For most people, real estate will always be more desirable than stocks. Real estate is a tangible asset that provides shelter, utility, and rental income. Everybody can easily understand the fundamentals of real estate, which is why many prefer real estate over stocks.
Stocks, on the other hand, provide no utility. You can't enjoy your stocks or raise a family in stocks. Further, a stock's value can disappear overnight.
Look at the recent devastation of many high-growth tech stocks in 2022. Companies like Meta, Peloton, Moderna, Teledoc, and many more have given back 1-2 years worth of gains in a matter of months. Thankfully, many big tech names have come back with a vengeance.
Even still, you can't enjoy your stocks with them at all-time highs. To enjoy your stock market gains, you actually have to sell from time to time, pay capital gains tax, and go out and buy something.
Real Estate Will Likely Build You More Wealth
In this article, I will share why real estate will likely build you more wealth over time. Real estate will also most likely provide more happiness. Owning an asset that provides more wealth and happiness is tough to beat!
I'm all for owning both real estate and stocks to build wealth. However, I've noticed there's been a growing amount of rage against homeowners and real estate investors. This rage is misplaced and should be rectified if these folks want to build greater wealth over the long run.
Over the past 10 years, there's been a growing number of voices saying that owning real estate is a terrible way to build wealth. Some are even rooting for real estate investors to lose money.
Curiously, you don't see this type of schadenfreude and rage against renters or stockholders by homeowners. I want to address this issue full on so you can make better financial decisions. In 10 years, if you're still renting, you will mostly likely regret not buying a property of your own.
The Reason Why I Own Real Estate
For most of my post college life, I've had a larger exposure to real estate over stocks. I needed a place to live so I figured it was better to pay down a mortgage than to pay someone rent as soon as I mustered up the down payment. Further, I worked in Equities my entire career. Therefore, real estate was a great way to diversify my net worth.
When it was time to buy another property, I simply rented out my old place for positive cash flow, and enjoyed my new place until it was time to rent it out again and buy a new place. I've gone through this buy-rent-buy cycle five times. It's been by far the easiest way to make and save several million in tax-advantageous dollars.
Real estate is an important part of my passive income portfolio. It has enabled both my wife and I to remain stay at home parents to our two young children. Today, our real estate portfolio generates about $150,000 in passive to semi-passive income.
Within the next five years, our plan is to go through another cycle and buy a property in Honolulu close to the beach. We'll then rent out our current San Francisco primary residence and hopefully build even more passive income.
I own real estate because it generates rental income, provides shelter, takes care of my family, and generally appreciates over time.
Boost your wealth through private real estate: Invest in real estate without the burden of a mortgage, tenants, or maintenance headaches with Fundrise. With almost $3 billion in assets under management and 350,000+ investors, Fundrise specializes in residential and industrial real estate. I’ve personally invested $300,000 with Fundrise to generate more passive income. The investment minimum is only $10, so it's easy for everybody to dollar-cost average in and build exposure.
Why There Is So Much Anger Against Real Estate
The main reason why there is so much rage against real estate is due to the human condition. We crave what we can't have. I get it.
Saving up for a down payment in a city where the median home price is close to a million dollars or more is difficult. It is also annoying to see your peers buying their first homes with the help of Bank of Mom & Dad.
After you've gone to a fancy schmancy private university or built up a growing business and you still can't afford to buy a home like your parents did when they were 28 years old, you get pissed!
Finally, when you witness real estate prices go up and you don't own, the rage continues to boil. You should see the comments in my post, Stocks Or Real Estate: Which Is A Better Investment? You see people so pissed off at real estate owners, even if they've done well in the stock market!
Just don't confuse your disapproval of owning real estate for your own inability to buy real estate yet. Real estate is one of the key ways people have been building wealth for centuries.
The more expensive the city, the more negativity there is towards real estate. This makes sense. But try not to let your frustration destroy your objectivity.
To buy real estate responsibly, you need to go through these steps:
- Save enough for a 20% downpayment to avoid PMI plus have a buffer.
- Have a financial institution deem you creditworthy enough to qualify for a mortgage.
- Make an attractive enough offer to be accepted by the seller.
- Have the guts to agree to the terms and take on the property.
At each stage, there is risk of rejection or failure.
It takes a lot of discipline and sacrifice to save $300,000 for a down payment on a median priced home in New York City. Therefore, most people don't and get pissed at those who do or have the means.
The human condition assigns luck to the achievements of others and skill to our own.
Due to more stringent lending standards since the financial crisis, the average credit score for those qualifying for a mortgage has averaged over 720 (excellent). Once the pandemic hit in 2020, the average credit score for approved mortgages shot up even further to 770.
Putting 20% down has now become standard. Some banks aren't even allowing existing customers to take advantage of low mortgage rates. Without a minimum amount of assets, these customers are being shut out of refinancing their jumbo loans.
Given the tightness in the mortgage industry today, the chances are even higher that you will be denied a loan. Therefore, you will naturally hate the real estate market even more.
Rejected Offers Are The Norm In Real Estate
In a competitive housing market, it's common for your offer to get rejected multiple times, especially if you have a home inspection contingency. Each rejection beats you down because you always dream about what your life would be like in the property you are pursuing.
Get rejected enough and you'll either make some crazy high offer to your detriment or get really bitter at the entire process. Be careful about beating out your competition to buy a house. For more insights, here are reasons why homebuyers get into bidding wars. I don't recommend it!
Once your offer is accepted, you need to then muster up the courage to transfer a good chunk of savings into escrow. Then you've got to assume a mortgage in most cases. Plenty of people get cold feet and back out from their offer.
It takes guts to take such concentrated risk. If you backed out only to see the property resell years later for lots more than you could have bought it for, of course you're going to be pissed off.
Now let's look at how difficult it is to acquire stock.
The barrier to entry to buying stock is pretty much ZERO. Robo-advisors can build you a stock portfolio for free. And you can open up any brokerage account with $100 and buy stocks for free nowadays.
When anybody and everybody can buy stocks, stocks simply becomes less desirable. In contrast, when there is only one panoramic ocean view property on an oversized lot with a hot tub, of course the desire for such a property will be higher.
Know the human condition.
Renting Is Like Shorting The Real Estate Market
There is also one very important paradox stock owners who rent fail to realize. Let me explain.
If you are a renter, you are short the real estate market. You are a price taker and are at the mercy of any rent increases over time. Just like shorting the S&P 500 stock index isn't a good idea long term, neither is shorting the real estate market by renting.
You are neutral the real estate market if you own your primary residence. Once you are neutral the real estate market, you simply ride the ups and downs. Even if your property increases by 50%, you can only profit if you sell and buy another property.
Only when you own two or more properties are you actually long the real estate market. Your non-primary residence properties can be improved upon, rented out, or sold for potential profit.
