs question.  The S&P has a greater chance of losing 1/2 its value than homes do.  I don’t think any of us own &2billion dollar buildings downtown NY, SF, etc, so I will leave that out of the discussion.

    2.  Tax free gains-  primary 2/5 years up to $250k per spouse versus 2% tax free munis.  

    3. Leverage- as mentioned over and over again REI wins. I can take $100,000 and do $1mm deal and make $500,000 in 2 years in REI. In the stock market I can take $100,000 and in 2 years let's say make 30% or $30,000. REI wins. You might say crypto or the next google and I would tell you your gambling. I can rinse and repeat all day long and get the same returns. Can't do that with stock picking. If someone says investing with Margin calls on stocks is comparable, you shouldn't be in this forum with us little guys. You need to be with the
     $50 billion plus crowd.

    4.  Unfair advantage-  homeowners and investors have unfair advantages over Financial investments.  Both from  finance standpoint, deductions, rent for equity, etc.  The US government intentionally made it that way.

    5. Liquidity- normally Financial investment liquidity versus REI would be a good thing on the Financial investment side. Unfortunately people tend to follow the cowherd. They buy high and sell low. It's harder to get in and out of REI so it is better

    For the average investor.

    REI is hands down the better investment from both a Risk Reward standpoint. Even more so to the OPs question about at this time.

    If you have been unsuccessful or dissatisfied with your REI strategy let’s discuss your specific examples.    

    Yes today's REI market is harder. We get to see who has swimming trunks or is naked at this point.

    Arguing that you feel like the stock market can't double but your 2M house can is not an argument based on facts. It's a feeling.

    And I'm surprised that you think the RE market can't crash 50% when it crashed 50%  between 2007-2012. Huge discounts in San Diego. The condo I purchased in 2012 for 140k was a short sale previously sold for 375k and that was the story of the entire city. Since then, RE has doubled and trippled but the market has quadrupled. Real estate is barely hitting it's 2007 peak just now 15 years later in San Diego.

    The difference between Real Estate and something like the S&P500/401k matching is that the market is the same for everyone who's passively invested yet with Real Estate, you can buy a two houses in in different zip codes and you can have two completely different outcomes. Buying a house is like picking an individual stock. It could beat the market or it could just be a liability. 

    So I'll say it again, we only hear people talking about their 2012 success stories but we never hear about all the underperforming homes creating a sort of survivorship bias.
  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    2y

    KS. Name one Stock market technique and real life example you have done to achieve 10X in the stock market.  As I mentioned before options and Margin calls don’t count since about 99% of BP would never use, nor the general Stock market investor.  

    How can we help you in your REI strategy?

  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    2y

    KS. 10X stock. Gain. Are you telling us the SP will go from 33,000 to 330,000?  Or are you going to tell us the next stock to invest $10,000 to get $100,000?


    Everything I discuss can be repeated over and over.  Not using any specific super deal we have done.  

  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    2y

    KS. OP asked which is better. SP trades at a 25 PE multiple. REI with a 7% cap rate converts to a 14 PE. Which has less risk and which has a greater chance of growing. You will note I am talking about today and not some prior period.

  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    2y

    On BP I go by my full name and my background shows my detail.  Anyone questions my background or approach can google me and see my background to weigh my credence.  

  • Member since 2021 · 401 posts · 254 votes
    2y
    Quote from @Henry Clark:

    KS. Name one Stock market technique and real life example you have done to achieve 10X in the stock market.  As I mentioned before options and Margin calls don’t count since about 99% of BP would never use, nor the general Stock market investor.  

    How can we help you in your REI strategy?

    Sure, can you help my 4 plex build go faster? How much will a LEED certification increase the value and rent? Why would one cash out on close at 9% interest to recover their initial capital investment when no other investments exceed that?

    The 10x comment was me saying that you can do in stocks what you can do in real estate. Don't take the exact number literally. But now that you mention it yes, if you pick an individual stock that you researched or work with, then 10x or even 1000x is doable with nothing but the strategy of reading the market like TSLA who purchased NVIDIA chips and saw it 10x recently. Anyone who's paying attention can see that one coming. Just to answer your question. But apples to apples, you want me to compare your real estate strategy to an index fund which is not a fair or like for like comparison.

