5 Ways Real Estate Wins Big Where Stocks Fall Short

by | BiggerPockets.com

It is just absolutely impossible (and foolish) to predict the stock market. And when it starts to drop, your hands are tied. You don’t have options.

And who knows when it will stop? Ask 5 investing “experts,” and you will get at least 5 different answers.

What is much easier to anticipate are real estate returns. You have much more control over how the story ends.

If you’re buying property to rent out, you control who lives there. You either choose them yourself, or you delegate that decision making to someone you trust. If that person doesn’t perform, you can choose to remove them and get another person in there. Your hands aren’t tied. And if renting doesn’t work out for you, you can choose to sell the property. You have options.

Related: Are You Still Picking Stocks? You Are Ridiculous. Here’s Why.

If you are purchasing property to fix and flip, you control who does the work, what finishes are installed, and the timeline for the project, for the most part. And if the market changes during the course of your rehab, you can choose to rent it out until the market corrects itself. Your hands aren’t tied. You have options.

Real estate is an excellent way to diversify your portfolio for several reasons:

How to Invest in Real Estate While Working a Full-Time Job

Many investors think that they need to quit their job to get started in real estate. Not true! Many investors successfully build large portfolios over the years while enjoying the stability of their full-time job. If that’s something you are interested in, then this investor’s story of how he built a real estate business while keeping his 9-5 might be helpful.

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5 Ways Real Estate Wins Big Where Stocks Fall Short

People will always need a place to live.

There will always be a strong demand for rental properties, whether temporary or long-term, provided you choose the right area. Not everyone has the desire or the means to own their own property. Since the 2008 crash—caused in large part by shady lending practices—loan requirements have tightened considerably. It’s a lot more difficult to get a loan, and not everyone can qualify through the new, stricter rules, even if they can afford the monthly payments.


Rental property provides great cash flow.

Owning $200,000 in Apple stock will give you an annual dividend of around $3,400. If you abide by the 1% rule (and you should), owning a $200,000 rental property will give you $24,000 of income annually. Also, will Apple still be around in 20 years? Maybe, but I’ll bet your rental still will be.

Real estate is less volatile.

Real estate has its ups and downs, just like everything else. But almost every local market, over time, trends up. Historically, the 2008 crash was an anomaly because it was caused by real estate itself.

Yes, there will always be pockets of land that don’t follow the trend—Detroit immediately comes to mind. Detroit has been steadily losing population since its 1960s heyday. Property values cannot go up when population goes down, and Detroit is down by more than half. However…

The population is growing, but the earth isn’t.

As more and more people inhabit this planet, land will become more and more precious. Granted, this isn’t a huge dilemma currently—the world has many places where you can go miles without seeing another human or anything remotely related to civilization. But the most popular areas will continue to grow, and land is becoming more and more precious in many parts of the world.

If you’re a property investor in the United States, you have an extra advantage. Lots of folks from around the world see value in owning American property. It isn’t unusual for Canadians, Chinese or Middle Easterners to buy property here in the states. They realize that the stability and strong American economy makes it a great place to invest.


Leverage, baby.

If you have a Margin Account, you can use leverage to buy your stocks. But the most you can borrow is 50% of the stock purchase price. Not every stock is marginable, either.

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

Real estate is up to 100% leveragable, using a mortgage to purchase your property. One hundred percent financing is usually available for owner-occupants—investments are more typically 75%-80% financed—but a far larger percentage of the purchase price can be financed than with stocks and other investments.

Real estate is a solid way to invest in your future and your retirement. A diversified portfolio can help guard against losses when one another asset class loses value. Unlike other investments, real estate can return money over the lifespan of the asset. It’s kind of a no-brainer.

We’re republishing this article to help out our newer readers.

Why do YOU love to invest in real estate? (And if you don’t, what’s your investment of choice—and why?)

Don’t forget to leave a comment below.

About Author

Mindy Jensen

Mindy Jensen has been buying and selling homes for almost 20 years. She buys houses, moves in, makes them beautiful, sells them, and starts the process all over again. She is a licensed real estate agent in Colorado, author of How to Sell Your Home, and the community manager for BiggerPockets.com, where she helps new and experienced investors learn the proper ways to invest in real estate to grow their wealth. Mindy is an alumnus of the School of Hard Knocks and will happily share her experiences with anyone who asks. When you can get her to stop talking about real estate, you can find her on her bike or adventuring in the beautiful mountains of Colorado.