Shorting the real estate market or the stock market over the long-term is a bad move. If anybody decided to short the S&P 500 index their entire life, they'd be considered a buffoon.
Yet, people who are against homeownership somehow think it's OK to rent all your life. This logic makes no sense. And the reason why there is such an inconsistency in thought is due to a lack of knowledge or simply blind rage.
Other Reasons Why Real Estate Is More Desirable Than Stocks
Now, of course stocks have shown to be solid long-term investments over the long run. I've got about a quarter of my net worth in the asset class.
But this is an article addressing the housing haters who believe real estate is a terrible investment. Let's continue!
1) You are the CEO, not a minority investor.
Every physical real estate investment you make puts you in charge. As CEO, you are able to make improvements, cut costs (refinance your mortgage), raise rents, find better tenants, and market accordingly. Of course you are still at the mercy of the economic cycle, but overall you have much more leeway in making wealth optimizing decisions.
When you invest in a public or private company, you are a minority investor who is putting his or her faith in management. Sometimes managers commit fraud or blow their companies to smithereens while making mega millions for themselves.
Mortgage rates are still low. As a result, homeowners can refinance their mortgage, save on living expenses, and enjoy their homes. Meanwhile, stock investors are getting whipped around due to fears of a global economic slowdown.
2) Leverage other people’s money cheaply.
Thanks to cheap mortgage rates, qualified real estate investors can borrow money at 30+ year lows. Given the cost of capital is lower, the returns tend to be higher. Cheap interest rates also attract more borrowers, bringing more liquidity to the real estate market. This in turn puts upward pressure on prices.
The year-over-year national home price appreciation accelerated during a pandemic.
Even if real estate only tracks inflation over the long run, a 3% increase on a property where you put 20% down is a 15% cash-on-cash return. At this rate, in five years you will have more than doubled your equity. Just don't get caught being overly levered in a down market.
The thing is, post pandemic, inflation is running hot! We're talking 7.5% in 2022, which makes real mortgage rates negative. As a result, demand to borrow homes continues to be very high.
While the stock market is selling off, home prices are likely going to continue going up. It's the ideal environment for real estate investors. Geopolitical instability in Russia / Ukraine, negative real mortgage rates, a weak stock market, and a desire for hard assets will push real estate prices higher.
3) More tax advantages.
Not only can you deduct the interest on up to $750,000 in mortgage indebtedness on your primary home, you can also sell your primary home for tax free profits up to $250,000 for singles and $500,000 for married couples if you live in the home for at least two out of the last five years.
Thanks to depreciation, a non-cash expense, you can shield your rental income as well. All expenses associated with managing your rental properties are also deductible against your rental income.
If you are in the 32% marginal federal income tax bracket or higher, all the more reason to own your primary residence.
4) Real estate is a tangible asset that can be seen and enjoyed.
Real estate is something you can see, feel, and utilize. Life is about living, and real estate can provide a higher quality of life compared to a rental that is not properly maintained. I always believe in buying real estate for living first, cash flow second, and principal appreciation third.
With stocks, there is no utility unless you spend the dividends or sell positions to purchase something. As a majority investor, the feeling of owning my primary residence is 10X greater than the feeling of owning a hefty amount of Apple stock for the past 10 years.
Stocks have certainly performed well over the years. However, there is simply no utility that comes from stocks. Stocks are just digits on a screen.
To extend your wealth, I encourage investors to regularly turn funny money into real assets. Real assets don't just lose half its value overnight as some stocks do.
5) Easier to analyze and make better investment decisions.
It is much more difficult to analyze a company's income statement, cash flow statement, and balance sheet than it is to analyze a property's financial statements. This is why it's often better to just buy an S&P 500 index fund for your stock allocation and call it a day. If you buy an individual stock, it may do incredibly well, or you might lose your shirt because you misjudged competitive pressures.
For example, anybody who bought Blue Apron stock at the IPO is now down 90% because they misjudged Amazon coming into the market and crushing them. Hopefully you owned Amazon instead. Anybody who bought Lehman Brothers or Enron lost everything.
Anybody who decided to short Tesla stock over the past several years given its financial issues has gotten their face ripped off. There is one JP Morgan Tesla stock analyst who has issued 25+ sell ratings in a row, and he does this for a living!
With real estate, it's easier to estimate rental income, occupancy levels, new supply, job growth, population growth, and demographic trends. People will always need a place to live. The same cannot be true for owning an expensive laptop computer.
6) Less volatility in real estate, or at least less visible volatility.
Your house value could be tanking and you would never know it since there isn’t a daily ticker symbol. During the 2008-2009 downturn, I still got to enjoy my vacation property in Lake Tahoe 20 days a year even though its value was plunging.
Meanwhile, looking at the TV or computer screen just made me mad at how much I was losing in my stock portfolio. When your investment is less volatile, it’s much easier to stay the course and not sell at the bottom.
Here are the historical returns for Fundrise, one of my favorite real estate crowdfunding platforms for non-accredited investors. Past performance does not guarantee future performance. Fundrise is now a leader in the space with almost $3 billion in assets under management and over 500,000 investors on its vertically integrated platform.
7) Real estate provides a greater source of pride.
After a while, making money for money’s sake is a pretty empty feeling. Money needs to be used for something, such as buying real estate to raise a family. In October 2023, I climbed to the top of the property ladder and didn't feel happier. But I did feel more satisfied and proud that I secured a magnificent home to raise my two young children and provide for my wife.
Every time I drive by my rental property I feel proud to have made the purchase in 2003. It reminds me of the time when I was 26 years old and still trying to make a name for myself at the job. Those regular 60-70 hour work weeks are fun to reminisce about today.
I have zero sense of pride with my stock portfolio. Partly because nobody sees it and nobody uses it. But the reason is mainly because my stocks don't do anything directly to improve the quality of my life.
It makes a parent proud that the home they purchased is providing shelter and wonderful memories for their children. Stocks don't make you feel good unless all you care about is money.
8) More insulated for random exogenous variables.
Real estate is local. If you’ve made a good decision to buy in an economically strong region, you will be more insulated from the national economy or the global economy.
Look at prices in superstar cities such as NYC, Hong Kong, Singapore, London, Paris, and San Francisco. They fall the least, recover the soonest and gain the most.
Of course if tech ever collapses, my real estate holdings in San Francisco will be crunched. Therefore, it's always good to diversify your real estate holdings as well, just like stocks.
I believe in the heartland of America, which is why I did sell one of my SF rental properties in 2017 and reinvested the proceeds in a fund that purchased 17 various properties around the country. With the acceleration of the work from home trend, some 18-hour cities are likely going to benefit from demographic shifts away from big cities.