    And do you work in the real estate field at all or as a hobby? Because I feel like this is anologous to arguning with a retired stock broker. It's like ok, you do this for a living, of course you're going to choose stocks as you're more successful with them. That doesn't mean it's the best "hands down" investment. But anodotely, I've had 2 colleages just retire off their stocks and none ever off real estate. I'm just saying since people like anedotes.

  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    2y

    Name one stock that you have 10X.  Or name a stock you say will do that.  My examples I have done on a repetitive basis.  Not some special year.  

  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    2y

    KS. Keeping it basic for you. Do you understand PE ratio or CAP rate? SP is at 25 PE ratio. REI at a cap rate of 7 is a 14 PE ratio.

    Which asset has the great chance to gain or lose.  

    This addresses the OPs basic question.  

  • Member since 2021 · 401 posts · 254 votes
    2y
    Quote from @Henry Clark:

    KS. Keeping it basic for you. Do you understand PE ratio or CAP rate? SP is at 25 PE ratio. REI at a cap rate of 7 is a 14 PE ratio.

    Which asset has the great chance to gain or lose.  

    This addresses the OPs basic question.  

    Your PE ratio argument is trash. TSLA is at PE43 and has been going up for a decade (not a year) based on things that PE doesn't factor in like future grow potential. 

    If you want to talk risk, put down the PE talk for a second and look at commercial real estate, inflation, higher defaults, forever wars, growing china dependence and the economy and tell me that real estate would not be effected equally across the entire board when the house of cards fall, yet dividen stocks (this is a fact) tend to out perform the rest of the market due to hardships not really keeping people from drinking coke and eating at fast food chains. Then you have companies like TSLA who actually gained in value and sales during the last great recession. I didn't see any houses gaining in value during the last recession. What's the higher risk investment? We don't need PE ratio jargon as I have proven in two instances, is ********.

  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    2y
    Quote from @K S.:
    Quote from @Henry Clark:

    KS. Keeping it basic for you. Do you understand PE ratio or CAP rate? SP is at 25 PE ratio. REI at a cap rate of 7 is a 14 PE ratio.

    Which asset has the great chance to gain or lose.  

    This addresses the OPs basic question.  

    Your PE ratio argument is trash. TSLA is at PE43 and has been going up for a decade (not a year) based on things that PE doesn't factor in like future grow potential. 

    If you want to talk risk, put down the PE talk for a second and look at commercial real estate, inflation, higher defaults, forever wars, growing china dependence and the economy and tell me that real estate would not be effected equally across the entire board when the house of cards fall, yet dividen stocks (this is a fact) tend to out perform the rest of the market due to hardships not really keeping people from drinking coke and eating at fast food chains. Then you have companies like TSLA who actually gained in value and sales during the last great recession. I didn't see any houses gaining in value during the last recession. What's the higher risk investment? We don't need PE ratio jargon as I have proven in two instances, is ********.

     Again.  Tell us the SP 500 will go from 33,000 to 330,000 or tell us the next Tesla stock to put $10,000 into today.  

    You understand there is a housing shortage today.  Assets tend not to fall or as fast when there is  a shortage. You understand the Stock market is far overvalued relative to the housing market.  

    OP is asking as of today.  

    If the markets across the board fail.  More people will sell their stock before they sell their house.  Maslow’s hierarchy.  

    @Dave Meyer. It’s your post, you’re the data guy.  Jump in on PE ratio of 25 versus 14 or cap rate of 4 versus 7.  

  • Member since 2024 · 162 posts · 232 votes
    2y

    OP, for right now, who knows?

    argument for stocks, corporate earnings rose 11.39% this quarter year/year, so puts forward PE on sp500 at 19.9, not far above historical avg of 18.2 PE, and the earnings of companies are growing much faster(driving PE lower) than the historical price appreciation of real estate, which per every long term study has it pegged at about the inflation rate (Dutch economist Piet Eichholtz built a price index of houses on the Herengracht {most expensive canal, homes} in Amsterdam, with a constant quality from 1628 until 1973, which has been extended to present, 400yrs). Also SP500 up 8X since at 666 on 3/6/09 until now, in just 15 years, with no leverage. Obviously one can use leverage in Equities as well, through 2X, 3X, 4X ETFs on sp500 or QQQs, also via margin but at only 0.5X, but can get easy 100X on call options and potentially infinite leverage on cheap short dated expiry options, So investing today one could get great returns in stock market?

