9 Reasons Why Investing in Real Estate is Awesome (And Better Than Stocks!)

by | BiggerPockets.com

Recently there was an article on BiggerPockets about why you shouldn’t invest in Real Estate.  I happen to love Real Estate; I love selling Real Estate as a broker, I love looking at Real Estate and I especially love investing in Real Estate.

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 Why Do I Invest in Real Estate?

I did not come to invest in Real Estate by chance, I took a lot of time researching every investment option I could.

Before I started investing in Real Estate I had some money in the stock market, but I never felt good about my investment.  If the market went up, my accounts went up and likewise if the Market went down so did my investment.  I had no control over the investment and the individual stocks I picked tended to be affected by market conditions that had nothing to do with the stock itself.

I invested in mutual funds, which did okay but also seemed to basically follow the market.  I even dabbled in stock options to try to increase my returns.  Options were a great way to lose a lot of money very quickly!

I was pretty young at this time in my life and I really wanted to grow my money into something big.  The stock market did not seem to be getting me to where I wanted to go.   I did a lot of research on other investment vehicles that would multiply my money.  I looked different ways to invest in the stock market, mutual funds, bonds and I even looked starting my own business or buying a franchise.

I realized a couple of things while doing this research on investment options.  The first think I realized was that I already had a business since I was a Realtor.  Many people think of being a Real Estate agent or Realtor as a job, but really we are running a business.  We get paid on how much we sell or others sell if we have other agents in our team. We have a lot of expenses, marketing is extremely important and delegating and building a team is extremely important.

The second thing I realized was investing in rental properties could provide the incredible returns I was looking for.  I could take control of my investment with rental properties and there were so many other plusses that it seamed like a no brainer.

9 Reasons Why Investing in Real Estate is Awesome

1.) No Retirement Calculators For Me!

I used to plug in my savings and estimated returns into those retirement calculators all the online trading companies have.  I  always became dejected when looking at those, because at my current savings rate and an aggressive yearly growth interest rate, I was not retiring for about 20 years if I was lucky.  Part of calculating this number, was deciding how long I was going to live.  How depressing is trying to figure out how long you will live to make sure you don’t run out of retirement money!

One of the huge advantages of investing in Real Estate was I would not need a retirement calculator or decide when I wanted to die.  With rental properties I could buy properties with positive cash flow and never have to sell them if I did not want too.  If I bought enough positive cash-flowing properties I would have a nice monthly income until I died on my own terms.

2.) Cash Flow Creates Income Right Away

I am not a stock broker or an expert on the stock market, but I have done a little research on stock dividends.

Correct me if I am wrong, but the highest dividend paying stocks seemed to pay 4% or less annually.  That is not a bad return compared to a .002% bank account, but it is also barely above inflation.   It is true that stock could rise in value increasing the value of your investment, but that money is not realized until you sell the stock.  Many Real Estate investors would not touch a property if it had 4% annual cash flow, they would want 15 percent, 20 percent or more in cash on cash returns.  The best part is that 20 percent return is realized immediately and the property may still appreciate on top of that return.

That 20 percent return can be reinvested into the property by way of paying down the mortgage, adding value through expandability or you could buy more rental properties.  The beauty in investing in Real Estate is the cash flow it produces and the many options that cash flow gives you.

3.) There is Too Much Real Estate for Everyone to Be an Expert

Look around you, I don’t care if you are in the middle of Kansas you are surrounded by Real Estate.

Single family, duplexes, multifamily, commercial, vacant land; Real Estate is everywhere!  The individual has a huge advantage when they invest in Real Estate, because they can invest locally.  The stock market is a global system, everyone has the same information and knows exactly what the prices are.

There are some exceptions to this rule; insider trading.  It is illegal to use insider knowledge to profit in the stock market.  It is not illegal to use insider knowledge to make money in  Real Estate!  I know my market like the back of my hand, I know prices, I know neighborhoods, I know rents, I know lenders.  I would estimate there are less than 500 people who know close to what I know about my local market.  Out of those 500 people, I bet less than 10 percent are actively investing and using that knowledge.

When I invest in the stock market I am competing with thousands, maybe even millions of people with the same or more knowledge than I have.  We all have pretty much the same information and prices are based on this information and all these people in the market.  In Real Estate I may be competing with 50 people or less and at any one time most of them probably aren’t in the market to buy.  This smaller buyer pool gives a huge advantage to the individual Real Estate investor.

 4.) Anyone Can Be a Local Expert on Real Estate

It is not easy, but you do not need a degree to become an expert in your local market.  You need to do a lot of research, look at a lot of homes and talk to a lot of people, but you can become an expert fairly quickly.  What you need to know is the value of homes, the market rents, market conditions and economic conditions that exist in communities.  Once you know these indicators it is easy to spot a bargain.

5.) Real Estate Easy to Value

Compared to other investments Real Estate is easy to value.

Even if you have no idea how to value a property, you can find a Realtor who can value it for you for free.  There are so many houses and pieces of real estate out there, there are a lot of comparables to use to value properties.  Those sold comparable properties may not be perfect, but they will give a good basic idea of what Real Estate is worth.

With stocks or other investments it is much more difficult to value.  How can the everyday Joe value a multi million or billion dollar company?  Even the experts can’t agree on exactly what these large publically traded companies are worth.  The only people who truly know everything that is going in with a stock or company are the managers and owners of that company.  They are doing everything they can to make it look as good as possible.  You aren’t really buying a company, you are buying the people who run it and hoping they aren’t fudging the numbers and hoping they are smart enough to make a profit in the future.

6.) You Can Inspect Real Estate

When you buy a piece of Real Estate there is not too much that can be hidden unless you are buying large projects.  You are able to do an inspections on the property before you buy in most cases and thoroughly evaluate Real estate before you buy it.  Try asking to inspect a corporation to see how they are really run, before you buy their stock!

7.) You Can Buy Real Estate Below Market Value

There are many ways to buy Real Estate below market value.  I buy properties off the MLS all the time that are price below market value.  I can make a low offer or be the first one to make an offer on a property.  This is when being a Real Estate agent gives me a huge advantage.  Property can also be purchase at the trustees sale or off market.  Off market properties create a huge advantage for the individual investor, because they can buy property well below market value without out much competition.  I do not know of a way to buy stocks below market value.  There may be under valued stocks, but the price is still available to everyone in the market.

8.) You Can Add Value to Real Estate

Not only can you buy Real Estate below market value, but you can add value to it after you purchase it.

One reason I can buy properties below market value is they need repairs.  Investors typically get a discount when they buy a property that needs repairs because it decreases the buyer pool.  Not everyone can buy property that needs repairs, because they may not be able to get a loan on those houses.

I can buy a house below market value, put $20,000 of repairs into it and have a house worth $50,000 more than I bought it for a couple of months after I bought it.  You can also add bedrooms, add bathrooms, finish a basement or do many other things to increase value on Real Estate.  It simply is not possible for an individual investor to add a bedroom onto a stock.

9.) Leverage Multiplies Returns When You Invest in Real Estate

When you buy stocks it is possible to buy on margin, which is a type of leverage. I did some research and what I found said can up to buy 50% more stock  then cash you invest.  I heard in a recent article you can buy 70% more stock, but I couldn’t find that info.

Either way, that is not as advantageous as Real Estate for a number of reasons.  If you want $100,000 in stock, you need $50,000 cash to buy it.  That assumes you have the financial means to qualify for the margin account.  However, if that stock loses value the trading company can call your margin due, meaning you have to put more money in the position.  The trading company can even sell your stock for you if the stock price drops too low.

With Real Estate you can get started for much less money than stocks.  As an owner occupant you can buy a home for 3.5% down or even $0 down with  a VA or USDA loan.  You could buy a $100,000 worth of house for $0 out of pocket cash.  Now, you would have to live in the home at least a year before you could rent it and you can’t have more than one VA or USDA loan, but you could get another owner occupied loan at 5% down.  If you don’t want to move every year, you can get an investor loan with 20% down.


There are many other reason why investing in Real Estate is my investment choice; tax advantages, equity pay down, appreciation, serving your community by providing housing are a few others.

The biggest advantage investing in Real Estate gives you is you can buy below market, add value and rent for positive cash flow.  If you buy properties right you can make more than your initial investment back before you even rent the home.

Your cash flow can provide you lifetime income with no retirement calculators and you have control over your investment to increase its value.

Do you agree? Let me know in the comments below! 

About Author

Mark Ferguson

Mark Ferguson is a has been a real estate investor and real estate agent/broker since 2002. He has flipped over 165 homes in that time, including more than 70 in the last three years. Mark owns more than 20 rental properties that include single family homes, as well as commercial properties, including a 68,000 square foot strip mall. Mark has sold more than 1,000 homes as a real estate agent and is the owner/managing broker of Blue Steel Real Estate in Greeley, Colorado. Mark started the InvestFourMore blog and website in 2013, which has hundreds of article on real estate. Mark is constantly sharing his insights, case studies, and interesting things that happen to real estate investors on both his blog and well-known sites like Forbes.


  1. Mark,

    These articles comparing an investment type one knows nothing about, against REI are tiring.

    Just the idea you bought mutual funds tells me you knew nothing at all about SMI, dabbling in stock options is also a great way to lose money faster then you can imagine.

    Buying into a mutual fund would be the same as buying an interest in the future rental income of a newbie REI investor who’s properties you cannot ever see, and the interest you are buying would have no hard assets behind it.

    Options however are a way to control a large cap stock for pennies on the dollar, making money without ever buying the underlying stock.

    Just investing via stock options alone and knowing all of the strategies which can be coupled with buying stocks or for that matter not buying stocks is quite complex, but once master will with the correct stocks just about guarantee profits.