  1. Gregory Hiban

    1. People will always need a place to live – what kind of companies do you think make up the stock market? Companies who make products that people use every day of their lives. The 5 largest by market cap are AAPL (I’d give up just about everything else in my life, including a nicer house/apartment before I would give up my Apple products that allow me to connect with and analyze the world), GOOGL (where would the world be today without search engines organizing the absurd amount of data this world produces, MSFT (I think just about every business in the US uses MSFT products daily, what would the world look like without Excel), BRK.A/B (a conglomerate that owns a bunch of boring companies that fuel our daily lives), XOM (fuels the transportation system that our modern economy runs on).

    2. You specifically chose a low yielding stock to prove your point. First, there is a range of securities out there that provide different yield points from 0%-30%, just like in real estate how there are lower yielding markets like California, and higher yielding ones like in the South and Midwest. Second, had you invested $200K in AAPL 10 years ago, it would be worth $3.2 million without reinvesting the dividends, that is a compounded annual return of 32%. That is without leverage, what would $200K be in 10 years in real estate without leverage? Also, all you had to do in those 10 years was never look at your account balance, how much work does your real estate thrust upon you?

    3. Real estate is only less volatile because it is a less liquid market. Also, you said real estate over time almost always trends up … The longest running mutual fund in the world is the Vanguard Wellington Fund (VWELX). It has been around since 1929 and is comprised of 100 stocks (2/3s of its value) and 500 bonds (1/3 of its value). It has achieved a compound rate of return of 8.3% over the past 86 years. The stock market trends upward over the long run too.

    4. The population may be growing, but there is plenty of space left for the population to grow into, especially in the US, we are one of the least densely populated countries on Earth. In very specific areas you might run into the fact where population growth combined with lack of new supply due to overregulation/high development costs causes strong real estate increases, but that certainly cannot be used as a rule across the country or world.

    5. Few people, even in the BP community, are intelligent enough to use leverage in such a way that the risk created by it is worth the reward. Leverage causes many retail investors both in the real estate market & stock market to lose their shirts.

    In conclusion, I have seen wealth (both small & large) created in both the stock & real estate markets. One is not better than the other, they are different. Each one has its positives & negatives. Most intelligent, wealthy investors are heavily invested in both markets. To make the statement that one market is better than the other is absurd.

    • Bradley Cordell

      I really like your comments and feedback. I agree. Both investments have their place.

      I’ve noticed that many real estate investors use the argument that people will always need a place to live….. but that doesn’t work too well if the people in your market are moving out to other cities. Just ask investors in a place like Detroit if people always need a place to live.

      I am currently heavily invested in stocks and mutual funds. The recent market drop has hurt…. but it is also a buying opportunity.
      I wish I had invested everything I owned in Apple just 5 years ago!! If I had 10 years ago, then I wouldn’t have to work another day in my life.

      I am looking to diversify more into real estate in order to have a more balanced investment portfolio.

      I do like the multi-dimensions of real estate investing – cash flow, appreciation and tax benefits (to name a few).

      I enjoy the stocks vs real estate discussion…. fascinating.

    • Christopher Moran

      I agree with you 100% Greg. I was going to write a comment similar to yours, but luckily you beat me to it.

      One thing I will say, though, is that I know more regular people that became wealthy investing in real estate, than that became wealthy investing in the stock market. I believe the greater leverage available in real estate is the main factor in this outcome, and the lower likelihood of blowing yourself up with leverage in real estate than in stocks. If you own stocks on full margin and they get cut in half, you’re done. If you own real estate with little down payment and it gets cut in half, as long as rents still cover the mortgage payment, you can ride it out.

      Most of the people I know that became wealthy in the stock market, did so by working for a technology company, and owning a lot of their company’s stock in their retirement plan.

      Most of the people I know that became wealthy in real estate, actively invested in real estate, and searched out deals.

      I especially agree with your conclusion, “Most intelligent, wealthy investors are heavily invested in both markets.”