At the same time, tech stocks and the NASDAQ is going gangbusters in the new decade. So it's hard to see San Francisco Bay Area real estate collapsing when tens of thousands of residents are 20%+ richer despite a global pandemic.
I recommend exploring investing in secondary cities like Austin, Memphis, and Charleston where valuations are cheaper, growth rates and cap rates are higher, and population growth is growing faster. To do so, another private real estate platform to consider is CrowdStreet if you are an accredited investor. The platform offers individual deals in these faster-growing cities so you can build your own select real estate portfolio.
9) The government is on the real estate investor's side.
There are two organizations not worth fighting against: the Federal Reserve and the Central Government. Not only do you get generous mortgage interest tax deductions and tax-free profits, the government sometimes bails out overextended homeowners during bad times.
In 2010, I got a free loan modification on my vacation property mortgage from Bank of America, even though I didn't need it. The government forced BoA to cut my 30-year fixed mortgage from 5.875% down to 4.25%.
Programs such as HARP 1.0 and HARP 2.0 allowed folks without hefty down payments to get in on the action. There are 12 non-recourse states such as California and Nevada which don’t go after your other assets if you decide to stop paying your mortgage and squat for months.
Just look at how much the government did to save the economy during the 2008 global financial crisis and the global pandemic from 2020 – 2022? With the latest National Association of Realtors price fixing settlement, President Biden and most politicians cheered the verdict is good for the consumer. With a decline in real estate commissions, residential real estate investors are now suddenly richer.
10) You'll save your children from angst and despair.
When you die, you can pass on your real estate holdings to your children using a stepped up cost basis. This means they won't have to pay any taxes on the assets provided that your estate is below $13.6 million per person when you pass as of 2024. The estate tax threshold changes every year.
All the people who are anti-housing could have been saved if their parents decided to invest in real estate 30+ years ago. Life is so much easier once housing is cheap or free.
If you're willing to provide an education for your children, perhaps you should also be willing to provide housing just in case they need it. Buy a rental property every time you have a newborn. By the time they are adults, they can live in them or manage them for rental income.
Think about what your children will say 30 years from now about prices today. They will likely be envious of how cheap we could have owned real estate. Heck, look at the global real estate price chart above. The United States is so cheap compared to New Zealand.
If you are a parent who wishes to achieve financial freedom, one goal is to buy one property for each child you have. Not only will you build your real estate portfolio, you may also provide your children subsidized housing in the future if you so choose.
Real Estate FOMO Is The Hardest To Overcome
In a bull market, the average person's day job income will likely never catch up with their local real estate market.
For example, if the San Francisco median home price jumps from $1,600,000 to $1,700,000 (+6.25%), the median household income of $96,000 would have to jump 104% just to stay even. Is there any wonder why long-term renters continue to fall behind?
If you don't believe me, just look at the average net worth of homeowners and renters as reported by the Federal Reserve. The net worth difference is staggering. If every renter saved and invested the difference, the gap would be narrower.
However, we all know that it is very easy to consume instead. With housing, you are at least paying down principal each month as a form of forced savings. Fight real estate FOMO by at least owning your primary residence.
The good thing is that real estate goes in cycles. You are finally seeing some softening in big cities like Toronto, New York City, and San Francisco due to more supply and some residents moving away.
Healthy downturns will usually last 2-3 years before stabilizing and then resume their upward trajectory as the old is replaced with the new. I believe the time to invest in big cities is now, before there is herd immunity.
Hopefully during soft times, folks who want to buy homes will have already aggressively saved and figured out ways to boost their income. Otherwise, it'll be the same cycle of angst, anger, and despair over and over again.
Good To Be More Objective
Of course homeownership will be wrong for some people. Some people will buy at the wrong time. Others will unfortunately buy a lemon that needs a lot of fixing. While plenty of people will ignore my 30/30/3 rule for home buying and spend way too much money.
As a result, they will constantly feel stressed when they should really be enjoying their home.
However, just because you can't afford a home yet doesn't mean that real estate is a terrible investment. Please don't let your frustration about the high cost of real estate derail your objectivity.
I've been a renter and homeowner for decades. I've gone through the frustrations of being a landlord and the simplicity of just owning passive real estate investments. Real estate has lost and made me money. Therefore, I believe I'm providing you some objective perspective.
In my opinion you should at least get neutral real estate if you've found a city you want to live in for the next 5-10 years. Inflation is too powerful of a force to combat. After you own your primary residence, then you can choose to get long real estate by owning more real estate or more stocks.
The next time you hear someone shout why they think real estate is a terrible investment, try to understand their background first. Once you do, everything will be more clear.
Real estate will always be more desirable than stocks for most people. But you can always invest in both.
Best Private Real Estate Investing Platforms
Today, anybody can invest in private real estate. Take a look at the two best private real estate investing platforms to help you diversify and earn more passive income.
Fundrise: A way for all investors to diversify into real estate through private funds with just $10. Fundrise has been around since 2012 and manages almost $3 billion for 500,000+ investors.
The real estate platform invests primarily in residential and industrial properties in the Sunbelt, where valuations are cheaper and yields are higher. The spreading out of America is a long-term demographic trend. For most people, investing in a diversified fund is the way to go.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations and higher rental yields. These cities also have higher growth potential due to job growth and demographic trends.
If you are a real estate enthusiast with more time, you can build your own diversified real estate portfolio with CrowdStreet. However, before investing in each deal, make sure to do extensive due diligence on each sponsor. Understanding each sponsor's track record and experience is vital.
I've invested $954,000 in real estate crowdfunding so far, over $140,000 of which is in Fundrise funds. My goal is to diversify my expensive SF real estate holdings and earn more 100% passive income. I plan to continue dollar-cost investing into private real estate for the next decade. Both are long-term sponsors of Financial Samurai.
Real estate will always be more desirable than stocks is a Financial Samurai original post. Both Fundrise and CrowdStreet are sponsors of Financial Samurai and Financial Samurai is an investor in Fundrise.
Thanks for telling me that I need to have at least 20% downpayment before I am able to secure a property. My husband and I think that we should settle in a luxury home to so we can be closer to a lot of amenities and enjoy a better home compared to regular residential properties. I guess I have to consult a real estate agent if 20% is only needed or more.
We have always had our kids invested in Real Estate to learn the intricacies of the Rule of 72.
Because of these investments they all own their own homes with 60% LTV notes, graduated without loans. All the operating costs of owning those homes is covered by passive income. Admittedly their grandfather left them all a small inheritance & we invested it all in REI, most in 12-14% investor notes on properties we picked up from foreclosures & tax lien foreclosures. We have also gifted the usual IRS allowable amount each year for REI.