    The traditional way folks approach the stock market is guaranteed to have them lose money.
    Most see a stock zooming, buy the stock and figure it will just keep zooming even though they did no analysis of the company whatsoever. They soon find out after the fact the stock was in an up-tread due to a future stock lock up expiration date (time after which the owner of an IPO can sell their shares). Sometimes the owner cashing out can send a stock into the toilet. Novice investors hold on figuring the stock will return to where they bought it, then it drops to near zero and they sell cursing the market. They could with just a bit of option knowledge have bought a PUT option when they bought the stock for just under their purchase price, or watched the market and sold when the stock hit a predetermined drop in price (I use 25% which moves up with the stock) this is a STOP-LOSS but is not entered into the market as sometimes brokers will move the market to hit stop losses entered into the market to make a quick buck.

    The one major advantage of the stock market is when the SHTF, your money is much more liquid, try selling a triplex in a low income area with the stroke of your keyboard. Yes I might lose 25% but I will at least get a 75%. Also my broker has not as yet called me to unclog a toilet at any of the Fortune 500 companies I hold stock in.

    I agree REI is really the way most should go as there are many easy ways to invest and make a great return or a decent return. I hold the bulk of my investments in REI, I also own a franchise, and invest in the SM. Multiple streams of income are best.

    • Dennis,
      While I don’t dispute the overall premise of your comment, please show me an options strategy that “just about guarantee profits”. I’ve traded every strategy that are described in books and some of my own creation and none of them guaranteed anything except high commissions and eventual losses.


        • True Peter, but I had rentals I owned and my sister had many rentals my parents had rentals. I know many others with may rentals who survived the crash just fine. Rents may have gone down slightly, but if you don’t have to sell the market tanking does not hurt that bad.

        • Peter,
          I’ve held rentals through both good and bad markets. When the Real Estate market goes down, mortgages fall underwater, foreclosures are high, but the good news is, the rental market is great. All those people who can’t buy are looking to rent. ROI skyrockets.
          Although I’ve known people who got very rich with options, it requires a great deal of knowledge and hard work. In my experience, people who made a lot of money elsewhere, eventually decide to also invest in real estate. However, most people, who made a lot of money in real estate, diversify with other forms of real estate, like mortgages.

    • Thank you for the comment Dennis

      You obviously know much more about the stock market than I do. I will comment on a couple of your points. I think real estate can be very liquid if done right. An investor can get a heloc which would allow him to take cash out without ever selling the property like you would have to do with a stock. In real estate you could also refinance and possibly take out more cash then you put in and keep the cash flowing asset(assuming the numbers work).

      One of my main points is that people are pushed into investing in stocks or mutual funds by society. They really don’t have any idea what they are doing. With real estate I think people are much more likely to do their research and learn the business. The houses are real and they can touch them and see them. It is not a number on a computer screen.

      I am asking this as a real question. Do you think it is harder to learn to invest in RE or the SM?

    • I think a balanced approach is the best way to go. I’ve always invested in stocks but with the way government is printing money like there’s no tomorrow it wouldn’t hurt to have an inflation hedge in real estate. I’ve heard all the horror stories about clogged toilets and nightmare tenants and what not, but real estate can be just as hands free as stocks if it’s done right. We chose to use a business called Strongbrook but there’s a lot of ways to do real estate without having it take over your life. The main thing is get investing at whatever stage you’re at. People will try and scare you off stock investing and real estate but nothing will destroy your wealth faster than letting it inflate away in a bank.

        • To be honest I’m just getting started. My portfolio is mostly in stocks and bonds right now aside from my home which isn’t really an investment. I was always to scared to do real estate investing on my own but I have some friends in this program and it’s going well for them so I figure it would be a great way to get diversified. The nice thing is that it’s hands free and they have a very systematic approach to purchasing that isn’t dependent on market trends, just good purchasing strategies for long term portfolio growth.

  2. Jeff Brown

    Alright, all you BP readers, here’s a question for you to answer. Raise your hand if you know one person who’s retired even better than average from their stock market investments. There are almost 150,000 members here, plus all those non-members who come here for the content.

    Setting the bar makes sense, right? Let’s say they are considered to have retired with an ‘above average’ retirement income exclusively from their efforts on the stock market, if they now earn at least $60,000 yearly.

    Let’s keep a headcount, shall we?

    • Personal anecdotes are not the same as data. Many people have acquired a secure retirement through saving and investing in stocks and bonds. I know of teachers, mailmen & tradesmen along with the more traditional careers of lawyers, engineers and doctors that have all accumulated more than 7 figures in the stock market and have a great retirement. But then again, I don’t have anything to sell here….

      • My point is not that it cannot be done, but that it is easier for most people to do it in real estate. Jeff asked the question of people personally on the site. Everyone knows Someone who did this or that. There are many people who are millionaires on BP from Real Estate. So far many people who have list a lot in the stock market and a few who can make money in it, but no one yet who’s a millionaire from just stocks. You never know how much capital those lawyers and doctors started with.

        • Patrick H.

          Nobody should have lost any money in the last few crashes – they should have been buying up everything in sight while the fire sale was on! 200% portfolio returns from 2009 to 2015 in stocks. Be greedy when everybody else is fearful…and dividend stocks – heck, when your dividend reinvests while the share price is depressed you end up with MORE shares than you would have with an elevated stock price resulting in more dividend income taxed at a lowly 15% (0% if your income is completely in the 15% bracket). Dividends may be small in percentage (2%-5%) but they are reinvested taking advantage of compound growth and there are many companies that have grown their dividends year after year (at times they had consistent years of 10% or more dividend growth meaning an original investment at 4% yield would have 8% yield in 7yrs and 16% yield in 14yrs).

    • My parents did well through their lives on their personal residences (when they were young buying fixers and selling a couple years later) but not as good with their rentals–probably broke even on them. They have had their stock portfolio professionally managed for about 10-15 years and it has done extremely well. I like real estate better than stocks for the reasons the article mentions but not everyone will do well because they really don’t want to be landlords, etc. My goal is to have about 50-50 between real estate and stocks. My fear with real estate is earthquakes! I figure one big one in SoCal and I’ve lost a bunch of my wealth.

        • Earthquake insurance is expensive and the deductible is huge (ex. $20k huge!). Also, I own several condos and the buildings have to vote on coverage. One of my condos does have coverage but I know if the big one hits many owners won’t have the deductible. Less than 20% of California homeowners have earthquake insurance. It’s a risk we take to live and own in California!

    • Robert Fitzpatrick

      Jeff, I couldn’t agree more! Over a 30 year sales career I have accumulated close to $300k in IRA and 401k. However, in less than 5 years accumulated over a $1M portfolio. The only people making big money in the stock market are the business owners who position their company for an IPO. IPOs provide a big infusion of capital to businesses going public. REI can do that with bank loans and OPM and not have to deal with the SEC. It’s a beautiful thing.

  3. Mark, like you I’ve tried all kinds of ways to make some kind of money from the stock market to no avail. Real estate has always been good to me because I have 100% control. It didn’t take 40 plus years donating to retire on three quarters of what I was making, took only ten years at three times what I was earning. Renters pays all the mortgages, all my bills along with extra cash for GP. Property values can go up or down (not as fast as stocks do) but the rents usually stay the same or go up.

    Tried to fine other investments to make money on and couldn’t. Three separate financial “experts” could not come even close to my returns. Guess I’m stuck with rentals, oh well.

    • Thanks for the comment Jim! Yeah, those stupid rentals and all the money they produce. haha. I was on another forum where they were bad mouthing rentals. ONe guy ripped them over and over. Turns out he owned like 10 of them for over 20 years. He still owns them, if he hated them so much why does he still have them? Oh yeah all the money they produce

  4. Good article for a ‘basic’ look at comparing the two, although I would say they ARE quite hard to compare ‘head to head’.

    To hop around to a few of the points in the article and comments;

    1) I feel that it probably IS easier to learn to due RE very well, compared to doing stocks as well. Although to do ‘good’ job, or averagely successful, I would say that stocks would be somewhat easier to learn. I say this from watching friends over the last couple of decades who are involved in both areas.

    2) I DO have to agree that it is MUCH easier to screw up ‘big time’ in stocks that RE…. especially when not doing your homework ahead of time….. if you follow bad stock advice, it’s REAL easy to loose 50% in a heart beat. In RE, following similarly well intentioned but bad advice might and you might just end up with a 0% gain or slight lose.

    3) As far as having a cash flow of say 20% with RE, you can also have that with stocks….. if you are making a 25% return, you can ‘cash out’ 20% and still let the 5% grow.

    4) As far as ‘margin for stocks’, I am not sure where you were looking for info. My RE mentor (I only have one property so far) who has about 10 properties and also invests actively in stocks. He has no problem get ‘4 to 1 Margin’, meaning 25K of cash buys him 100K in stocks….very similar to having a 25% down payment on RE.

    5) For those who want to study INTENSELY, I know people who make 30-50%, and occasionally more in stocks. This IS work, not buy and forget investing. I think these returns would be harder to achieve…. just my opinion.

    6) As to people retiring from stocks vs RE….. I know some of each, probably as least 10+ of each group. I would say the RE Investors, who mostly sold out to retire, have a more ‘relaxing’ lifestyle as they are not as ‘active’ in managing their investments and thus utilizing lower returning investments. The majority of the ‘stock retirees’ are still fairy active in their investing, and thus some making just as much income.

    Summary is this…..EITHER can be a good way to invest, with the most important thing being education and having a plan and FOLLOWING it.

    Dan Dietz

    • Dan, there are plenty of banks and other lender who will sell their foreclosed real estate to you at a price where they have only made a “slight (accounting) loss.”

      Think about it.