      However, I have to say, back in 2009 when the losses were getting deep, I somehow felt better about real estate, than stocks. I can’t explain exactly why. Maybe it is the tangibility factor, the confidence in rents coming in each month and increasing over time, or the illusion of control that comes with directly owned real estate. Also, with stocks, it is a little disconcerting when every day your computer screen and television is splashed with red, showing big losses day after day. Mercifully, with real estate, you only have a vague notion that you’re getting your ass kicked, not the daily beatings you get when the stock market is tanking. This is related to your Point #3 above in action.

      Lastly, although I felt better during the most recent crash about real estate than stocks, when I am 80 years old, I will probably feel better about XOM dividend checks that magically appear with no effort, than about the work required to manage rentals or property managers.

      • Gregory Hiban

        One thing to keep in mind, real estate wealth is very public, stock market wealth isn’t. I doubt most of your family/friends tell you the value of their stock portfolios, but you probably know what real estate they own or how many properties they own, and you can easily get a rough value for it. You also could be seriously overestimating their net worth if they are highly leveraged like a certainly real estate “billionaire” whose combover might be interrupting your daily newscast.

        You are correct in the dangers of margin trading, but I don’t know any long-term investors who buy stocks on margin, the interest rates are too high at most brokerage firms. Most who use margin accounts are day traders who are taking big risks on a daily basis.

        Agreed on the relative comfort of real estate, at least from an emotional standpoint. Since you don’t see a liquid value on a daily basis, you are less inclined to panic sell in the bad times. I actually view the illiquidity of real estate as one of its greatest positives because it can prevent us from acting like the short-sighted fools we tend to be in difficult times.

        • Christopher Moran

          Your last sentence is golden, and I think is the key lesson. “I actually view the illiquidity of real estate as one of its greatest positives because it can prevent us from acting like the short-sighted fools we tend to be in difficult times.”

          When stocks are crashing, I have to fight my fear emotions to prevent selling (unless I used a collar). When real estate is crashing, at least if the property is leased and the local population is growing, the thought of selling barely crosses my mind. In 2008-2011, with real estate, my thought was, “Oh my, it may take a decade for the price to recover, but whatever, I’m excited to raise rents again next month.” In that same time period, 2008-2011, with stocks, my thought was, “Oh crap oh crap oh crap oh crap, squirt”

          And I agree with you about the public nature of real estate wealth, versus stock market wealth. But, I was a tax accountant, so I got to see folks’ nitty-gritty financial details either way.

          That is why I agree with your conclusion that, “Most intelligent, wealthy investors are heavily invested in both markets.”

          However, almost all of the folks with a net worth over a few million dollars, made the bulk of it in real estate that was purchased and held. Almost all used leverage initially.

          The exception to this for regular folks, as I mentioned, were people who worked for strong companies (often in technology) and owned large amounts of company stock.

          There were some regular folks who didn’t own any real estate besides their primary residence, and had a 401(k) and other accounts worth between $500,000 and $2,000,000, primarily in index funds.

          But, people that had more than that in stock accounts, generally made their money somewhere else, usually from real estate, or from the sale of their business.

          Lastly, like you alluded to, most folks I saw that used leverage over many years in their stock investments eventually blew themselves up. But, most folks I saw that used leverage over many years in their real estate investments, were multi-millionaires.

  2. I think you are missing the point of the article. Picking few “winning” stocks from thousands of stocks is very hard specially the timing (you mentioned Apple – which just recently flourished after years of languishing). One of the reason is that, stocks are mostly values in future (PE etc.) earning growth, confidence in management and barrier to entry. But in RE, you have don’t have that many cities/metropolis to invest in and you are the Manager of the property )more control). Barring 2008 crash, RE has been very predictable growth.
    People will need a roof over their head and food in their stomach but not everyone needs/wants a Apple products (which I think is over-priced compared to similar products from Samsung) or Kellogg’s cereal or GE’s lightbulb.

    • Gregory Hiban

      I didn’t miss the point of the article at all. I specifically cited the longest running mutual fund in the world to prove that you don’t need to pick individual stocks to be successful in the stock market. The only reason I specifically talked about AAPL returns is because the author used it as an example of the poor cashflow provided by the stock market.