    argument for Real Estate, with 5 to 1 or even greater leverage, can be great investment clearly. For me the tax benefits are huge as well. My syndicated CRE investments have done 23% avg annual returns since mid-90s, many rolled over and over by 1031, giving effective tax yield near 37%/year if I were to ever sell, which I hope I never shall, just pass to kids with basis step up on first 13.6 Meg. However, Real Estate is highly sensitive to borrowing costs for all that lovely leverage. With the 10yr rising from 0.31% in 3/2020 to 4.55% now, and if one believes in the data from Soviet mathematician/economist Nicholai Kondratiev, the interest rates along with GDP, follow long 50-60 year cycles of Leverage Up/De-Leverage, or expansion-contractions. We just got off a 40 year Leverage UP from 1981 until 2020, which followed a De-Leverage from 1942-1981, this cycle maps out pretty perfectly going back to late 1770s in US, meaning we may be in year 4 of 30-40 years of rates rising and Cap Rates rising, and pressure on real estate appreciation?

    So OP, Who Knows? but just keep investing in something because Inflation is Certain :(

  • Member since 2021 · 401 posts · 254 votes
    2y
    Quote from @Henry Clark:
    Quote from @K S.:
    Quote from @Henry Clark:

    KS. Keeping it basic for you. Do you understand PE ratio or CAP rate? SP is at 25 PE ratio. REI at a cap rate of 7 is a 14 PE ratio.

    Which asset has the great chance to gain or lose.  

    This addresses the OPs basic question.  

    Your PE ratio argument is trash. TSLA is at PE43 and has been going up for a decade (not a year) based on things that PE doesn't factor in like future grow potential. 

    If you want to talk risk, put down the PE talk for a second and look at commercial real estate, inflation, higher defaults, forever wars, growing china dependence and the economy and tell me that real estate would not be effected equally across the entire board when the house of cards fall, yet dividen stocks (this is a fact) tend to out perform the rest of the market due to hardships not really keeping people from drinking coke and eating at fast food chains. Then you have companies like TSLA who actually gained in value and sales during the last great recession. I didn't see any houses gaining in value during the last recession. What's the higher risk investment? We don't need PE ratio jargon as I have proven in two instances, is ********.

     Again.  Tell us the SP 500 will go from 33,000 to 330,000 or tell us the next Tesla stock to put $10,000 into today.  

    You understand there is a housing shortage today.  Assets tend not to fall or as fast when there is  a shortage. You understand the Stock market is far overvalued relative to the housing market.  

    OP is asking as of today.  

    If the markets across the board fail.  More people will sell their stock before they sell their house.  Maslow’s hierarchy.  

    @Dave Meyer. It’s your post, you’re the data guy.  Jump in on PE ratio of 25 versus 14 or cap rate of 4 versus 7.  

    I already answered your question. Might want to re-read my last post. 

    On your other note, despite the lack of housing in a recession or economic disaster, there's a breaking point to what people can afford meaning that prices may not crash, but can stay flat for decades. Just look at Japan. Nothing worse than buying a liability with 0% return for decades. Like I mentioned earlier, if you bought a house at the peak in 2007, congradulations, you just broke even in most markets. Meanwhile, you would have retired in the stock market by today because you averaged down. Never heard of someone averaging down in real estate. It's called bankrupcy and starting over. And you haven't rebutted anything I mentioned in the last few posts yet continue to claim this PE makes RE hands down the best. It's not really an argument or enlightening especially when you haven't rebutted any argument I made. 


    It's a clear winner, For all my aforemented benefits, the stock market is hands down the best investment vehicle if someone had to choose only one. Get over it!

  • Member since 2021 · 401 posts · 254 votes
    2y
    Quote from @Paul Azad:

    OP, for right now, who knows?

    argument for stocks, corporate earnings rose 11.39% this quarter year/year, so puts forward PE on sp500 at 19.9, not far above historical avg of 18.2 PE, and the earnings of companies are growing much faster(driving PE lower) than the historical price appreciation of real estate, which per every long term study has it pegged at about the inflation rate (Dutch economist Piet Eichholtz built a price index of houses on the Herengracht {most expensive canal, homes} in Amsterdam, with a constant quality from 1628 until 1973, which has been extended to present, 400yrs). Also SP500 up 8X since at 666 on 3/6/09 until now, in just 15 years, with no leverage. Obviously one can use leverage in Equities as well, through 2X, 3X, 4X ETFs on sp500 or QQQs, also via margin but at only 0.5X, but can get easy 100X on call options and potentially infinite leverage on cheap short dated expiry options, So investing today one could get great returns in stock market?