        • Mark,
          What I meant is this………. If you have say a 100K investment in stocks, etfs, etc…. and you have a gain of 25% for the year, you would end up with 125K. You could then choose to draw say 20K out as ‘cash flow’ and leave the remaining 5K of gain in to help ‘grow’ the account, much the same way that appreciation would help grow an initial investment in real estate. Of course this could also be done on a quarterly or monthly basis too, depending in cash flow needs. Hope that clarifies my thoughts.

          Dan Dietz

        • Dan, you wrote

          “I DO have to agree that it is MUCH easier to screw up ‘big time’ in stocks that RE…. especially when not doing your homework ahead of time….. if you follow bad stock advice, it’s REAL easy to loose 50% in a heart beat. In RE, following similarly well intentioned but bad advice might and you might just end up with a 0% gain or slight lose (loss).”

          If you really truly believe that then head on down to your local bank and talk to the head of the REO department and make this offer “I (meaning you Dan) will purchase your REO properties at only a slight (1%) loss to your bank.”

          So if that bank lent money let’s say $100,000 to an RE investor or a homebuyer who put 10% down and later could not (due to lost job) or would not (value of RE declined and owner made a strategic move) make the payments so the bank foreclosed. The bank has $100,000 (less a few payments on principle) plus foreclosure costs invested in the house. Offer to buy the house for $98,000. After all you state that RE is a great investment with little chance of great loss.

          Clear enough?

    • Mark,
      As to the margin question. I myself do not use margin right now for stocks as all my stock dollars are in IRA accounts which do NOT allow the use of margin (to my knowledge).

      But, my “RE Mentor”, who also happens to be a relative and shares very openly with me in regards to investing uses it heavily outside of his IRA accounts.

      I just asked him about this, so he showed me his accounts online. He uses TD Ameritrade, has been with them for years. He has his IRA account there too. On his NON IRA accounts there are different ‘buying power figures’ there, essentially meaning how much leverage you can use. It looks like for trading Options, it is about a 2 to 1 ratio, for stocks a 3 to 1, or for ‘day trading’ (not sure if that counts things other than stocks) it is about 4 to 1.
      Basically, if his ‘cash on hand’ balance is say 100K, he could buy up to 400K of stocks that day. There ARE limits as to minimum stock, and possibly trading volumes (not too thinly traded).
      It seems to me, from what I understand of it, that it is VERY similar to putting 25% down on a RE Investment and having someone else finance the remainder.

      Hope that clarifies it a bit, Dan Dietz

  5. I am glad I found this article as I have been trying to decide on my next investment move and what is better for me. I been trying to decide on RE or put the money towards the markets trading derivatives. Like everyone else here I have studied and looked into other investments. I already have a large real estate portfolio (buy and hold) and been studying derivatives the past few years very intensely. I have been doing very well with trading.

    I am a younger guy so I can’t speak about retirement. I have retirement accounts and in these accounts they put trading limitations on them and in certain (401K) accounts you can only choose around twelve ETF type funds which is very risky since limited investment vehicles. I have talked to a few of my 401k administrators and they do not even understand their industry or trading. It is a mathematical fact that it is riskier to invest in those 401k funds then into derivatives. My point here is saying the general buy and hold mentality does not work in the markets anymore. Fortunately, I was able to transfer these accounts into one self managed 401k where I could trade derivatives.

    I read most the main stream derivative books and took one on one training from handful of old market makers on Wall Street, the PHLX, CBOE, and the OCC. These are the exchanges and clearing firms. Took local classes and would not pay for the crap seminars out there. Learning the stock market is the hardest thing I have tried to learn. Real Estate is easier.

    To get in Real Estate I just needed the capital and loan approvals. I learned the loan market at the time by learning underwriting guidelines and talked to several mortgage brokers to understand and learn how I could borrow the most money possible. To learn about real estate in the beginning I talked to a handful of landlords and read Bigger Pockets. I just needed the capital and or approvals for a loan, had to find a property, buy the property, and read a few books. I am glad I did since my RE is doing well and I knew it would from all my research. I did not follow the investment rules mentioned on the forum and the RE investment is doing better than if I looked for a property that fit those rules. I know the rules are just a rule of thumb on here but people fixate and preach on them too much.

    Learning how to trade and make money in the stock market is much more challenging than RE. It has been a long road (started in high school) but I finally figured it out and found my style of trading derivatives. I rarely trade stock. There is no better more efficient market than the US stock markets. The bid ask spreads on a stock are a penny wide! As mentioned before there is no real liquidity in RE. I can get out of a derivative/stock position in less than a second and enter one within a second with no fees besides commissions. Complaining about commissions is like complaining about the cost of toilet paper or the screws you had to buy to fix something simple in your property. By the way a broker is fully negotiable on your commissions. Call them and ask for a lower price. Nine times out of ten they will give you a break especially if you are learning.

    A thing about margin is that it is free and clear to anyone meaning no credit check or any screening required. Where else can you deposit $2,500 and you will get $5k in your account? The interest rate is around 7.75% a year calculated daily on what is used. You can get a higher margin but you need $100K+ deposited and show your trading record and take a test. This margin is all based on Portfolio Risk based on standard deviations of exposed risk. And you can take your hard money out anytime or take a loan out within a few hours and very little cost.

    I can trade the markets anywhere and everywhere. I have traded in another Country and on my phone while at work. I can trade pretty much all day during the week and six days a week in the futures market.

    I can make money in the stock market if it goes up or down or doesn’t move at all. In RE it has to in general go up to make money.

    With derivatives I can pick how much risk I want to take and monitor the risk in real time anytime and anywhere. I can also pick what returns I want based on how much risk I am willing to take. With real estate you can’t do anything about the risk after you are in the property or hedge against it. In RE you have the hefty down payment at the least and then there is no way to consistently reduce your cost basis every month of the overall investment like you can with the stock market.

    In like anything else I am learning the “professionals” in the markets do not know much and do not know more than you or I do. This was the toughest hurdle like you mentioned for me to get over. News does not matter either. I thought Wall Street and you knew more than me about a stock or the markets. It is the exact opposite. No one knows if it is going to go up or go down they just act like they do. Hence turn on CNBC. I never watch this BS. If you buy a stock you have a 50/50 chance of it going up or down. I recommend a good read “When Genius Fails:…”.

    In RE everyone wants a dollar out of your wallet. If it’s a plumber, electrician, tenant and their damage deposit, or even an agent on your side they all want a hefty piece of your investment money. Transactions fees are so high and not efficient in RE.

    In RE I have to go out and research a potential property, meet an agent there, meet inspector, run the numbers, look at comps etc. All time consuming efforts. I do not spend more than 30 seconds picking out a successful trade.

    I even know a handful of young people in the markets. I know of a nine year old, and few thirteen year olds trading complex derivative positions with birthday and xmas money. They even manage their parent’s IRAs. They could never buy real estate with a few thousand dollars.

    Now to the crux, here are some example of some of my returns in the markets that is alluring me away from RE:

    Last week I made 33% return on capital in my portfolio.

    Two weeks ago I traded a handful of earnings and profited average of 30% return on risk overnight.

    I allocate a portion of my portfolio to a low risk strategy that returns a consistent (but not guaranteed) 3% a month 11 months out of 12. The one month not winning on the trade is usually a scratch meaning you do not win or lose I break even for that month. I can also hedge this so if the market goes down I still make money. That is a 33% yearly Return on Risk! Not Return on Capital since the way buying power reduction works. I could get my money out anytime paying for a vacation or fixing my cars transmission and while not worrying about a tenant calling me to say they can’t pay rent on time (never happens to me), something is leaking that it needs fixed now, or a vacancy.

    I took a month off work this year and traveled internationally. I paid for my entire trip within two days trading the market for two hours in the morning all with very low risk strategies and not risking much money, much less capital than an average down payment.

    I can go on and on regarding this topic since I have been trying to decipher it myself, “buy more real estate properties or put the capital in the stock market trading derivatives?”. I just wanted to share some things a fellow RE investor has learned on the Markets vs. Real Estate. Thanks

  6. Mark, I appreciate your article. Your point about REI being easy to understand (as compared to evaluating a stock) is very VERY important. Also retaining full control of your investment is important.

    I worked as a stockbroker for a short time during the “internet bubble” and in my free time spent countless hours researching stocks to invest in. Still lost a LOT of money. Turns out all the analyst “buy” recommendations were worth zip, zilch, zero. The only people who are making 30-50% in the stock market CONSISTENTLY are Wall Street insiders, company executives and “so called” analysts who hype up their favorite stocks & once the masses have bid up the price, they sell their own shares & everyone else is left holding the bag. Remember Enron?

    Still, I’m a firm believer in diversification across asset classes so some limited exposure to the broader stock market (rather than individual stocks) is arguably a sound strategy. But as Jeff says, who knows anyone that has retired rich from the stock market? (unless they were a Wall Street insider of course).

  7. One word: AMEN! My best friend is a financial advisor, very much believes in the stock market and is skeptical of real estate. I’ve tried to explain all the benefits but she just doesn’t get it…very frustrating! You did a great job of articulating the advantages.

  8. William Shaffer on

    Amen to Mark
    To Justin – You made a great case for RE. I am not near as smart as you. I think from reading your post that you are in the top 1%. It’s clear you have worked very hard and while you say it’s not hard, I would say, for you it is not, but for me I think it’s a bit beyond my abilities. For every one of you there are 100s who lose. Maybe they just need some more education and hard work but I think it takes real brains. I own stocks through an investment club. We started right before the crash in 2000 (Probably the worst time to start). We are earning about 10% annual rate of return (some of the late comers are earning 20% plus). Our returns are considered very respectable (newbies returns are outstanding). None of them can compared to what I have none with the leverage of RE and I’ve made about every mistake in the book with RE. There was a guy in the investment club (the one who started it) and he has spent as much time on stocks as I have on RE. He has little to nothing to show for it. I have a net worth about 20 times his now and we didn’t start but less than $10K apart and the multiplier changes each year as I grow and he treads water. That is a testament not to my smarts but to the power of RE as an investment tool.
    BTW – I think one of the great advantages of RE is that it’s not liquid. One of the biggest mistakes people make is buying high and selling low. Since you can’t sell your RE in 2 sec it makes it much harder to make that mistake. You can’t sell it when you want to take a vacation, you have to find the money somewhere else, not do it, or plan way ahead and in that case you have time to stop and consider your exchange.