      Stocks and real estate are both heavily valued based off the future, how valuable is real estate in an area going through a population decline? A stock’s P/E ratio is simply the inverse of real estate’s cap rate, but it means the same thing. Higher P/E’s have more growth built into them just like people who invest in lower cap rate real estate typically are looking for more appreciation. AAPL currently has a P/E of 12.2, or a cap rate of 8.2%. Factor in the hundreds of billions in cash, and AAPL is priced for very little future growth.

      People will need a roof over their head, yes, but not necessarily your roof and not necessarily in the town you invest in or at the price point you want them to. Investing in real estate is not very different than investing in GE or Kellogg’s … each asset is valued at a combination of current and future supply & demand for its respective product.

      • Ask anyone who owned stocks, let’s say last 10 years, and another person or the same person who owned a Rental and compare the results and we will get the correct answer to our debate…

        • Gregory Hiban

          Anecdotal data is the primary method of coming up with the incorrect answer in a debate.

          Most studies of wealth creation cite entrepreneurs & highly paid professionals who save & invest a substantial percentage of their income as the main source of small fortunes (sub-$10M net worth). When you get above $10M, it skews almost entirely to entrepreneurs.

          When asset allocation of millionaires is studied, real estate typically falls in the 7-10% area. Domestic equities & international equities each fall in the high teens. No asset class comprises more than 20% of the overall portfolio.

          Real estate is just an asset class. I has its unique positives and negatives, but it is no better or worse than domestic equities, international equities, bonds, private equity, REITs, MLPs, etc.

        • I agree that there are people who are millionaires from their entrepreneurial efforts, but I am looking at “average Joe” investors. People like me who do not make large incomes or beat the odds by starting a successful business are very seldom going to achieve a net worth of over one million dollars using any other vehicle besides real estate. (I started my teaching career making $18,000 per year and am now making $50,000 per year, so while I was investing my salary was in the $30,000 range) You may call it an anecdote. I call it reality for 99% of Americans in the Midwest. I have nothing against other methods of investing, but in my neck of the woods the reality is that most people who invest in the stock market the way that they are advised are amassing a “fortune” of $100,000 or less. With the leverage of real estate, they could have at least 10 times that much money.

        • Gregory Hiban

          Michelle, I hope you are a math teacher, because I would love to see that calculation showing the average real estate investor makes over 10 times the amount of the average stock market investor.

          Assuming a 40 year working career from 22 to 62, the CAGR of the stock market over the past 40 years is 11%. That means $10,000 invested in in 1974 would be worth around $700,000 by the end of 2014 assuming all dividends were reinvested. I’d love to hear how the AVERAGE investor could have dropped $10,000 into real estate 40 years ago and be worth over $7,000,000 today … since that CAGR is in the high teens and is about the same as Warren Buffett’s, the most famously successful investor currently living.

          Lets also not forget that an investment in the stock market is truly passive, so you could walk away for years at a time and it wouldn’t matter. Try not paying attention to your real estate for a few years and see what happens.

        • You have been very well educated by the people who make money from commissions. Since I am a teacher, I will provide an example for you to ponder:

          If Johnny buys $100,000 worth of mutual funds in 2020 and the market drops 50% that year, how much money will Johnny have left?
          Answer: $50,000
          If the market subsequently recovers in 2021 and gains 100%, how much money will Johnny have?
          Answer: $100,000
          What is Johnny’s average return over that 2 year period?
          Your stockbroker’s answer: 25%
          My answer: 0%
          Your answer: ???

