Real Estate Investing vs. Stock Market Investing

Real Estate Investing vs. Stock Market Investing

If you follow my blog, you know that I’m a real estate investor so I’m a much bigger fan of real estate investing than stock market investing (though I do both – full disclosure). I didn’t get into stocks, however, until I’d made enough money with real estate to invest some of those profits.

Now that you know, without a doubt, where my loyalties lie, let’s get on with it.

Real estate or stocks? Points to consider:

1. Leverage – In real estate you can spread out your capital; you can use a small amount of money to buy an expensive piece of property and banks will loan you the rest. Fabulous.

With real estate, you can put down 10 percent of the purchase price and have a bank finance the rest. Do this one time, great, do it often and the advantage of leverage is compounded. For example, with $100,000 you can purchase ten $100,000 houses putting down only 10 percent on each and banks will finance the other 90 percent. You have then acquired 1 million dollars worth of real estate. You have mortgages on those properties, yes, but put in a tenant and they pay those mortgages down over time for you. You also get tax write-offs on the mortgage interest as well as write-offs for the property depreciation annually.

With stocks, however, if you have $100,000, you can buy $100,000 worth of stocks. Period. You cannot say to your stock broker, “I want to buy $100,000 worth of stock. I want to put $10,000 down and have you finance the rest.” $100,000 buys $100,000 worth of stock where, in the first example, we were able to use that $100,000 to buy 1 million dollars worth of real estate.

The advantage of leverage in real estate cannot be overstated. It is one of the greatest benefits we have as real estate investors.

2. Discount – Real estate can be purchased well below retail value. Investors regularly buy properties at significant discount, fix them up, and resell them all within a matter of months and for a large profit. Or, you can purchase at significant discount, hold the property as a rental, and either keep the equity in your asset or borrow it back out to purchase additional assets.

The price you pay for stock is 100 percent of the retail price that it sells for the day you purchase, whereas in real estate, you can buy something that is currently valued at $100,000 in it’s existing condition and pay as little as $60,000 for it.

3. Income – With real estate, assuming you buy right, the more properties you own the greater your income. Once you have equity, you can refinance to get the money out of the property and still have the performing asset. Or, you can get a home equity loan giving you cash to spend while your asset remains in place giving you tax benefits, providing rental income, and realizing equity growth over time.

To receive income from stock investments, however, you must sell the stock and when you do, you have fewer performing assets creating a return. Once you reduce your stock holdings, fewer performing assets provide lower financial return.

4. Control – If you own a stock, you can’t vote on how the company is run. Chances are, you know very little about the company or those in charge of it. If they make profit, you win. If they don’t you lose. With stock, you can pray that the people in charge make the right decisions.

With real estate, you control the asset, the decisions are yours. There are plenty of things you can do that directly influence the value: paint, add a room, landscape, update/upgrade, a whole variety of options. It’s totally different when you are at the helm of your own investment.

5. Exit Strategies –  The final advantage on my list is that there are so many ways to make your real estate investment perform. You can wholesale, rehab, hold rentals, own mobile homes, get into commercial real estate, build new construction, on and on. With stocks, you buy and wait, completely at the mercy of the market as to what the value is. I’m not good at waiting…

In Summary – In addition to market appreciation (increase in value over time), you have forced appreciation (your upgrades), tax advantages, leverage advantages, and the fact that you can buy real estate at extreme discounts – almost none of which you can do with stocks. And once you buy real estate, you have practically unlimited options as to what you can do with it.

Buy real estate!

Do you agree?



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