    • Thank you for the comment William. I had a good friend with an MBA who was in stock clubs and stuffied the market immensely. I forgot the exact trading he did, but he was able to get great returns for extended months. Then something in the market would change and he’d lose most of if not all his profits. He was very smart and spent a lot of time on stocks. He have up and got his re license. Lol

  9. Mark, et al

    If you go to purchase a rental property (with tenants in place) and ask the seller for financials on that property, are those financials AUDITED? By law the financials of publicly traded companies must be audited by a CPA. (Transparency and accuracy)

    If you think your market is turning south and you want to sell your properties how quickly will they sell without making a sizable discount? I can sell my stock today and have access to the funds within 3 days. (Liquidity)

    If I own a property free and clear and want to extract some cash for any purpose I need to get (and pay for) an appraisal and then wait weeks or more for the lender to approve my loan request. With a securities portfolio I can get a loan almost immediately. (Liquidity again)

    If I think a particular market is will decline in value over the next year, can I ‘short’ 2000 Maple Street and 150 Elm Street? If I think Google and Apple and US 10-year T-bonds are overvalued at their current trading prices I can take a ‘short’ position against these securities and make money as their trading prices fall.

    I could go on but it is not worth my time.

    There are vast differences between real estate investing and securities investing. NEITHER ONE IS BETTER THAN THE OTHER. Each has different pluses and minuses, different risks and rewards, different liquidity, different levels of attention required.

    • Hi Kevin. Thank you for the detailed comment.

      That is true about financials being audited, but how many stories are there if companies fudging the numbers? My point is that most investors have no idea what those financials really mean even if they are accurate. With rental properies yes the owner can lie, but almost any investor who wants to can learn the market for rents, maintenance etc and get a good idea of what the costs and numbers are.

      I mentioned this before, but I don’t want to sell if my market turns south, I invest for cash flow not market value.

      I got a heloc in three days with no appraisal. Cost me 68 dollars in fees for $60,000.

      Your right, you can’t short a house, although some guy managed to basically short mortgages when he saw the housing crash coming. Forgot how he did it.

      For me RE is better, for you maybe not.

      • Mark, other bloggers here on Bigger Pockets have tried to make similar comparisons when in truth those comparisons are inaccurate, incomplete or otherwise not comparable.

        Yes public firms fudge numbers (Enron) but that is a much tougher task when a CPA (who has a license on the line) has to audit and attest to the financials and could incur several million dollars in fines if the fudging is detected … along with fines to the company CEO and CFO … also in the millions. What happens when a real estate investor discovers that the seller neglected to include an expense in the numbers or fudged on the rental income earned? Nothing.

        So what happens to cash flow when commercial vacancies hit 40%? Or when apartment vacancies hit 40%? Then what happens to the value of the underlying property? What offers come in from interested buyers? What offers do you make on properties that do not cash flow?

        A wonderful albeit an advanced book on several people who shorted the falling real estate market back in 2007 is “The Big Short” by Mark Lewis (also author of The Blind Side and Moneyball). It is worth reading but you have to understand ‘shorting’ securities.

        • Kevin,
          The main point of my argument is that REI is easier for people to become experts in, because each town, neighborhood and street is different. You don’t have 10 million people all in the market to buy the same house. It is easier for people to become experts in their local markets, where with stocks they would probably have to study for years and then still might not be experts in the SM. There is so much competition in the stock market compared to individual markets.

          Yes an owner can lie about financials an if t is shown e HUD material facts, that owner can be sued. I think an individual sueing a individual investor has a lot better chance of getting they money back than one of the shareholders in Enron. In fact people get entire houses for free in some of those cases. But all that aside it is easier for someone to figure the costs and decide for themselves if a RE deal is good than it is for them to decide if Enron stock is a good deal at $34.33.

          I’ve never seen 40% vacancies where I am in commercial or residential. I don’t invest in commercial because of high vacancies and I get better returns in residential.

        • Funny you mention Enron. Arthur Anderson was a major accounting firm that no longer exists because they covered up for Enron. Call me cynical but I bet the auditing companies continue to routinely risk their licenses to make sure they keep their high paying clients happy. The risk is low because all they get is a slap on the hand, pay a fine which is simply the cost of doing business & is a lot less than the profits they make from rigging the markets in their favor. If the CPA firms were doing a good job of auditing, would we just now be hearing about JP Morgan Chase, BoA etc. settling lawsuits with the Feds for billions of dollars & still posting record profits? I think not. And that’s probably only the tip of the iceberg.

        • Mark, you are just reinforcing my point that there are more differences between RE investing and SM investing than there are similarities … making comparisons and conclusions about “awesomeness” or superiority of one over the other a foolish task.

        • Emma, AA is out of business with all of the partners losing all of their investment …. and then you state that the fines for faulty auditing are small. Which is it?

        • If comparing two of the most common investment vehicles for the common person is foolish, then I am foolish. Because the two are different it means we should not compare the positives and negatives of each when this is one of the biggest decisions many people will make in their lives? That makes no sense to me, I am not trying to win a contest for which one is better. I think if more people invested in real estate it would increase their income, financial stability and ability to retire.

        • Kevin – mind if I jump in?

          Stock Market is an incredibly sophisticated investment vehicle/platform. The most, most, most basic investment one can make is to buy a single share of a single company. The problem is that in order to properly valuate this share, an investor must be able to read and comprehend the financials of a very complex animal such as a publicly-traded company. And even if you can read those very complicated financials, as other said – there is no guarantee that they are right, in which case we have to trust the rating agencies 🙂

          RE is easy to understand – easy to track – easy (in comparison) to do due-diligence on. As to liquidity – the way Mark buys houses, he could afford to loose 30% of the equity or more and it wouldn’t impact his returns one bit. It may slow down his growth, but he would not loose a thing.

          In conclusion, there are cat people and there are dog people. At the end of the day, if you believe in stocks, why waste time arguing with us – go buy stocks. We’ll just continue to buy RE cause we are not smart enough to win with stocks 🙂

          How many can? Sure, if you are a highly-paid professional able to throw a lot of dough at it… Most of us are not!

        • Kevin if you are more concerned about the word “awesome” being used then I completely missed your point. I am more concerned with the content of the article and not the title. Titles are meant to grab attention and get seo hits. In fact many of the titles for BP blogs are altered by BP before published including this article. I did include the word awesome because that is a common word with BP and almost a trademark.

        • Kevin, good point that AA is out of business but since then there are dozens (if not hundreds) of companies that are in hot water with regulators. Why? If the auditors were catching & reporting fudged numbers, market forces i.e. investors would penalize those companies by dumping their shares. Instead, we find out about irregularities after the fact, either the market crashing or else the Feds investigating them.

          Sure you can manage risk, hedge your bets & make money in the stock market. What I’m getting out of this article is that even as a relatively unsophisticated investor one can CONSISTENTLY make better returns, with less risk & much less volatility in RE than in the stock market. Even when RE prices plunged rents in most places do not go down by the same rate so unless you are highly leveraged, you are likely to weather the storm better.

        • Audited??? AUDITED??? Give me a break. IMHO, you’re dumb as rocks if you trust wall street, CXOs or auditors. Mark’s been clear and spot on. You can do property inspections, you can talk to the renters, you can look up county data, you can confirm the utility bills. It’s reasonably easy to do effective due diligence before buying real estate. When buying stocks or other financial instruments you’re generally putting your faith in a host of people who have proven over and over again to be duplicitous and interested in a lot of interests that aren’t yours. Sure you can lose money in RE, but if you’re buying actual RE, there’s a hard asset backing you up. I wholely agree with Mark’s sentiment here. It may not be for everybody. You have to be willing to dig in and understand what you’re doing, but anybody who isn’t willing to do this should sooner go to Vegas than Wall Street. At least in Vegas, they’ll have a good time. Either way, the money will be just as gone.

      • Emma …. “unsophisticated investor one can CONSISTENTLY make better returns, with less risk & much less volatility in RE than in the stock market. ”

        First off the stock market has perceived greater volatility because stock prices are reported by the minute. Real estate prices on each specific property are reported only when that property sells. Yes, an investor can intimate prices by comp sales but those comps are ‘best guesses.” A real estate investor does not know his/her returns until after the sale of the specific property.

        Let me ask you and the others this. If real estate investing really is the way to make better returns with less risk and volatility (which violates several ‘laws’ of finance) why are REITs and several real estate companies publicly traded? Wouldn’t the executives of these companies make more money for themselves if they didn’t share those high returns with their shareholders? If real estate investing provided higher returns with lower risks those companies should be able to raise all their needed funding from banks and other lenders. And the lenders could shut down their REO departments because the higher returns and lower risks means that the lenders would NEVER have to foreclose.

        Think about it.

        Let’s just poll the BP members who started and failed or otherwise dropped out of real estate investing about the volatility that they experienced. Ooops. Same selection (survivorship) bias. Only those that make money will respond. Those that tried RE investing and lost all of their investment will not respond.

        Think about it.

        I’ve really reached my limit in this discussion. It really shows how much more people need to learn … including myself.