          I just looked up the Dow Jones average for the 1970’s. It was at 1003 in 1973. That means it is 16-17 times higher today. If I owned $10,000 in mutual funds then, I would own $16,000 to $17,000 today. (Were mutual funds even available then?)
          The power of leverage allows much better returns if I purchase real estate instead. With my $10,000, I could buy a $50,000 house with 20% down and a 10 year mortgage paid by the tenants. After 10 years, I could borrow 80% of the equity in my paid off house and use that $40,000 to buy 4 more $50,000 houses. After 10 years, I could borrow 80% of the equity in my 5 paid off houses and use that $200,000 to buy 20 more $50,000 houses. Since I am lazy, I quit 10 years later with my 25 paid off houses that are worth $1,250,000 (assuming no appreciation in 30 years).
          No, I am not a math teacher. I think that is the point. Anyone can understand this. I still do not understand how someone thinks mutual funds are going to make them enough to retire unless they have a larger income than the average Joe. If you do not believe my example is possible, come see me the next time you are in Indiana and I would love to show you how I turned $4000 into over $1,000,000. If you have turned $10,000 into $7 million with stock investing, then I would love to talk to you about how you did it. I am always willing to learn. However, do not believe what the stock advisors tell you. They talk about averages similar to Johnny’s example. I read every book in the public library before I began investing and I have only found one that tells the truth about this. They used a “k” value to analyze volatility and actually acknowledged that purported stock returns are lies unless you have extremely low volatility. Since, I have not yet experienced a 10 year period of low volatility during my lifetime, I conclude that published stock returns are lies.

        • Gregory Hiban

          Michelle, first off, don’t insult me by assuming I am paying massive fees to brokers. The broker’s commission on the sale of one piece of real estate is more than I will pay in brokerage fees in 20 years, possibly my entire lifetime. If you invest in individual stocks, most trades are between $7-10. Mutual funds can get as low as .05% per year, meaning $5 per $10,000 invested.

          Your example is terrible. I have been using CAGR this entire time, meaning COMPOUND annual growth rate, it is not a simple average. Also, anyone that uses two years as their investing horizon is not an investors, they’re a trader/speculator. Additionally, the loss is only on paper, it’s not a real loss until you sell. With a longer investment period, a downturn can be great because you can reinvest dividends and add funds at very low valuations.

          If the S&P has grown 16-17 times, $10,000 becomes $160,000-$170,000 … that is basic math, I am going to assume you just forgot to carry the zero, not that you can’t do that math. What you are not considering in is that dividends (and their subsequent reinvestment) are not factored into the beginning and ending stock price. Adding an additional 2-3% compounded over 3 decades does a wonder on returns (my personal portfolio yields 4-5%). That is like thinking about real estate returns by just looking at the start & end purchase price. A large portion of the return comes from annual income, so you need to use IRR to calculate returns in both real estate and stock investing.

          Yes, mutual funds were available in the 1970s. The one I have referenced in this post was the Vanguard Wellington Fund which began in 1929.

          Your example about the power of leverage is incredibly basic, not factoring in any of the complexity of real estate, and it is valuing the time it takes you to manage it at zero (which with 25 homes can be a decent time commitment). Not to mention that in the vast majority of markets you are not going to be able to cashflow 10 year mortgages with property income alone. If you can cashflow 10 year mortgages, you are right to assume zero appreciation, because you are in a pure income market.

          I’d love to see how you turned $4K into $1M, a detailed example, write an article about it on BP. I am going to take your word that you never put another dime into it, but from seeing the books of those who own real estate, it tends to suck money from other places without them consider it because they have very poor accounting systems.

          However, your math is wrong on stock investing. Since your reply was fraught with errors and did not even factor in dividends or their reinvestment, I am going to rely on my math given that my degree was in finance with a specific concentration in commercial real estate finance … and I work in commercial real estate.

          There are the rarified few who turn $10K into $7M, not me, not yet. They do exist, but I have seen multimillionaires created in real estate, stock investing & entrepreneurship. The source really doesn’t matter as much as you’d think, it is just an investment class.

        • Aleksandar P.

          Wow .. Michelle, your response to Greg is permeated with an ignorance when it comes to Real Estate, stock market and financials generally. You don’;t have a clue what you are talking about obviously. I really do hope you are not a math teacher, or a teacher period.

        • Never claimed to be as smart as you. More polite maybe, but not smarter. My comment is that dumb people like me can make money more easily with real estate.

        • Gregory Hiban

          Michelle, no matter what the asset class, using debt to increase returns is very risky if you do not have a strong grasp on finance. It just appeared to be easy for “a dumb person like you” because you did not fully appreciate the amount of risk you were taking. Many real estate investors wind up losing everything because of leverage (from small mom & pop investors to billionaires). I think your story is more akin to the old saying that “even a broken clock is right twice a day.”