Some scoff at the 12-14% notes we hold but few understand that re-selling these properties to investors for 2-4x what we initially paid renders the 12-14% moot. Admittedly some stocks you’re lucky enough to pick may generate similar returns BUT we can do it on every property we hold & have done for 30+ years. In 30 years we have had one foreclosure & we quickly re-sold it for 2x our initial investment hold it @ 12%.
This month my youngest (26) secured financing on a 5 bedroom 3 bath home in Scottsdale AZ using her W-2 & the passive income stream from her rentals & notes she holds. Even with the 2.85% interest rate she secured I doubt if you could qualify for a mortgage on the dividend income from a stock or equities portfolio that is margined around 60%.
We have sat with MANY financial advisors over the years & none of them have ever been able to share with us a (redacted) portfolio, theirs or one of their clients, that has achieved close to our returns.
I’ve read through the comments extolling stocks over real estate. I think the real estate reality is more nuanced than pro RE people may like to admit. (I own both, by the way — but much more in stock than I do in RE.)
For real estate, location really matters and the individual variation between picking the right condo or house can make a huge difference in your return. But, you get more leverage due to your mortgage — so it doesn’t have to appreciate nearly as much to double your money.
For stocks, comparing RE return to an index fund I don’t think is a totally fair comparison if you’re using a single property — as that can have a lot more volatility than the index is designed to do. People who favorably compare, just picked out RE that did really well. What a more relevant comparison is using a company we all know about that has done well, like Amazon or Microsoft or Google or Facebook or Netflix over the past 10 years. And I think you’ll find that when you compare an individual stock that’s a good bet, to an individual real estate property that’s a good bet, the stock will outperform real estate most of the time. (Even in places like San Francisco where RE has really done well the last decade.)
*However* real estate gives you a very different profile of return. Which is why I own rather than rent (and have an additional investment property). So, I’m definitely not anti RE either.
(P.S. I believe you could invest in a REIT which is basically like a stock for real estate as a hybrid — however, I don’t think you’re able to get nearly the same inherent leverage as directly owning real estate, as well as depreciation / writeoffs / 1031 exchanges and all of that which makes real estate a great longer term investment.)
I own my own home and it is one of my contingency plans as it is quite a big bigger than our needs so I could sell it or equity release if things go pear shaped elsewhere.
However, a house is just a house. It does not do anything but depreciate. In recent years there has been house price inflation but that is due to supply and demand factors that could, in reality, go either way. So, unless you think the supply / demand picture is going to continue in your favour I am not sure why real estate is seen as a great investment.
Whereas a business, in theory at least, can do something. Thus its value can grow because it is doing something useful.
The other aspect is leverage. Much easier to leverage for a property. But leverage is risk taking. Again, if the supply/demand moves against you and you are leveraged…
I agree about real estate being more desirable than Stocks. I raised my children in my home and it has provided for a wonderful lifestyle. Not only that, my property has appreciated by by 50% and my equity return on my down payment has appreciated by over 200%.
I’ve also been investing in the S&P 500 every year as well. Not owning your home becomes a very very expensive proposition 10 to 20 years down the road.
On real estate and stocks.
Real estate is highly illiquid compared to stocks; there’s no 6% commission to sell stocks, nor do you (usually) have to wait indefinitely for a buyer while paying carrying costs. Many real estate sales are contingent which means the seller needs to do some work as part of the deal; no contingent sales exist in the stock market that I’m aware of.
There’s no annual school and property taxes on stocks; only taxes on dividends or when you sell, which can also be deferred or reduced through various methods. There’s no maintenance on stocks!
Being a landlord is a pain in the ass; it’s not “passive” income at all. If you’re not spending a significant amount of time managing the property you’re an absentee landlord and your place is a dump. I know you’ll say otherwise but I disagree entirely. Houses are a lot of work and need routine maintenance, period. I’d rather spend my time doing something else while my stocks appreciate, even if it takes longer!
As far as pride of ownership, that is a personal benefit and depends on the property, if I owned a dump I’d be embarrassed; if I owned an ostentatious mansion I might feel self-conscious.
You believe you’re saving your kids from ANGST and DESPAIR but my experience is quite the opposite and is not unique. I live in fear of the day my parents leave their house to my brother and I. The house is full of memories (good and bad) as well as lots of stuff that will be an incredible pain to sell. Likely, the contents will need to be auctioned off for pennies on the dollar because we both have our own stuff and can’t use any more. Selling my parents house gives me so much ANGST and DESPAIR that I’ve investigated my rights as to disclaim my inheritance which is luckily allowed in the state I live in. The last thing I want to do is spend my time prepping that place for sale, dealing with finicky buyers, appraisers, realtors and arguing with my brother. There are many sibling relationships that have been strained by real estate inheritances. It’s nice of you to think of your kids, but it’s likely they’ll appreciate being left money over things. Keeps it a lot more simple!
Perhaps it’s more the death of your parents that is causing more angst and despair rather than inheriting the property itself? I’ve never heard of anybody inheriting real estate and feeling the way you do.
May I ask whether you have ever owned real estate before and if not, why not? I’m trying to understand why some people don’t want to on their own homes and are so against real estate.
Owning both real estate stocks for the long term is a no brainer way to build wealth. Do your kids and wife if you have them feel OK with the property you can only stay at?
Please share more of your perspective.
Disputes often arise when siblings jointly inherit real estate – that is a common occurrence. I rented in the past and now I currently own my home, but my situation doesn’t matter. There are far more benefits investing in stocks over real estate and that is clear to nearly everyone. Now – don’t you have somebody’s toilet to fix?
“Now – don’t you have somebody’s toilet to fix?”
Why do you say it this way? It is so derisive and arrogant. I don’t understand why there is so much animosity towards landlords and homeowners.
If you were truly OK renting and happy with investing, why try and make someone feel bad? I’m not saying anything bad about you renting or others renting. I’m highlighting the benefits of owning real estate.
What happened to your property that has made you hate real estate so much?
The U.S. housing market has 35% – 75% upside if it ever gets as hot as the Canadian housing market.
See: https://www.financialsamurai.com/what-if-the-u-s-housing-market-turned-into-the-canadian-housing-market/
I’ve met many people like Wallie before. They probably got burned and had to sell their real estate holdings at a loss. But since the real estate market has roared back, they are left super bitter. Some got their credit score thrashed as well.
Wallie seems like a really sad person because he lost his property and his parents and is probably single/divorced and alone.
To Wallie, It is OK to rent. But a bad attitude is going to make you miserable for life. Nobody will want to be with you.
Not at all, DLo. You have absolutely no idea who I am and you are completely wrong about me. Why does everyone care about my personal situation? It has nothing to do with the fact that stocks are typically better investments than real estate for most people. I see we can’t have that simple discussion here.
I’m definitely on your side Wallie. I have found that increases in net worth due to real estate are generally because they didn’t really save before they bought the property. The property now acts like forced savings, so of course their net worth went up (not suggesting the author is this way).