    argument for Real Estate, with 5 to 1 or even greater leverage, can be great investment clearly. For me the tax benefits are huge as well. My syndicated CRE investments have done 23% avg annual returns since mid-90s, many rolled over and over by 1031, giving effective tax yield near 37%/year if I were to ever sell, which I hope I never shall, just pass to kids with basis step up on first 13.6 Meg. However, Real Estate is highly sensitive to borrowing costs for all that lovely leverage. With the 10yr rising from 0.31% in 3/2020 to 4.55% now, and if one believes in the data from Soviet mathematician/economist Nicholai Kondratiev, the interest rates along with GDP, follow long 50-60 year cycles of Leverage Up/De-Leverage, or expansion-contractions. We just got off a 40 year Leverage UP from 1981 until 2020, which followed a De-Leverage from 1942-1981, this cycle maps out pretty perfectly going back to late 1770s in US, meaning we may be in year 4 of 30-40 years of rates rising and Cap Rates rising, and pressure on real estate appreciation?

    So OP, Who Knows? but just keep investing in something because Inflation is Certain :(

    Good point on ETFs. The QQQ performed 20-50% every year for the last 5 years. Incredible returns via leverage. And dividens would not drop as fast in a crash. A diversified stock portfolio or simply the S&P500 has obviously done better in a scenario where both asset classes where purchased in the crash of 2007. While one is averaging down, the other is filing for bankrupcy and divorce. Yet some people think real estate can't LOSE in a recession and stocks can't go up (like TSLA did). You can hope and dream but history doesn't lie. Not that history repeats itself but it often rhymes.

    If I had to only pick one, I would advise people to invest in stocks. It has created way more winners and retirees than the casual home buyers.

  • Member since 2021 · 401 posts · 254 votes
    2y
    Quote from @Henry Clark:
    Quote from @K S.:
    Quote from @Henry Clark:

    KS. Keeping it basic for you. Do you understand PE ratio or CAP rate? SP is at 25 PE ratio. REI at a cap rate of 7 is a 14 PE ratio.

    Which asset has the great chance to gain or lose.  

    This addresses the OPs basic question.  

    Your PE ratio argument is trash. TSLA is at PE43 and has been going up for a decade (not a year) based on things that PE doesn't factor in like future grow potential. 

    If you want to talk risk, put down the PE talk for a second and look at commercial real estate, inflation, higher defaults, forever wars, growing china dependence and the economy and tell me that real estate would not be effected equally across the entire board when the house of cards fall, yet dividen stocks (this is a fact) tend to out perform the rest of the market due to hardships not really keeping people from drinking coke and eating at fast food chains. Then you have companies like TSLA who actually gained in value and sales during the last great recession. I didn't see any houses gaining in value during the last recession. What's the higher risk investment? We don't need PE ratio jargon as I have proven in two instances, is ********.

     Again.  Tell us the SP 500 will go from 33,000 to 330,000 or tell us the next Tesla stock to put $10,000 into today.  

    You understand there is a housing shortage today.  Assets tend not to fall or as fast when there is  a shortage. You understand the Stock market is far overvalued relative to the housing market.  

    OP is asking as of today.  

    If the markets across the board fail.  More people will sell their stock before they sell their house.  Maslow’s hierarchy.  

    @Dave Meyer. It’s your post, you’re the data guy.  Jump in on PE ratio of 25 versus 14 or cap rate of 4 versus 7.  

    For the pro RE crowd. This video shows that it would take ~10 homes just to beat the S&P500 VOO/SPY over decades. And he's a real estate guy so no bias here.

    My own calculations against my own house I purchased 15 years ago showed something like 4 homes to beat the market assuming I purchased them 15 years ago with 25% down. That's not going to happen today as it would take 50% down to break even. And to manage 10 homes with a 9-5 is a PITA even with a management company. I know from experience. And taxes? You're going to spend some time.

    It's a clear winner in this video and my own real world calculations that stocks hands down beats real estate investing if you had to choose 1. But but, the PE? lol

    www.youtube.com/watch?v=MmQS2l3q35k&ab_channel=BrandonBuiltilt

  • Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
    2y
    Quote from @K S.:
    Quote from @Henry Clark:
    Quote from @K S.:
    Quote from @Henry Clark:

    KS. Keeping it basic for you. Do you understand PE ratio or CAP rate? SP is at 25 PE ratio. REI at a cap rate of 7 is a 14 PE ratio.