          Also, you don’t have to be intelligent to make money in the stock market. You just put your money in low cost index funds, and never panic sell … it’s not that hard, I know many people with 7-figure stock portfolios.

        • I did not engage in the amount of debt in real estate that my example listed. I have always had 50% equity or more in my properties. I typically buy properties from tax sales, auctions, and forclosures. For example, one of my recent purchases was a house for $31,000 at an auction. After paying someone to clean out the hoarder’s trash and install some new flooring, it appraised for $93,000. (It is probably only worth $70,000, and I rented it for $750 per month) The payment on a 10 year mortgage is approximately $350 after adding fix-up costs.

          Can you give me an example of how someone investing 10% of a salary that averaged $30,000 would get enough to retire if they started in 1990 and wanted to retire in 2020? I put my 403b money (teacher equivalent of a 401k) into Vanguard Winsor II, which has been the best option that I was given in our retirement plan at school and never did any panic selling. At this time, my quarterly statements show very little difference between my contributions and the present value. What am I doing wrong?

      • Gregory Hiban

        Without knowing your exact salary, match, or salary growth rate, here are my assumptions. Starting salary of $30K, 3% annual salary growth, 30 year horizon, 10% CAGR (11% has been the CAGR since the Windsor II inception in 1985, minus a 1% expense ratio), and a 10% annual contribution plus a 3% company match.

        My numbers show that after 30 years your retirement balance would be $929K. Not bad given a salary significantly below the US median for the entire 30 years and that it is an entirely passive investment. Given the low income & tax rate, I would have suggested that you since the inception of the Roth in the late 90s, you should have invested just enough in the 403B to get the full match, then anything over that should have gone into a Roth IRA. That is the most detail I could provide.

        As I have repeated many times, my posts here have not been to bash real estate, it is a great investment class, but stocks are top notch as well.

        • Actually, the starting salary was $18,000, but that still doesn’t explain why I don’t have more money in my account. I really want to know why my returns do not match up with what your percentages would indicate. I am not lying about my account balance. Another posted comment from someone who started in the early 1990’s states a similar experience. Since I had very low contributions during the 90’s due to low salary, the bulk of my money entered the account from 2000 to the present. I am trying to understand how I could have done anything differently. Did you have money in mutual funds during this time period?

        • Gregory Hiban

          Even starting at just $18,000 in 1990, I have you ending at around $560K with all other assumptions held equal. Without seeing a detailed list of contributions and the details of your individual 403B plan, I couldn’t tell you. My first guess is that your 403B provider is very expensive, that is why I suggest a Roth IRA for anything over the employer match. Even though Vanguard mutual funds are very cheap, the intermediary that sells those funds to your employer typically pumps up the fee.

          For example, the last company I worked for offered a bunch of funds, a few of them Vanguard. While the expense ratio of the underlying Vanguard funds was 0.2%-0.3% per year, the final expense ratio was 1.5%-2%. That will seriously affect returns since it effectively negates much of the compounding of dividends. My personal portfolio yields 5% and has zero annual expenses since it is a Roth IRA and I can reinvest the dividends for free with my broker.

          I can’t tell you why in your specific case equities didn’t work. I can tell you that equities are a large portion of retirement savings in the US. I can also tell you that if in your area you can find real estate deals like the one you mentioned, in that specific market, real estate may be a better play (I can’t be sure without months of analysis, haha). In my local market, nothing even exists under $150K and the median sale price for a single family home is over $500K. In my area you are lucky if you can cashflow a 15 year mortgage. That is why when I talk about real estate vs. equities I am looking nationally. Equities are a global marketplace where you can give advice generally (and can manage your investments from anywhere on Earth), real estate is an extremely local market where everything depends on each block or mile. Real estate might be better than equities in some individual markets, but when they are compared at the national and international levels, simply as one asset class against another, they are interchangeable.

  3. I agree that it is easier for regular folks to get rich with real estate than with stocks. I have only personal experience to draw upon, but I think from your pictures that I may have a few years more of that than some of you. Personally, I read books for education and then invested conservatively in both real estate and stocks about 20 years ago. At this point in time, I have approximately the same amount of money that I started with in the stock market. I lost about half of my equity in the crash after 9/11, then regained it by 2007. I again lost half of my equity during the subsequent crash, then regained it. It is like riding a roller coaster – lots of excitement but you end up where you started. I am sure that lots of smarter folks did much better than I, but we are talking about regular people investing in conservative mutual funds, etc.