I couldn’t agree more with you when it comes to the work associated with real estate ownership. I have yet to find someone who takes this fully into account.
Unless you have kids, I don’t see how owning more space is better than renting less space and investing the difference. I don’t need a 3-4 bedroom house and a 1-2 bedroom condo has any return eat’n up by HOA fees.
I rent an older apartment that needs some cosmetic work (old floors, etc.) just barely outside DC. The math all says this low cost 1 BR apartment is better than buying a house or condo, if I invest the difference.
Now, if I lived in Pittsburgh the equation shifts a little towards real estate, but I still don’t like the definitiveness of the article’s title. It seems like it contains a lot of bias for real estate, while it complains about bias against real estate. Real estate can be a good investment, it just isn’t the slam dunk the title suggests.
I compare the DC area and Pittsburgh because I have lived in both places and are solid representations of cheap and expensive markets.
Yeah, One of my friends had to short sell a condo he owned back in 2010. Since then, he’s been very against real estate. But the funny thing is, he wants to buy some farmland in Maui now.
Not sure why Wallie is so angry. But it’s interesting to find out more.
Nothing at all happened to my property, I’m a happy homeowner for sure, but as for investing purposes stocks are clearly better – you haven’t even tried to make a convincing case otherwise. I made a lot of valid points why real estate is a poor investment compared to stocks and instead of debating them, you want to find out about me personally.
My goal is to understand why there’s such animosity towards real estate by some people. The personal stories are the most interesting. When someone writes with “angst and despair,“ there’s always a very interesting story behind the person.
Everybody knows that real estate, and especially some real estate markets have performed well over time. It’s the reasons behind the emotional and massive comments that are the most fascinating to me.
I’m not being emotional at all. You wrote about ANGST and DESPAIR first – I’m simply using your words. Real estate inheritances often cause ANGST and DESPAIR among siblings. Stocks are typically better investments over time than real estate.
If you think my comment about toilet fixing is derisive and arrogant maybe landlording isn’t for you because the landlord typically fixes broken toilets in their rental homes.
I’m ready to end this discussion because I can see it’s not constructive and I have other things to do today, don’t you?
Sounds good. At the end of the day, everything is rational. If you’re happy renting and if you’re happy with your net worth and stock allocation, that’s all that matters.
I owned investment real estate until this year and funny thing is that when I tried to sell it, the toilet broke and I had to pay the super $200 to fix it. It was lucky that was able to get $22,000 more than I paid for it but the entire amount went to the broker, improvements, taxes, and I broke even on the deal. I was happy not to have to go there to deal with anything. I invested in stocks and have had better luck with no work.
The internet is full of people who write in angry tones. While I agree with Wallie’s stance regarding real estate vs stock market investing in general, his animosity seems to be more a reflection of his character than it is his rational stance towards the topic.
The difficulty with real estate investments, in my mind, is that they have a greater risk on ROI (given potential maintenance issues, taxes, et c). The interesting point from the author that I found, though, is the different estate taxes applied to real estate- especially when considering passing investments on to our progeny.
I agree with you Wallie. I’m 1/4 in real estate (just the primary home for 24 years) and 3/4 in stocks.
I have 2 kids who are adults.
Been in REI for 52 years & watched my colleagues play & lose the equities game for many years & work until 65 then take on menial PT jobs to supplement Ret., income. I retired at 40 (debt free ever since) & we have continued to accumulate properties with our kids fully involved. Only toilet I ever fixed was a student rental we had & I just joined the party at the time.
Our youngest has my wife’s drive for REI & @ 20 yrs she graduated without loans, bought her first run down 6 unit. Lived with the ‘inmates’, rehabbed it & now runs it all via social media & a live-in maintenance guy who pays mkt rent.
She’s now 25 & been in Scottsdale AZ for 2 years working from a home office for her corp. The NOI from her 4 & 6 unit just helped her qualify for $650k, 30 yr term @ 2.75%. Admittedly we ‘gifted’ (estate planning!!) her 20% down so no PMI, no points on the 6 bedroom 3.5 bath home. Her rentals cover all her financing in spades. Apart from the notes on her properties she is completely debt free.
Both my BIL’s are life long stock market devotees/traders, one retired @ 65 on a state pension & still has 2 mortgages. The other is 65, has a HELOC to live off & recently confided that he cannot afford to retire on his Social Security of $52k/yr. Same guy told us for years we were doing it all wrong!!!
This is false, the way to achieve wealth today is building a business and selling it for 2X annual revenue, then rinse and repeat. He ignores the depreciation of money and opportunity loss of compounding investment something impossible with real estate! Inflation wipes out most value and there is no interest to compound.
I really hope you don’t sell a business for only 2X revenue unless it has single digit operating profit margins.
The S&P 500 is trading at 35X earnings.
Further, we’ve got to be thankful the housing market rocketed higher during the pandemic. Unbelievable!
Related post: https://www.financialsamurai.com/why-i-regret-selling-my-online-business-for-millions-every-single-day/
I’ll add to this conversation. I’ve had good and bad experiences in both stocks and real estate. Like there are different stocks, different indexes, options, ETF, closed end funds. Similarly there are different ways to invest in real estate. Being a landlord is only one. There is active rental ownership (fix the toilet so to speak), passive rentals (pay the management company to fix the toilet), AirBNBs active and passive, multi family syndication, multifamily with full time maintenance staff, fix and flip, new builds, land contracts, fix and flip loans, long term notes, crowd funding…
I once lost a decent chunk playing will options (condors, etc) but I think that options and stocks are still a great investment for some folks, it all depends on temperament and your skills. Same with real estate. I recently sold my last rental. I did not like dealing with the management company. But I am still in real estate investing in fix and flip notes. In a bad stock market (broad market) year I do better, in a good stock market year, I do worse. So far, the negative stock years, I have seen positive returns. I understand lending, I understand real estate, I understand rehab projects and this is what I enjoy doing. It works for me, just as stocks work for others. I am listening to Buffets stock advice in real estate… invest in what you understand and never loose money.
Sam, I strongly disagree with you. I much rather own stocks than real estate. I have a much better chance of putting in much less money and making a better return in a shorter period of time than you. Also, I DO NOT want the headache of dealing with people.
As for why I choose to rent or buy, I am a unique case. I actually live in a hotel. I have various health issues, so maintenance and upkeep of a regular sized home is not tenable for me. Plus, I use IHG rewards points to get 4 free months a year. I also like having only 1 bill and the maids coming to clean my room once a week.
Sorry about your health issues. If you have a spouse and kids, do they each have hotel rooms too? Or do you have a big multi-bedroom suite?
We own property in a resort hotel. It’s a 2/2 and we could live there for a couple months.