    Which asset has the great chance to gain or lose.  

    This addresses the OPs basic question.  

    Your PE ratio argument is trash. TSLA is at PE43 and has been going up for a decade (not a year) based on things that PE doesn't factor in like future grow potential. 

    If you want to talk risk, put down the PE talk for a second and look at commercial real estate, inflation, higher defaults, forever wars, growing china dependence and the economy and tell me that real estate would not be effected equally across the entire board when the house of cards fall, yet dividen stocks (this is a fact) tend to out perform the rest of the market due to hardships not really keeping people from drinking coke and eating at fast food chains. Then you have companies like TSLA who actually gained in value and sales during the last great recession. I didn't see any houses gaining in value during the last recession. What's the higher risk investment? We don't need PE ratio jargon as I have proven in two instances, is ********.

     Again.  Tell us the SP 500 will go from 33,000 to 330,000 or tell us the next Tesla stock to put $10,000 into today.  

    You understand there is a housing shortage today.  Assets tend not to fall or as fast when there is  a shortage. You understand the Stock market is far overvalued relative to the housing market.  

    OP is asking as of today.  

    If the markets across the board fail.  More people will sell their stock before they sell their house.  Maslow’s hierarchy.  

    @Dave Meyer. It’s your post, you’re the data guy.  Jump in on PE ratio of 25 versus 14 or cap rate of 4 versus 7.  

    For the pro RE crowd. This video shows that it would take ~10 homes just to beat the S&P500 VOO/SPY over decades. And he's a real estate guy so no bias here.

    My own calculations against my own house I purchased 15 years ago showed something like 4 homes to beat the market assuming I purchased them 15 years ago with 25% down. That's not going to happen today as it would take 50% down to break even. And to manage 10 homes with a 9-5 is a PITA even with a management company. I know from experience. And taxes? You're going to spend some time.

    It's a clear winner in this video and my own real world calculations that stocks hands down beats real estate investing if you had to choose 1. But but, the PE? lol

    www.youtube.com/watch?v=MmQS2l3q35k&ab_channel=BrandonBuiltilt


    Well, he is not that much of a real estate guy with 1 property. He is also in the most expensive real estate market in the US. But the math is valid and for most people the stock market is in fact the better investment. Especially when you look at entry level strategies.

    REI get's interesting when you go beyond the basic 1 single family rental home strategy. With BRRRR you can (theoretically) generate infinite returns, or practically speaking build a portfolio out of almost nothing.

    If you go into multifamily and you know how to reposition a property and increase NOI, you can generate 7-digit windfalls in a couple years.

    REI is a LOT more active than the stock market. But on the flip side REI allows you to substitute cash investments with your time and your energy. Can't do that on wallstreet.

  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    2y

    @Marcus Auerbach

    good post. a lot of very contentious AGREEMENT going on in this thread.

    you can buy an index fund with the single click of a mouse, never look at it again, and wait 25 years. 

    OR, you can beat those returns with higher risk, higher intensity RE activity.  i mow the lawns at my BRRRRs.

    i'm doing both.

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    2y
    Quote from @Nicholas L.:

    @Marcus Auerbach

    good post. a lot of very contentious AGREEMENT going on in this thread.

    you can buy an index fund with the single click of a mouse, never look at it again, and wait 25 years. 

    OR, you can beat those returns with higher risk, higher intensity RE activity.  i mow the lawns at my BRRRRs.

    i'm doing both.


    Yesterday I spent 4 hours at my new build project with the under house cleaner ( which as we know is not the most fun) .. and doing warranty work ( I am the warranty department since my GC  wont do it my wife wont do it etc). But we taped vapor barriers that were called out on home inspections  we took up the cellulose debris ( wood pieces )  my finish carpenter was there I had him come over and adjust a door that was catching.. ( client gave me the key to his house while he went Kayaking on the Oregon coast).  these are the little things that have to get done and no one wants to do it .. So Me the owner ends up spending my Saturday doing it. WE did 7 houses one was the warranty and the others are going to close shortly ( 2 of them next week).. It also I think enhances our reputation with our buyers to know how seriously we take the little stuff. I get to talk to my buyers and see how they are all doing etc etc.  ANd these are 700k to 1 mil dollar homes each.. So I have a lot of the line here.. almost 10 million closing in the next 8 weeks  :)  yet there I am cleaning up .. And enjoying it in fact not pouting like why am I having to do this on a Saturday while my wife is at the pool LOL.
  • Investor · Miami · Member since 2020 · 70 posts · 34 votes
    2y

    Many on here are assuming RE will continue to appreciate at these inflated rates  ...   Unless salaries catch up and expenses get under control (RET/Insurance) I dont see that happening ... 