        • Kevin, sounds like you have found a strategy that works great for you in both RE & the stock market & so has Justin. No harm in having a lively debate & like you said, we can all learn. Now let me go check out the derivatives market that Justin talked about 🙂

        • Kevin, since you asked I will answer! 🙂 First I want to know what rules of finance are being violated for real estate to have better returns and less risk?

          REITs are a completely different animal than RE investing by the individual. REITs have hundreds of millions or billions invested in RE. That goes against several of my arguments on why RE is better than the stock market. The biggest being individual investors can have superior market knowledge and buy below market value. When you are buying in that large of quantities then it is very hard to get as high of returns. just like mutual funds have a hard time getting great returns because they deal in such high volume. Hedge funds have the same problem, they buy everything they can in certain markets at whatever price just to get quantity, not quality or a great deal.

          Your telling me those fund managers should no problem coming up with 20 to 30% of a hundred dollars for down payments and qualifying for 100 different loans for hundreds of millions of dollars?

          Your argument that lenders would never have to foreclosure is a massive stretch. Most foreclosures are not investment properties, they are owner occupied. We are talking about investing in real estate not the entire housing market being a can’t lose enterprise. Obviously there are risks involved with any investment.

          The whole point of the article is to get people thinking, because this is a major life decision for many people. It can make a difference between retiring ten years or 20 years or never.

          How do you know the owners of those REITs don’t have heavy investment in RE themselves?

  10. Check out this article about the rating’s agencies being accused of fraud:

    Amazing how widespread & blatant fraudulent behavior is on Wall Street. So how can one rely on the information out there to trade stocks knowledgeably?

    Justin, sounds like you have studied hard & found your niche where you are beating the pros at their own game. Good for you but I’d guess it’s not a strategy for the average person since it would require a much higher level of expertise & learning than REI.

  11. Hi
    I am wondering what are the benefits of being a real estate profesional AND a real estate investor.Are there any tax benefits,
    I have rental properties and am thinking about becoming an agent .

  12. Great article Mark. Anytime you mention real estate investing vs stock market it sure does stir up some debate. i personally didn’t have much control over my stock market investments and used a trusted advisor or advisors and realized years later I was barely keeping up with inflation on the returns. I wouldn’t see I learned real estate overnight and as a matter of fact I learn more every day but the thought of trying to learn and figure out the stock market never really peaked my interest too much but real estate did and so be it. I agree that because real estate is a local market if that is how you are investing you do have better “legal” inside information to make better educated decision. Justin is by far a rare example to the exception. If I do ever get back into the market I think Justin is who I will call. Not anytime soon.
    See you at the Top!

    • Thanks Michael. I think justin reminds a lot of us why we are in real Estate. I actually had a big interest in the stock market and have a degree in business finance. They never taught us much in college about how to make money in the stock market just that it was a good thing to do. I learned quickly it is a very complicated beast.

  13. Great post Mark. I think the thing to remember is that real estate investing and stock investing are not mutually exclusive. In order to attain proper diversification, an investor needs a range of options including public securities, private equity and real estate.

    The issue is, most investors don’t have access to the same investment options as institutional investors such as endowment funds, pension funds or insurance companies and stocks are the low hanging fruit. Also, a lot of these investors rely on financial advisors for their investment decision making and these advisors are wired to focus on easily accessible investment options such as stocks and bonds.

    Therefore, the real problem to tackle is how to make alternative investments more accessible for individual investors.

    Thanks for the thoughtful post!


  14. I have a serious question — for all of you in the comments section here stating that you’ve made impressive consistent 30% returns in the stock market — how?

    I got into RE instead of stocks simply because, in RE, you have so much more control over the investment — you can manage the rental yourself. It’s your business, you’re in charge.

    With stocks — it seems like you’re not even relying on the people in charge of the company (which can be bad itself). You’re hoping the cumulative efforts of all of the other random people in the market are moving towards the same thing you are. And people can be dumb, which makes it all so random. I’ve heard more often than not that trying to beat the market at all is a terrible idea.

    So what sort of strategies do you use? If someone who had never invested in stocks before wanted to learn how, what would you suggest they try doing? What resources should they use to do their research? Furthermore, it seems there’s no concept of “cashflow” in stock investing. All you can hope to get is capital gains. Is this correct?

    • Anthony,
      You ask some very legitimate questions.
      I can tell you this from my own experience and that of others I know closely. It is NOT by doing just traditional buy and hold of quality companies.

      I have know some who have made very good returns over 20-30+ years, in the upper teens to low twenty percent range, buy STRATEGICALLY buy AND selling quality stocks, and doing it again when things are right, often on the same stock. It DOES take a lot of research and time monitoring things, as does RE if not hiring a property manager.

      I know a few who have had GREAT returns, in good markets and bad (but at times sitting out too) by JUST using the Technical Signals. This method has the benefit of taking ALL emotion out of it if done right. The person I am closet with in regards to this method has been working on it for over 10 years to constantly fine tune it for less risk. He DOES spend about 5 hours a day on it on the days he CHOOSES to trade, on the other days he is 100% out of the markets, so no risk. He is searching for stocks that will move between 1% and 5% for a day. YES, there is a lot of ‘science’ behind it. He has a list of about 30 ‘Rules’ that each stock gets screaned with to see if they are good choices. If they dont pass the rules, they are not bought.

      He is also using leverage a a 4 to 1 ratio, so a 5% gain for a week becomes a 20% gain etc…..

      Dan Dietz

    • Anthony,
      Two more things………..
      One of the tools that I am using as I am switching more of my stock market funds from mutual funds to stocks and etfs is a program called Investools. I am in no way affiliated with them, but think they have a good program. If you do some googling, will see some bad press on them too. They DO try to upsell diffferent levels of education they offer. I only did they Basic Stock course and use there program mainly to screen stocks on Fundamentals AND Technicals at the same time. If you search, they may have a local user group near you that meat in person where you could talk to others about the program.

      As to the concept of cash flow, see the comments I made above too. In short, if you are making 25% returns on your investment, and ‘take out’ 20% of that for cash flow, you still could keep 5% in for ‘appriciation’ much like a RE Investment.

      Hope that helps, Dan Dietz

      • Thanks for the comment Anthony and I agree with your thinking. I think to make consistent returns you have to use alternative ways and that takes a lot of time and effort to do.

        Dan, I think comparing a stock rising in value to a house cash flowing is not exactly the same. A house can cash flow with monthly rent and appreciate at the same time. While a stock mostly just appreciates although some have small dividends.

  15. Jeff Brown

    Hey Anthony — Let’s be real about the ‘consistent’ 30% returns. Think about it. $1,000 invested every month in the stock market making 30%, will, in 30 years, result in a bank account of just over $290 million.

    ‘Nuff said.

  16. The spirit of the article seems to have gotten lost i think. History shows both Real Estate and Stocks have made many people wealthy and continue to do so, so the “what can make you more argument is kinda pointless….
    However, if you take 2 Joe Blow off the street and one blindly buys a 50k rental and the other
    buys 10k worth of stock, each with no prior experience…i would think 9/10 the guy buying the rental will come out okay. The other guy might wind up making millions after he LEARNS from his mistakes of having his account blown out and even surpass the RE guy. but in the beginning, the odds are way in the favor of the unskilled, untrained RE guy to come out not being totally wiped out.
    Put it like this, i’ve read a ton of posts on BP where beginner says they made a bunch of mistakes on first deal, but still scratched out a profit or even fell into a profitable deal…even the poster on this article who favors stocks started out saying he “lost ALOT of money AT FIRST” which seems like the norm in such testimonials,

    • morris, the interesting thing about successful investing is that it requires being correct about the future. This applies to investing in stocks, bonds, commodities, futures, precious metals, real estate, collectibles etc etc.

      If you think any Joe Blow can be successful in RE then find and read Will Barnard “The Occupants from Hell” thread on the BipperPockets website. Ask yourself if Joe Blow would have landed that as a first deal (or even the 21st deal) when Joe would have bailed on the property. Will has dealt with that property for 3 years now and still has not been inside and Will has a LOT of experience.

        • Mark, I’m sure you are willing to buy that one property from Will at the price that he paid?

        • I don’t see Will giving up on real estate. Are you suggesting that one deal made all his other deals not worth it? Are you suggesting buying one bad stock makes investing in the stock market a horrible investment?

        • Mark, I’m suggesting that you offer to buy one property from Will with two squatters inside and pay Will the price that he paid plus his Attorney costs plus the interest Will paid to his backer.

          You are stating Will’s successes (many 7 figure profits). I’m pointing out the risks involved (the downside). It might be a good deal for you. Perhaps the Dec 20th court date will be the final one and these squatters vacate on Dec 21 (4 days before Christmas) and you take over the property and make a large profit. What do you say Mark? You tout that the returns in real estate are ‘awesome.’

        • Kevin, I’ve tried my best to discuss things logically, but if you are going to ignore my questions and concentrate on the worst real estate story you’ve heard and claim I have to buy that property from Will to prove real estate is a good investment then I think discussing anything else is pointless. I’ll ask the same question of you, are you willing to buy Enron now for its peak price? What’s the point. Will is an extremely sophisticated investor who deals in extreme high risk to make extremely high returns. Most experienced investors will never do deals like Will, let alone beginners.

      • Kevin – your conclusion is exactly wrong. Allow me to share a thought with you – take it or leave it, but it has served many people well:

        The essence of skillful investing is to invest in such a way that we win regardless of the future! Put another way – a wisely chosen investment strategy wins regardless if the market wins or looses…

        We can not predict the future – period. The markets are too complex, and if your investment success is a function of trying to outsmart the marketplace, then you are not an investor – you are a speculator. Sure, you’ll guess the right way once in a while, but you won’t last. A desire not to be a speculator is why I, Mark, and all of us buy income-producing real property… Good luck!