Looks like someone is a renter and missed out on huge real estate appreciation since 2010-2012. Did you sell at the bottom?
I bought real estate in 2013 and my property is about 50% higher now. But my return on my cash down payment is up more than 200% just living in the property.
I have older kids and have been looking at buying smaller houses as rentals for them to live in assuming the tax benefits to me would be greater and they could inherit the houses down the road. Kind of my own rent to own program for the kids. What are your thoughts on how to do this most effectively?
FYI – I want them to earn their way, so I am not simply going to give them a house, but have them save a down payment and then rent to own from me.
As a household we are only invested in stocks and bonds. We have almost paid off our primary.
Fundrise looks like an interesting opportunity. For a novice, I am inclined to invest in equity property for long term growth.
Any generalized advice for investing in equity properties through Fundrise? Any specific facts you look for?
Fundrise has streamlined its investment process to focus on eREITs/eFunds for diversification, stability, and scale purposes. I think this is a good move for nonaccredited investors as you want more diversification.
Once you sign up, you’ll choose one of three investment options that best suit your risk tolerance and objectives. The platform has been very steady when stocks are down. ~9% annual returns for the last six years, and probably again in 2020. You’re not going to get rich quick off Fundrise. It’s a more stable investment that you’d want to hold for 3-5+ years.
You left out alot Samurai. Huge closing costs in SF, huge water bills, repairs, property bill increase, etc. I got to over 200k+ in dividend paying securities paying me 1000-1500k a mnth.
And the best part……I got to easily move after I get bored (typically 2 years). Lived in Brooklyn, Queens and SI over 10 years.
Ironically, closing on my first home now because I have wife and 2 kids and need more stability (school)
Also, have u seen the collapse in Manhattan rents? Best time to rent in a long time.
Don’t forget about the yearly tax advantages and write offs that reduce your taxable income levels and depreciation recapture when investing in real estate. Unfortunately, these “Soft Profits” don’t translate well because you don’t seem to “Realize” them similar to “Hard Paper Profits”.
However, they definitely add up over time and can easily add another 50-100% to your bottom line profit if not more. You just have to remind yourself, “Hey, I saved another $5k to $10k, etc. in taxes this year!” and then use compound interest to understand the real impact over time. It’s initially subtle, but also a great way to fuel other investments assuming you put the tax savings aside.
Indeed. The tax incentives of real estate definitely make real estate very attractive for higher income earners.
Brace yourself. The freebies you guys get via real estate investing are going to be reduced when Biden is President.
Hi Sam,
I’ve read this post several times in the last 2 years from owning my first home to now owning 3 renal condos and actively looking for a 4th. It’s amazing how things just keep moving steady.
Have you ever considered multi family properties with JV partners? It seems that price per door is much lower when buying a building.
That was fast! You’re going to build a passive income empire in no time. I usually buy a new property every 2 – 5 years b/c I enjoy living in them and then getting the eligibility for the tax-free profits if I so choose.
I’m trying to simplify life, which is why I just invest in REITs and real estate crowdfunding to earn 100% passive income.
Loved this article! Great job
If you look up the richest real-estate investors in the world, none of them come close to Warren Buffet – mainly stock investor……just saying. And Buffett always seems happy to me.
If you plan to become Warren Buffet, let please don’t forget about me!
Why not invest in both?
This article is not written for the top 1% of billionaires in the world, but regular people.
I agree with most of what you’re saying. I’m invested in real-estate in the form of REITS and may do crowdfunding too in the future.
I think the apprehension with real-estate investing in the traditional sense is the active management involved. Although I have thought of buying and renting out a secondary property numerous, I don’t have the time and temperament for it. It’s something I wish I did when I was single, but hey who knows what the future holds.
well, yes and no.
Buffett and Charlie Munger buy companies, not really stock in the sense you and I might be able to.
For example, one investment they made was in Burlington Northern, before they finally took over.
they purchased a minority stake – enough to get into management’s bed. then aimed to increase their stake as management’s execution progressed…they purchased the bonds and arranged for the firm to carry over some of their credit lines
all of this before they finally bought the company.
but.. you are right…he in not a RE guy at all, except in the sense that RE can generate income or provide a foundation for corporate growth – not a passive guy at all/
Hi Sam,
You’re right that there is a certain amount of irrational hatred of real estate, but have you considered that you’re also being irrationally positive? I’d be curious to hear your counterarguments to the following.
1. Objectively, real estate in most of the country has barely outperformed inflation over the long term, and has dramatically underperformed stocks.
2. Since most people buy real estate on leverage, they are in more danger when prices decline. Few ordinary people went bankrupt owning stocks in 2008-2009. Many people who “owned” houses did.
3. Your statement that “renting is shorting the real estate market” is not accurate in areas with rent control. In our city of San Francisco, rent increases for the past few decades have actually been lower than inflation.
As always, thanks for your opinions.
I’m just a positive guy in general. I own both stocks and real estate and this article is focused on those who hate or refuse to see real estate as a way to build wealth.
Not all properties are rent control. And even if you can only raise the rent by 1.9% a year under rent control, you are still shorting the market and losing by 1.9%.
Are you a renter or a homeowner? If so, for how long?
Long-term (rent-controlled) renter with low 7-figure net worth. I’ve actually thought about buying and could do so in cash, but nervous about tying up so much of my net worth in an illiquid asset, and not convinced that doing so would be a good investment. Property taxes alone would be close to my monthly rent, and of course those are no longer deductible. Glad I’ve been mostly invested in the market for the past several years – very comfortable with volatility.
I do have friends who lost a lot in 2008-2009 by “owning” RE, so I’m also concerned that painting an overly rosy view of this asset could set people up for pain when the cycle turns.
Sounds good. So long as you enjoy your property and your family enjoys the property, that’s all that really matters.
I wasn’t able to find a property that I wanted to rent because the rent was too high for the property I enjoyed. Therefore, I decided to buy instead in 2003 in SF and just go from there.
I think if you can keep your property the under 40 or 50% of your total net worth, you’ll be fine. That’s when the average person has 85% of their net worth in their primary residence which may pose a problem.
When you say real estate has dramatically underperformed stocks?
How do you know?
Perhaps you should do a little bit a fact checking. If you treat real estate like a business, just like stocks, active real estate investing offers higher returns with less risk.
Here’s the first academic study that proves the point. Note how the study compared unleavered real estate to stocks. https://www.frbsf.org/economic-research/files/wp2017-25.pdf
It’s called the rate if return on everything from 1870 to 2015.
Since investing in real estate in a boring Midwest town over 20 years ago, my portfolio has run circles around the SP 500 index. Granted it’s more work than buying a REIT or the SP 500 Index, but it sure offers me more time and freedom compared to a traditional job.