    I think a lot of you are younger and dont remember long periods of little to no appreciation.  I feel we are about to enter into that phase.... 

    That said, there will always be deals and hope you guys find them - I am about to exit from the RE game :-) 

  • Patience EchemPro Member
    Member since 2024 · 68 posts · 50 votes
    2y

    I am very new to RE, like this year new. The real reason I got in is to diversify my portfolio. I was getting increasingly nervous about what may happen to the stock market in the short term: mind you the short term is where I fall because I have just a decade left to work. 
    If I believed in all the high percentages money people are supposed to make CoC, ROI, ROE I will still be waiting because nothing out there matches what I hear, but just this month I closed on a SFR because it is a tangible asset. It helps me sleep better. It provides the buffer I need to stay the course in the market. For me it is not about which is better. Both makes a complete package.

  • Real Estate Investor · Milwaukee, WI · Member since 2017 · 25 posts · 9 votes
    2y
    Quote from @K S.:
    Quote from @Henry Clark:

    If this discussion was even close I could understand the give and take, but it's not even a close comparison. REI is hands down the best investment for the majority of investors.

    How close is the comparison?  
    Two runners start at the same time.  One is running 100 meters and the other is running 1,600 meters.  Who will finish first?  No comparison.

    1.  Risk Reward-  as I stated earlier the S&P 500 P/E ratio is almost twice as high as real estate at a 7 cap.  For a 100% return on the S&P it would need to go from 33,000 to 66,000.   A 200,000 or 2mm house would need to go to $400k or $4mm.  Houses at this moment have a far greater chance of doubling than the S&P.  On the Risk side, again at this moment in reference to the OPs question.  The S&P has a greater chance of losing 1/2 its value than homes do.  I don’t think any of us own &2billion dollar buildings downtown NY, SF, etc, so I will leave that out of the discussion.

    2.  Tax free gains-  primary 2/5 years up to $250k per spouse versus 2% tax free munis.  

    3. Leverage- as mentioned over and over again REI wins. I can take $100,000 and do $1mm deal and make $500,000 in 2 years in REI. In the stock market I can take $100,000 and in 2 years let's say make 30% or $30,000. REI wins. You might say crypto or the next google and I would tell you your gambling. I can rinse and repeat all day long and get the same returns. Can't do that with stock picking. If someone says investing with Margin calls on stocks is comparable, you shouldn't be in this forum with us little guys. You need to be with the
     $50 billion plus crowd.

    4.  Unfair advantage-  homeowners and investors have unfair advantages over Financial investments.  Both from  finance standpoint, deductions, rent for equity, etc.  The US government intentionally made it that way.

    5. Liquidity- normally Financial investment liquidity versus REI would be a good thing on the Financial investment side. Unfortunately people tend to follow the cowherd. They buy high and sell low. It's harder to get in and out of REI so it is better

    For the average investor.

    REI is hands down the better investment from both a Risk Reward standpoint. Even more so to the OPs question about at this time.

    If you have been unsuccessful or dissatisfied with your REI strategy let’s discuss your specific examples.    

    Yes today's REI market is harder. We get to see who has swimming trunks or is naked at this point.

    Arguing that you feel like the stock market can't double but your 2M house can is not an argument based on facts. It's a feeling.

    And I'm surprised that you think the RE market can't crash 50% when it crashed 50%  between 2007-2012. Huge discounts in San Diego. The condo I purchased in 2012 for 140k was a short sale previously sold for 375k and that was the story of the entire city. Since then, RE has doubled and trippled but the market has quadrupled. Real estate is barely hitting it's 2007 peak just now 15 years later in San Diego.

    The difference between Real Estate and something like the S&P500/401k matching is that the market is the same for everyone who's passively invested yet with Real Estate, you can buy a two houses in in different zip codes and you can have two completely different outcomes. Buying a house is like picking an individual stock. It could beat the market or it could just be a liability. 

    So I'll say it again, we only hear people talking about their 2012 success stories but we never hear about all the underperforming homes creating a sort of survivorship bias.

     Well said, my friend!

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