        • Tom Sylvester

          Ben – After reading through most of this discussion, this is the main differentiating point for me. With real estate, you can invest so that you don’t have to have a crystal ball. As an RE investor, you have so much control over the deal by buying it right, finding motivated sellers, making smart improvements, etc. I haven’t figured out how I can find a motivated seller with stocks (ex. they own 1,000 shares at $30/piece but are motivated and will sell them to me at $15/piece). Because the stock market is an efficient market (unlike real estate), that motivated investor can sell his stock instantly for the current value, so I can’t get a discount. RE is not an efficient market, so that person with a $30,000 house may not have a line of people willing to purchase it for $30,000. So they may sell it to me for $15,000, which means that seller was able to sell it, I was able to get a discount and I did my analysis so that I can cashflow, get tax deductions, etc.

    • Investing $50k vs. $10k? I don’t really think there would be that much of a difference if they were both investing the same amount and actively managing them well. If they are both managed poorly the outcomes would also be the same.

  17. Sandeep Sukhija on

    I think almost everything that could be said has been already said! I will just add my own experience whatever it is worth.

    I am a highly paid software engineer in the silicon valley, California. I consider myself as “very smart” when it comes to decisions relating to money and value 🙂 For the first 10 years (1999-2009) of my career (in USA), I invested heavily in the Stock market. Despite doing all the analysis that I could, and spending countless hours, my returns were just the same as market average! In other words, if the only thing I had done for those 10 years was investing everything in S&P 500 index fund – I would have had same results (so much for me being “very smart”!)

    Starting 2008, when the housing crashed, I saw value in real estate and diverted my investments as well as efforts into RE (buying cash flowing condos). By early 2012, I was all-in into RE and now 5 years later from when I started REI, I have 10+ rental properties, each of them cash flowing average $700/month (and each appreciated >50% in value which I consider is just plain lucky). I am well on my way to financial freedom in another year or so.

    In summary, just like Mark said, it turned out (for me) that with same amount of effort, cash and risk-taking, one is more likely to be more successful in RE than in stock market.

    But you can’t do REI just by sitting behind a damn screen 🙂

    • Tom Sylvester

      @Sandeep – Agree 100%. I also come from a software development background. Undergrad in Computer Science, Masters in Management (including several financial courses). I understand algorithms and identifying patterns. Even after reading a multitude of stock investing books, spending hundreds of hours on research and a few years of trying to be successful with it, I was no better than the market (and in some cases worse). I found my first RE deal in the paper (a duplex) before I ever knew that much about RE. Purchase price $26,000, $8,000 down payment and $1,225 in monthly rent. Hard to argue with those numbers, especially with my limited knowledge when I started.

  18. Kevin;

    I agree that there are horror stories with rentals…but I doubt he’d say that was the NORM with his rentals…wouldn’t you agree that there are WAY more stories of folks losing money with their FIRST try at stocks then there are with that bad tenant story? On BP alone?
    Not trying to be nit-picking but, most SUCCESSFUL stock investors LOSE money at first, wouldn’t you say? If nothing else, just by not controlling emotions…

    As far as predicting future…i’m a little skeptical, i mean the risk of buying a stock with no company knowledge or financial tools over buying a turnkey multifamily already being rented at $1400/month that’s been inspected….idk dude, i just can’t get there. Not saying i miss your point but..nice discussion though, i’m learning alot.

    I guess what it boils down to is…everything being equal what vehicle would you as a beginner feel you had the best chance of not getting hurt too bad in with no prior knowledge experience or skills…

    • morris, SM investing and RE investing have vast differences. These differences make direct comparisons – the basis of this blog – a tough task.

      No I would not say that most first time stock market investors lose money. I really don’t know what the percentage is … Can you enlighten us? Cite your source.

      Let’s just make a comparison where we can.

      If an investor (Paul) want to buy a stock Paul has a TON AND A HALF of information at his fingertips (smart phone). He can look up the stock price and even get yearly, monthly, daily even hourly stock prices. (I’ll bypass IPOs here) There are quarterly and annual reports on the company. There may be dozens of analysts’ reports on the company … press releases. SEC filings. etc. If Paul decides that he no longer wants to hold the stock … a few mouse click or tap on his smart phone and the stock is out of his portfolio. Cost of the transaction can be as low as $10. He can also enhance his portfolio performance and lower the risk he takes by diversifying. That way if his first stock is the next Enron he does not lose everything. I won’t even discuss how he can enhance his returns and/or lower his risks with options on the stock.

      Now Suzy buys her first rental property. (note: unless she has accumulated enough funds to pay cash she will have to get a loan or a partner. Paying cash for one property by definition subjects Suzy to nondiversification risk. Getting a loan also adds to her risk by using up her available credit. Many loans – especially investor loans have fees attached to them … but I will bypass these issues). What does Suzy know about the past value of this property? Can she look up last month’s value easily and with certainty? Are there various reports with analyst’s opinion of the value of that property or of it’s future value? Are the financials that she receives audited or even prepared by an independent accountant? If Suzy suspects that the tenants in place are about to become tenants from H E double hockey sticks, what does Suzy have to do to dump the property at close to the price she paid?

      An Investor must constantly ask “What can go wrong and how can I limit my losses?”

      To answer your question, the safest investment for a first time investor is an FCIC-insured bank account. The BEST investment for a first time investor is a book (several actually).

      Are you there yet dude?

      • Your analysis shows me why RE is so great. That stock investor is competing with thousands, hundreds of thousands or even millions Of other investors who have the same info. The re investor has to work for her info to determine value, rents and history. That is where the value lies. That re investor can create more value and therefore buy below market value the more she knows. The stock investor had to buy at market value and figure out what all those numbers and figures mean compared to all the other stocks out there with slightly different numbers.

        • Mark I used the worst case (Will’s situation) because it clearly points out that there are risks in real estate investing.

          Will, with year of successful real estate investing on his resume, bought that property AND OBTAINED CLEAR TITLE yet when he went to possess that property he found himself in a 3 YEAR COURT BATTLE. If that was a first time real investor’s first deal what would have happened to that investor? YES that one case is probably the worst one that anyone on Bigger Pockets would likely encounter or even hear about. Enron might be the same in stock investing.

          Both show that there are risks that cannot be ignored. Those risks are unknown and unknowable which is one reason why the investor’s required returns also go up.

          My point is that because of all the differences between RE investing and SM investing no one can compare the two and declare a winner.

        • Tom Sylvester

          Agree 100% Mark. Given that the stock market is an efficient market, competition is much more and it is near impossible to have an influence on that. Because the real estate market is inefficient (as well as other factors), it is much easier to create value and influence a deal.

  19. Kevin;

    Since you seem to give off a certain stance from your comments, i’ll refute my discussion and agree to disagree. I just like to have discussions, and learn in the process, not go tit-for tat with folks, so you and Mark can debate this further. I really just wanted to understand your position, which made no sense to me and still doesn’t, especially after reading multiple posts on this thread.

    Best Wishes

  20. Just because RE and the Stock Market are different types of investments doesn’t mean that you can’t or shouldn’t compare them. On the contrary, anyone about to make an investment decision has to compare the ROI one can reasonably expect from different types of investment. No one is saying RE is risk-free or even low-risk; just that, on balance, one has a better chance of attaining financial freedom given the same time/money commitment.

    As Mark emphasized, you can significantly decrease the risk of a bad RE investment with thorough due diligence. But only somewhat with stocks because 1) you need specialized education/skills to study financial ledgers of companies 2) there is no guarantee that the information put out by companies, analysts & ratings agencies is true 3) even when a company appears to be doing well, technological advances may render it’s product & services obsolete within a short time (e.g. Blackberry, Nokia) or the competition takes over (e.g. Samsung & Apple). So you have to constantly (maybe daily) follow market news & re-balance your portfolio. Or do index funds & settle for 8% return which is not going to get you financial freedom anytime soon. Today’s stock market is extremely complex & tons of information at your fingertips doesn’t make it easier to learn; on the contrary it is harder & much more time consuming to wade through what is accurate or useful.

    Bottom line, RE will have dips & spikes but in the long run you will always have real property that has value which you can pass on to your children. As long as population is increasing, there will always be a demand for RE. Can’t say the same thing about companies, they come & go and your stock can be worthless in the blink of an eye.

  21. All,

    From my experience I have learned company financials do not matter on a stock price. I never look at the B.S. annual report or financial reports. All this is a waste of my time and even the company’s time and money producing these reports. It is more a marketing thing. I stopped looking at ALL news and financial reports and that is when I started making money in the stock market. An analogy of this to real estate is saying you have to go to all the flashy seminars to know about a property and real estate. We all know this is complete BS.

    The way I invest in the stock market is that a stock will not be worthless ever because I hedge. So I make can money if the market goes up, down , or doesn’t move at all.

    If someone buys a stock or a property both instances have a 50/50 chance of going up or down. I use strategy to make my probabilities better in the stock market. I can control this mathematically and I can choose a probability from winning 1%-99% at anytime in the stock market. I can not do this in real estate. I sit back and hope my properties go up in time.

    On top of this I can reduce my cost basis consistently instantly in the stock market. I can’t do this with real estate( very fast if at all ie cash flow) . EX. I buy xyz stock for $50 Jan 1. and lets say the stock does not move. I can reduce the cost basis down to around $35 by December 31. Therefore in real terms I only paid $35 dollars for the $50 stock. Many people do not understand this.

    Also, I can not paper trade a property. I can practice in the stock market for free by paper trading. This means putting on real time pretend (free) trades. I can’t pretend to buy a property and have pretend tenants calling me to come change the light bulb or tell me they locked themselves out or be shocked by an eviction and three months vacancy.

    Another interesting thing why stocks have a bad wrap is the average every day joe in the market buys around $40,000 of one stock. That is scary! I am scared for the future of the average american 401k holders/retirees.