Better yet, I could have easily retired 10 years ago, but I’m having too much fun working on the portfolio while saving a boatload in taxes!
With leverage, the returns have truly been great over the past 10 years. It really is or to invest as much in stocks as one would invest in real estate.
I have so much less fear buying real estate in size versus buying stocks in size.
Related: https://www.financialsamurai.com/why-its-harder-to-get-rich-off-stocks-than-real-estate/
Hi Mr ten,
I confess I didn’t read all 123 pages of the report you shared, but according to Table 5 the real annual rates of return on housing in the US are 6.03% from 1870 to 2015, 5.62% from 1950, and 5.66% from 1980. The corresponding returns for equity are 8.39%, 8.75%, and 9.09%. I’d say 5.66% “dramatically underperformed” 9.09%.
Didn’t realize it was so high at 5.66%!
The thing is, a 5.66% return on $1 million property will beat a 9.09% return on $400,000 in equity. The investment amounts matter.
But again, there Are all sorts of property and all sorts of stock. I like both.
Sam I hear you about investing in residential properties but I don’t see you investing in commercial space. Is there a reason why? In addition to renting my first home, I invest in non traded REITs with Class A office properties that have done quite well for me in the past once the properties are sold. Now I want to get into buying commercial space in 2020/21 when retail space will be a bargain after Covid-19. What are your thoughts on investing in commercial real estate? A blog post on the subject would be nice too.
Thanks,
The Economy Chief
My plan is to slowly build my exposure over 10 years. I started investing $810,000 invested in commercial real estate across 17 properties around the country in 2016 and have about $500,000 left after distributions.
I’m looking for deals right now through CrowdStreet and EquityMultiple with plans to get to $1 million exposure. But I want to take my time given all the uncertainty.
How much commercial real estate do you think I should invest in from an absolute dollar and a percentage dollar perspective? How much have you invested in so far? Thanks
Related: How Commercial Real Estate Is Affected By The Pandemic
Yes, I read your great post on the $810k you invested in commercial real estate in crowdfunding. However, I am more interested in purchasing commercial office space outright like you purchase your homes, not via crowdfunding. I know it is more work this way in terms maintenance and looking for tenants, but I think the return may be higher. A small two-story building and rent the offices and retail space. I am thinking of moving one of my businesses there and lease the rest of the space, perhaps an SBA loan. I know the SBA loan allows you to lease part of the commercial space. I can’t remember the percentage but I think it has to be less than 50% of the rented space to others. This will be my way into commercial real estate.
I got out of REITs around 2015. It was about 20% of my portfolio. I think too much exposure to real estate, residential or commercial, is a too much of an asset in one industry. For me, 20% exposure in commercial real estate is ideal, that is if it is done via crowdfunding. But if you buy the building yourself, that % can go up since you are more in control and can touch it and feel the asset, hence, you may be able to minimize the risk to some extend.
Go for it! And let us know how it goes. I don’t want to take as much concentrated risk. Also, I’m trying to simplify my life as much as possible while also generating passive income.
You have given excellent reviews of Fundrise and CrowdStreet. I think this is your first reference to EquityMultiple. Would love to see a review of EquityMultiple as they have some offers that are quite different than either Fundrise or CrowdStreet. I’m constantly looking for good CRE opportunities but there are so many platforms and don’t know how to evaluate them. Help.
Sure, here is my EquityMultiple review.
There are so many platforms that I’m really trying to just focus on the top 5.
To quote the article:
“Life is so much easier once housing is cheap or free.”
Yet by buying/owning more than one property, you are driving the prices up, making it harder for everybody else to achieve this.
Landlords scoff at the idea that they are not producing value, but at best, they are solving a problem that they are helping to create. I just don’t want to be part of a system like this.
Most people would agree that what Nestle does with water springs in Africa is bad, but to me, living space/real estate is the same. A necessary resource that should not be horded, but made available to as many people as possible. The government should not make it as easy to get more than one property.
True. Many people I know are taking advantage of COVID-19 right now and buying up properties in big cities like SF and NYC b/c they believe once a vaccine comes out, there is going to be a massive snapback in demand from fair-weather friends who return.
That’s just the way capitalism works. In a free market, we are free to invest the best way we see fit.
I have tried to provide subsidized housing, but got no takers. How about you? What is your position on rent and homeownership?
It’s not really a free market, the government heavily influences it with tax advantages. I think these advantages should be geared towards allowing more people to own their primary residence, and stop there. Owning your home is great, more people should be able to do it. And it should not fall on affluent and benevolent individuals like you to make it so. That’s a prime job for a government agency.
To me, renting is one of those systems where every participant does only a minuscule amount of bad, but the system as a whole does more bad than good. This is where the market can’t allowed to be free, but should be influenced for the benefit of the many.
But the government is actively trying to promote homeownership to the masses. Whether the masses decide to save up for a down payment and buy is another matter. And some simply don’t believe in real estate as a way to build wealth, hence this post.
Not sure I agree exactly, with this thought process. While you can look at it statistically in that there has been a fluctuating housing shortage since the early 2000’s, and multiple downturns have slowed the building process. I think it’s something close to 6-7 new houses built (or stated) per 1,000 new households formed currently on average. I still think that people wouldn’t occupy every house even if it was available for them to buy. I just don’t think “home ownership” is for everyone. There are lots of transient people these days. It wasn’t too long ago that most people spent their entire lives in a 20 mile radius. Those days are long gone. Renting gives people more flexibility, I suppose. So I think that having landlords buy up additional places at least keeps those houses in play longer. Otherwise you may end up with house falling apart everywhere. Just check out some of the old mining, and mill towns etc. Plenty of house there if you want to go to them. You can probably go buy a whole village yourself if you wanted to.
If a house is not desirable to live in, why would a landlord buy it? If these abandoned houses exist under the current system, how could the current system help here?
If housing was more affordable, moving would be more affordable. But it’s not, because a small number of wealthy people can buy a large number houses, driving up the price. Then they rent it out to people who can’t afford it anymore, solving the problem they helped to create.
I think the state should make it harder instead of easier to own more than your primary residence and there should be some form of state controlled housing projects (like we have here in Vienna, Austria). I think this will make housing more affordable to most people, similar to single payer healthcare doing the same for medical expenses.
I find your argument flawed. If I own a home now, and want to move to a larger home, why should I have to sell my current home? I bought it and should be able to use it as I see fit. I plan to let my children live there in college, or my mother as she ages and needs a single story residence.
I could leave it empty or I could let someone live there while I wait for another use or purpose. Dictating what people can do with assets or possessions they buy legally of their own volition is a slippery slope to government interference in whats supposed to be a free society.