    Time to go pretend mow the lawn!

    • Hey Justin,

      I am more SM inclined than REI inclined for the very reasons you outlined. However, I am quite curious of how do you increase your odds of winning from 50/50 to anything better? There is no free lunch and trading is a negative sum game. So, what exactly do you do to stack the deck in your favor? I am all ears (or eyes).


    • Negative sum if you add (or rather subtract) commissions. Brokers are the only participants who have “house advantage” – they always get paid no mater what and that money comes from winners and losers alike.
      How do you use derivatives (options I presume) to shift odds in your favor? Any particular strategy that has positive expectations (avg win * probability of win > avg loss * probability of loss)?

  22. Zero sum game. Commissions are like a resort fee or commission to a RE agent.

    I have and control the “house advantage”. I go for 75% portfolio win rate
    All strategies I enter have positive expectations..

    • I asked earlier in this comment section how people can manage to increase their odds in the stock market. I got one answer that sounded (to me) essentially like day trading — which sounds sketchy, to say the least (no offense to anyone who does it, of course. It’s just not for me)

      Justin — You’re throwing around a lot of stock market buzz words — derivatives, hedging, etc. But you’re not explaining *how* you use those. I’m not criticizing, I’m honestly curious, if you’re able to do it — how? Just coming in here and saying “I can win at the stock market by using ” doesn’t really convince me. Not that you should explain your whole strategy (probably impossible in a single post) but I mean… how do you do it? how did you learn to do it? Where can people look to figure it out as well?

      When it comes to RE it’s pretty consistent — you can easily go do some research and it’s all laid out for you how to be successful — plus there’s communities like BP. Any research I’ve ever done on the stock market basically says it’s purely a gamble unless you just stick your money in an index fund and let it grow with the market — even when researching derivatives and such.

  23. Justin, my observations about investing in the SM were in regards to the most common strategy of buying and holding stocks and/or mutual funds. Here’s what you said in your first post:
    “the general buy and hold mentality does not work in the markets anymore” – Agreed.
    “Learning how to trade and make money in the stock market is much more challenging than RE.” – Exactly.

    Of course, there’s no doubt some people make a killing in the SM using sophisticated strategies; question is can the average person do that AND do it consistently. But give us some context here: how much time did you put into studying derivatives, developing & refining your strategy before you started seeing superior results? You mentioned a few years in your first post – about how many is a few?

    Thinking out loud, I’m curious if you consider your SM activities as “investing” or “speculating”. Nothing wrong with the latter, just wondering..

    Also, how confident are you that your strategies are solid and foolproof? If you are making money whether the market goes up, down or stays the same, why leave your money tied up in your large RE portfolio? Wouldn’t it make sense to put your capital to it’s highest & best use? Please enlighten us – we all have something to learn.

  24. 1. My biggest holding, VNR pays 9% and in a monthly basis. The taxes are deferred.

    2. Buying mutual funds is NOT the same as buying stocks. Mutual funds have a horrendous history. Google dalbar report.

    3. Society is not pushing people into stocks. They are pushing people into funds and out of everything else including stocks, real estate and EIULs. Ask yourself why? The fees of funds are great for the investment houses.

    4. Why pick just one? I own two duplexes thanks to Jeff Brown. But I also have an interest only Heloc funding my position with VNR which when I finish paying off the Heloc I will reroute towards paying off real estate loans. Synergy!

    5. Bonus; google coca cola millionaires. Blue chips that have increased dividends for 50 years are easy to find and understand.
    For fun read some of these

    Learn how to build wealth and use these tools together.

    • Greg, your explanation and the links you’ve left in this comments section make the most sense to me of any stock investing strategy I’ve read about. I’ll need to do quite a bit of research, but I think this might be (at least a part of) what I was looking for in my questions here.

      RE and owning my own businesses still appeal to me far more than stock investing simply because I have more control (and, as you mention elsewhere here, you have leverage to work with). I don’t feel as comfortable risking my capital on some CEO or company board that may not do the right thing, let alone the random acts of the market — at least when it’s me, I know any screw ups are my own fault and under my control!

      But investing for dividends at least takes the market (partially) out of the equation. While I may focus my capital on my own efforts for the most part, I think this might have a place in my portfolio once I figure it out.

  25. Great questions. I have econ/finance 4yr degree. I spent last two years trying to learn how to trade and be successful in the stock market and get a handle on it to feel fully comfortable risking a few hundred dollars on one trade. I met people who traded for a living and that has been a goal of mine since High school. I started trying to day trade in the late 90s, penny stocks, and buy and hold. I was not very active with this at all. Ten years later I was down $3k net. Not too bad I think for learning what did not work for me.

    I always wanted to learn derivatives because I had heard stories of friends of friends doing well with them. They retired and moved away right after their success. I knew if they could do it I can learn also. A few years ago I tried to learn it all from different technical analysis to trying to understand advanced math equations. I learned technical analysis is pointless to me because I believe markets are random. I.e. Past prices do not predict future prices. I took classes and read books, ranged from community college classes to classes from previous Wall Street hedge fund managers. This has been my form of entertainment. I do not watch TV much so I would re watch the classes I took or read derivative books.

    I threw all the garbage out…do not pay attention to news, don’t read annual reports etc. I use statistic modeling from the option pricing models (Black Scholes). All free on every trading platform.

    I trade time, volatility and direction. Just depends on where I believe there is edge. I do not day trade. I am in positions for about 45 days.

    A stock position cost basis is reduced by selling options against it.

    Why do I not put my real estate capital in the stock market? That was the point of my initial post. I have been thinking at what my next investment is. Do I buy another property or put it in the markets? I ran some numbers yesterday on my current properties. My return on capital on my current properties will be about 18-20% a year the next few years. I will keep those since I want the diversification in my overall investment portfolio. I am still testing proof of concept in the stock market. I have been trading for seven months and scaled in pretty well thus far. I believe I can do better than 20% in the markets not only that but I will have liquidity which is important to me compared to real estate. The thing about the markets is that the gains are not linear. I could be down several hundred one day and then next day be up a thousand or vice versa. That does take a while to get use to but again I am in the trade for around 45 days.
    Today I put on an earnings trade (company earnings announcement) with an 85% chance of success and I am up 24% in a day (return on capital required). So I guess this is a day trade by definition. The first month I started trading derivatives this year I made back that $3k and all the training I paid for with less than a 5% down payment on a house.

    It does sound too good to be true but there is associated risk that is taken but the trader gets to pick that amount of risk in different ways. The barrier to entry is learning. It is not easy or straight forward.

    • I still don’t understand. I know that you can use derivatives to basically bet that a stock will move a certain way — up, down, whatever. But you’re still betting that it will move in a certain direction. That’s 50/50, isn’t it? If you “bet” that a stock will go down and it goes up, you lose your money. As you said yourself — past movements don’t imply future movements. So how do you use a derivative to bet that a stock will move in a certain direction with 85% certainty?

      • In some cases it’s not necessary for stock to move anywhere in particular. E.g. If you trade Iron Condor you want that stock to be within a certain range but where exactly – it does not matter. Iron Condor does not have any positive profit expectancy though. If you trade it for a long time you will break even at best before commissions. If you add commissions you will have a guaranteed loss.
        I’d like to hear from Justin to see what exactly he does to have a statistically positive expectations in a particular strategy or set of strategies.

        • I don’t trade stocks. I buy pieces of companies that have a long history of paying increasing dividends. To trade would require that I get some sort of edge. Considering the investment houses are hiring gobs of people trained in all this stuff like efficient market hypothesis, modern portoflio theory, and other practices, and still, on average, can’t beat the indices with their funds, tells me that it would be ridiculous to bet on those.

          The market isn’t rational. People make crazy, irrational decisions all the time. BP took a nose dive three years ago due to public perception going negative despite their strong balance sheet and huge asset base. They are trading at P/E of 5 with a dividend yield of 5%. That isn’t efficient and it isn’t rational. But considering that almost all of the lawsuit claims have been paid, I saw it as an opportunity to grab a small position for myself.

          But I also like leverage. The leverage story for stocks isn’t good. In real estate you can take a 5% average growth and lever up to a 20-25% growth with minimal risk mitigation steps. I know the bank isn’t going to come knocking on my door asking for more money if it’s value drops a bit, compared to a stock.

          Building up a stream of income from real estate, another stream of income from long term dividends in rock solid companies, as well as tax free loans from my EIUL is my definition of diversity. I see not benefit in buying a mutual fund and shelling out 1-4% in annual fees when many of these funds simply buy the same blue chips I can find for myself.

          Read this for an example of the difference between owning funds and owning the company underneath the fund: http://theconservativeincomeinvestor.com/2013/11/10/john-bogle-and-blue-chip-dividend-investing/

  26. Anthony- It is a 50/50 chance if you buy an at the money option; stock price = Option strike price.
    To get better than 50/50 is based on volatility of a certain option(s) not at the money.

    Mike- I win with iron condors at 81% probability of success (1.5std deviations). This is based on how much premium it is sold for on the trade entrance. I do not need to manage trades since I manage risk on the trade entrance. ie enough credit received. I do not hold until expiration and take profits.

    • Justin,

      Would you mind sharing your Iron Condor rules? Instrument(s), entry setup, exit setup?
      Is 81% probability of success your personal performance or calculated based on deltas, BS model, etc.?
      If the latter your max risk is about 4 times larger than your max profit and the whole thing has 0 profit expectancy before commissions.
      Since you don’t hold till expiration, you never have the maximum profit while your maximum risk may materialize one day making the whole system a disaster waiting to happen.