I like both as investments but definitely like real estate more. My stock portfolio is very set it and forget it. On the other hand I love being a home owner for its tangible aspects and being able to enjoy it every day. With this pandemic I love my home even more than before. Being able to take care of it and customize it is fun, rewarding and I like thinking about owning long term and passing it down to my kids.
Real estate will always be more valuable….to you. I prefer instant and easy liquidity that real estate just can’t offer. I don’t know those that like RE though, it’s just not a one size fits all situation.
The 6% appreciation requires 100% gain in salary to make up is disingenuous. People shop based on monthly payment – a function of house price and the rate. You’re not ‘left behind’ if your income grows in line with that of other homebuyers.
Also often forgotten are property taxes and the real estate agent fees. The latter being the most unattractive.
It’s an important asset class but not all made out to here.
Sure, that makes sense if you focus on monthly payment. However, many people have been shut out of the real estate market at least here in SF after renting for the part 20 years.
One of the reasons why I sold in 2017 was bc I would be uncomfortable paying the price I got for my house.
Compound the growth rate of The median prices housing here in SF over a 20 year period vs the median household income really starts adding up.
Again, this article addresses why there is so much hatred by some people towards homeownership.
Are you a renter or a homeowner?
You are right from where you live. In San Francisco plus buying in Hawaii. I beg to differ if you live in other less hot real estate markets. Plus what do you do if you have places in NewYork, Chicago, and riots break out and people start moving out as major cities defund the police. I would rather own some international real estate than USA right now. You are not taking current conditions of the virus and protesting in your calculations.
why Hawaii – is it under valued?
Hawaii is going to be my #1 place to buy a new primary residence for 2020 and beyond.
It’s good to know that you should have enough money saved up to do a 20% downpayment on the home that you want to buy. My wife and I live in a sketchy neighborhood, and we’d like to move to a nicer and more reputable one. We’ll be sure to start saving now so that we can afford to make a sizable downpayment when we find a home that we’d like to invest in.
Hmmm. (excuse my typos)
I own both RE and Equities. Bonds are for wimps ;) .
Re real estate (RE). Love it.
Bought my first home/condo when I was 27. Took advantage of the FHA Loan (3-5% down); and even though I had to pay PMI insurance, I held the RE long enough (9 years) to sell at a profit, buy another home (defer any taxable gains) and repeat. As an investment, can’t say it grew over 7% per year. But psychologically, owning a home felt great. I was happier paying the mortgage, prop tax and anything home related because pride-of-ownership is a real thing and when the housing market dipped, I really didn’t care. I could “feel” the roof over my head. Would I leverage more? If I really wanted to, perhaps. But the idea of me aggressively refinancing or worrying about being/hiring a property manager was never my thing so instead I just held RE passively and sold when I was ready to buy a new home. The tax breaks are nice, excluding the 2018 tax reform, but overall, RE for me is my home to live in first, investment purposes second.
That said, my investment portfolio is more stocks than real estate.
Long run (10yrs +), I can’t find a better return than the stock market. The 10yr is currently over 10% BUT 2008 will be wiped out from the rolling average which won’t include the subprime debacle (Housing Bubble) so even though +10% is the current 10yr of the S&P500, I’m happy with my financial plan projecting a compound annual growth rate of 7%, including dividend reinvestments.
Does this mean I don’t like RE? of course not.
I believe owning RE is essential for true diversification but as the primary driver for wealth accumulation, I respectfully disagree. History, since 1973 (THE worst US Economic Stagnation), shows that the overall stock market has grown higher compared to the housing market. Outperformance can be done just like anything else when we actively pursue that objective. And whether someone glorifies stock OR RE as “THE BEST” investment, it will likely lead to the FOMO for the schmucks looking for a short-cut. That’s what happened in 2008. Kinda. Perhaps a crude summary on my end, but that aside, Stocks > RE re the historic compound annual growth rate. The problem isn’t whether Stocks are REALLY better than RE or vice versa… the problem is investor behavior and without the mental fortitude to hold, BUY, and NOT SELL when everyone else is screaming save us, no stock holder or home owner has a legitimate chance to build real wealth.
Cheers Sam! Another thought-provoking post indeed!
Considering where we are in the investment cycles also makes a difference. We are near or nearing the top of the bull market in stocks, with “likely” a decade ahead of very low returns (nobody knows for sure, obviously). On the other hand, we are “likely” only half way through the real estate run if it follows the highly regular and predictable 18 year cycle— peaking in 2024-25, with the last 5 years as the strongest, with a parabolic run-up in prices. So I would not be surprised that over the next 5-10 years that real estate substantially outperforms stocks….in the SHORT run
I agree with your statement, sort of. Nobody know exactly where we are in the cycle, but to say that the real estate cycle will peak 5 years after the stock market peaks seems stretched. I can see 1-3 years MAX, but not 5 years.
See: What If You Buy Property At The Top Of The Market
Hi Sam
Question for you – do you sign the offer to purchase real estate with the arbitration and mediation clause? Or do you say, “no I won’t sign that specific clause”?
I never sign that clause, and I’m a lawyer. People usually freak out a little at first, but I tell them that arbitration was a great idea, but that in practice, it doesn’t turn out to be all that great. It used to be much faster and more efficient than court litigation, but (1) now it takes about the same amount of time and has nearly all of the same procedural inefficiencies (discovery disputes, etc.); (2) you have to pay your arbitrator/judge a handsome hourly fee to manage your case and sit through the trial, whereas with a regular court action, at least the judge’s time is already paid by your tax dollars; and (3) the filing fees can be pretty insane for arbitration, depending on the dollar value of the dispute, whereas in unlimited civil court in CA you’re looking at around $435. We were involved in one arbitration where the dispute was $1 million, and the filing fees alone were $10,000. It’s ridiculous.
Once I explain that ^ to the other party, they usually refuse to sign the arbitration clause, too.
Mediation is a different story, at least in CA. In our real estate contracts here, you have to offer mediation before filing suit, otherwise you lose your attorney fee recovery right. There’s no “opt-out” of the mediation provision in the CA agreements, at least last time I looked.
I totally agree with you. I have invested in the stock market and the real estate market for many years. The real estate market has been a way better investment. After 15 years in real estate, I could retire on it’s income. I could not do that with the stock market, and I put more money in the market than into real estate.
Dr. Cory S. Fawcett
Prescription for Financial Success
Dr Cory,
Huge advocate for REI also. What style and where are you invested? I’m in NC, primarily short term notes and several rentals in TN.
I am in Oregon and own small apartment complexes, 4-31 units each.
I very much agree that living is first and appreciation third. I don’t think RE would be nearly as attractive without the benefits of quality living and making decisions about your dwelling and property.
Cheap mortgages are also a source of a short position against your currency denomination. A 30 year mortgage with 2.5% inflation targets per year with a low interest rate can bring hidden returns that way as well.