  27. As far as risk, yes there is more with stock investing, but returns in the stock market can be exponentially enormous and dwarf real estate. So many real estate investors or the ones that thought it would continue to just rise in value were fooled and hurt for years to come.
    I bought some REITs that are up 60% back in 2009 and pay 8%+ dividends.
    I’d side with real estate as well since it is a hard asset that you can improve, inspect, increase rents, use of high leverage and tax advantages.

  28. Mike-
    I trade ICs and all trades all based on volatility I do also have a slight opinion on direction. Most people want a trade broken down into 1.2.3 steps.. it is not this clear cut.If it was it would of not taken me years to learn how to be successful.
    The % I mentioned is personal performance return on capital on overall portfolio.

    I do risk for simple sake two to make one but I trade with an edge in place to my favor based on math statistics. I do not take the max profit and I manage my winners the reason for this is my research shows the best time to take off trades for my (low) risk tolerance. But yes if there is a black swan event an IC will be a max loser. But you can hedge to avoid this for a low cost and still make money on the down move or up move for that matter.

    Will – I do not believe there is more risk in stock investing since the financial markets are so efficient that I know my mathematical risk at all times and there is liquidity in seconds. And hedging is do able in several ways. I can not hedge my real estate properties.

    The investment vehicle that pays dividends goes down the dividend amount when it is paid. Most do not realize this.

  29. Mark – obviously a good article given the debate it has created. I’m on your side although I agree stocks and real estate investments are hard to compare. At the end of the day, what draws me to real estate, versus other investment opportunities, is the ability to have an impact on the success of a real estate investment.

  30. Hi Mark,
    Thanks for detailes post about investing but here is an problem with investing in real state is when someone in trouble or needs money he can’t sell immediately his property for money. But if he had invested in gold can take money in the night also.

  31. Will Barnard

    Wow, what a discussion. I was just pointed to this blog post and after reading it, my head is spinning. First things first – Kevin, if I had moderator abilities in a blog post, i would certainly edit that post (personal attack against you) from Allan, it was worded terribly and it should be deleted or an apology made.

    As to the arguments, there is a new one in the forums (where I and others were personally attacked) which is what lead me here. It appears my name has been mentioned quite often on this blog reply sequence. First I will agree with Kevin in that risk is there in RE (it is also there in any investment and there walking down the street). The key is, how you MITIGATE that risk and that is done (in my opinion) by education and proper due diligence. I will also agree with Kevin in that a RE investment such as mine horror story mentioned herein would literally wipe out a newbie, but this particular situation is one of those one in one million type ones I believe.
    I have done both stocks and RE, though I will admit I was very green when doing stocks and did not fully understand it all enough to be successful over the long haul without getting better education in the subject. I will also admit that I personally believe that RE holds more powerful options to the masses over RE for a multitude of reasons. Are there many who kick ass in the stock market? heck yes there are, but on the whole, I believe that more can be gained more often using the RE vehicle over the stock market. That does NOT mean one or all should choose RE over the SM because I stated that, it simply means my opinion based on my experience and knowledge, of which, I have very little in the stock market game. I do know enough about how it works and what the options are and what the results can bring on either side of the coin. I have chosen RE as my vehicle.
    here is my personal list of benefits which i feel outweigh me choosing SM investing:
    1. Ability to leverage is greater and many leverage options exist, including JV partnerships.
    2. Tax benefits are greater – check with your accountant to verify.
    3. Ease of entry better in RE – A dummy can better learn and understand the RE market to make a decent decision in a RE purchase over a SM purchase.
    4. Returns can be greater in RE due to a multitude of factors – leverage, ability to purchase property below current value (stocks you pay what the current price is), ability to force appreciate (repairs, upgrades, adding value can be done in RE, cant be done on a stock), multiple income streams – stocks have possible dividends and appreciation over time – RE has cash flow (blows dividends out of the water), appreciation (stocks have historically better on the surface but when you factor leverage and OPM, I believe RE wins for me here), depreciation (stocks don’t get this, RE does), and amortization (tenants pay down the debt).
    5. Control over the investment – one of the greatest advantages in my mind, with RE, how well the investment does is entirely more dependent on me rather than outside forces while stocks, I am subject to the actions of the corporate big wigs, the crazy and unforseen market volatility, and actions of others completely out of my control. A stock has the ability to go from $50 per share to $25 the next day. RE, even in the worst of the worst cases, has never gone from $100k to $50k in one day or even one month. In other words, I can legitimately forecast the near future and adjust accordingly.
    6. RE is a great hedge against outside forces like inflation.

    This is not the entirety of my list, but the main factors in what was my decision to make RE my investment vehicle of choice. To say that one vehicle is better than the other for everybody would be an audacious statement to say the least. To point out what I believe are better and abundant options in the RE vehicle is simply my opinion, however, I also believe I have illustrated facts in support of them. Again, this is not to say that everybody should choose RE over the SM. In fact, utilizing both vehicles just may be the perfect storm, now all I have to do is figure out how to win in stocks consistently!
    Happy investing everybody, no matter which vehicle you choose, I wish you all the best.

  32. Frankie Woods

    Great article and excellent discussion. I still believe that both vehicles have a part to play in investors portfolios. It’s all about knowledge. However, maybe doing both is “spreading yourself too thin”. In other words, you don’t become an expert in either one, but remain average in both. And being average does not put you on the path to real wealth 🙁 Hrm…back to the drawing board, haha!

  33. Craig Pfeffer

    Good article Mark. Totally agree with you regarding real estate. Another big advantage of real estate (that I don’t think you mentioned) is depreciation. Or maybe that was included under “tax advantages”.
    I believe that whatever business you want to invest in, you must thoroughly understand the business. You wouldn’t open a restaurant without first learning how to run a restaurant business. And I think real estate is much easier to understand and you have more control over real estate than the stock market. One little tweak in China can have a considerable effect on the stock market.
    I also like how Fortune Magazine sums up real estate investing, “97% of all self-made millionaires became rich through real estate”.

  34. Luke Saglimbeni

    Investing in the stock market alone or real estate alone is a bad idea. There is a thing called asset class diversificstion. Stocks are easier to value based on the P/E ratios and public financial statements compared to real estate comps which are imho subjective. Leverage in real estate is good as long as you don’t get burned or make stupid decisions; so that big gain can also be a big loss. My major concern about real estate is illiquidity. I’m a young accountant/entrepreneur/financial advisor. I am also looking to enter into the real estate market as it’s been in the family for a while. Best of luck and remember asset class diversification!

  35. Colin Smith

    I certainly have enjoyed reading the back and forth and just wanted to put in my 2 cents.
    In my opinion, stocks and REI are both great ways to invest when dealt with properly. These arguments going back and forth are a bit of grass is greener on the other side. The reality is, the grass is greener where you water it. If you don’t want to be a landlord, manage property managers, or manage rehabs, then REI is not for you. If you don’t want to be reading about different companies and what stock numbers closing, then stock investing is not for you. If you’re the type of person who wants to invest your money because you know its a smart thing to do, but you don’t want to manage people (landlording or managing property managers) and you don’t want to read about the stocks you invest in for hours on end, then you’re best option is give your money to a mutual fund investment company and let them handle the whole thing. They send you a quarterly report about how your money is doing, and chances are, that type of person is too lazy to even open up that letter to read about it.
    With all that said. I think you should invest in such a manner that you are willing to put a lot of time and effort into. If you don’t want to put any time and effort into it, the it’s time to hand your money over to company who will for you.

  36. Matt R.

    A blast from the past Mark. I would have to double check these numbers, but as I recall during the last financial melt down on average real estate took a bigger hit and took longer to recover vs the S&P. Many in RE were completely wiped out. Leverging did not help. Anecdotally, I know of no one who filed bk as results of stocks but a few who filed from RE. They are both good long term.

  37. Mark,

    Your article is well written, compliments to you.

    I would beg to differ on some of the 9 reasons.

    1) No Retirement Calculators For Me – by that logic, once you have achieved a certain amount of dividend yield, there is no retirement calculator for a stock market investor too.

    2) Cash Flow Creates Income Right Away – Dividends are cash too and from day 1 (Ok, the first dividend payout might be 3 months away, but 3 months in an investment language is day 1)

    Highest dividend paying stocks pay in excess of 6%, I can tell you one that has paid in excess of 6% for 10 years now, but I agree that most will not pay in excess of 4%.

    But then you have to take into account capital appreciations (stock price appreciations).

    3) There is Too Much Real Estate for Everyone to Be an Expert – I doubt that, if that was true, supply and demand would have eventually found an equilibrium.

    Even if it was true, it is too much of work to be a real estate investor, unless you are talking about REITS – which pay 4% per annum.

    4) Anyone Can Be a Local Expert on Real Estate – Ok, and anyone can be a global expert on stock market.

    5) Real Estate Easy to Value – far from true…. far from true. Are you saying repairs estimate or vacancy numbers are as easy to \’value\’ as S&P 500 dividend next year?

    6) You Can Inspect Real Estate – True BUT you do not need to inspect stocks. Financial Auditors have already done that for you.

    7) You Can Buy Real Estate Below Market Value – True, but doesn\’t that also mean that the chances of making mistakes are higher? There is no formula to calculate the correct market value of a property (vacancy, repairs, turnover, bad tenants are all so subjective assumptions)

    8) You Can Add Value to Real Estate – Yes, and that is work. I look for passive investments and not a job 😉

    9) Leverage Multiplies Returns When You Invest in Real Estate – I agree. Although you can use leverage in stock market too, I agree that it is more efficient in real estate

    10th point – you did not mention it but one other point that goes in your favor (real estate) is the tax treatment – specially the 2.7% depreciation on rental property is awesome for investors.

  38. Great article Jeff about real estate investment. I am planning to buy a home in Phoenix and renting it out, it’s a good investment. Some other reasons are:-
    Equity Capture
    Tax Breaks
    Paying Down Principle
    High Tangible Asset value
    Long Term Investment

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