    In the 1990’s, I also began investing in real estate. I started with a $4000 down-payment on a duplex then never added another dollar of my own money. Today, I own real estate with a net worth of over $1 million. When I retire in a few years, I expect to have yearly income from my rentals of about $80,000 after paying for property management and all expenses. This will increase as mortgages are paid off. I expect to have yearly income of $6000 per year from my stock investments, which I cannot begin receiving until I reach age 59.
    If I had it to do over again, I would stick with the real estate!

    • Gregory Hiban

      Assuming a $4,000 initial cash outflow, a 25 year timeframe, and a current value of $1,000,000, that is a 25% compound annual growth rate. I take this to mean two things.

      One, if you have actually never put another dollar of your money into this real estate besides the initial $4,000, you are far more talented at the real estate game than the average investor.

      Two, even assuming you bought in at the height of the tech bubble in 2000, if the value of your stock holdings has not changed in the past 15 years, you are significantly worse than the average investor.

      So in your specific case, yes, you would be crazy to do anything but stick with real estate.

      • Christopher Moran

        This is a real estate forum, so you have to expect folks are going to favor real estate.

        Also, I realized that I probably have some selection bias in my sample of tax clients, because real estate investors probably disproportionately seek out tax advice.

        Overall, though, my clients that were wealthy primarily because of stocks, I would generally characterize as outliers (and lucky), or in two cases, exceptionally skilled. My clients that were wealthy because of real estate, I would generally characterize as incredibly ordinary, and much more numerous.

        So, although I agree with you about both asset classes having their place, I still have to look at the scoreboard (my clients’ wealth distribution and source of wealth) and wonder sometimes. Personally, I’m sticking with both asset classes, among others, but we should talk in fifty years and see what happened.

        • Gregory Hiban

          I would agree that selection bias is heavily influencing the type of wealth you see. When it comes to tax prep, there is little difference between a brokerage account with $50K in it, or $5M in it. Even BRK.A’s “brokerage account” of $100B would probably be less complicated to do the taxes for than some small time real estate investors. Almost all real estate investors need professional tax/accounting help, not all stock investors do these days since the brokerage firms will give you just about everything but yourMLP K-1 forms.

          However, in real estate, once people get to a certain size they begin dropping assets into tons of different entities and things get infinitely more complicated. I have a CRE colleague who owns/controls 60 different entities and spends hundreds of thousands a year on tax & accounting professionals. Another who just has an 8-figure brokerage account and his taxes were a breeze until he began diversifying into R/E as of late to diversify his income streams.

          I mean, if we are going to talk scoreboard in terms of wealth, investors, whether they be of the real estate or stock market variety, are both insignificant compared to entrepreneurs. From a small fortune of a few million to the most prominent billionaires, the vast majority started businesses.

        • John Bierly

          Thanks Greg for your comments. Yes, this is a real estate forum, and while I have learned a lot from BP the constant boosterism around RE is getting a little tiresome – and hearing your perspective here is refreshing. Personally I have been diversifying away from the traditional brokerage approach of a stock/bond mix into one that incorporates both alternative investments and real estate as well. While I am of course hoping for better returns from this approach, at the end of the day the primary reason is reduced volatility from diversification over a larger group of asset classes with low correlations. A few things I’ve learned over the years:
          1. Returns will be more or less linked to the time you put into learning an asset class/business, there isn’t a shortcut here (other than random luck)
          2. The corollary is, you can’t outsource the learning and expect high returns. An honest financial advisor once told me, “we aren’t in the business of creating wealth for our clients, we are in the business of wealth preservation.” Same goes w RE, the more you want to turnkey your investments the more the returns will come to approximate liquid market investments.
          3. I think one of the main reasons RE (and other alternative investments) outperform traditional stock/bond allocations over time is that people pay too much of a premium for liquidity, and having access to it, often squander it by mistimed selling and buying decisions (as Christopher has described above).

        • Christopher Moran

          Greg, definitely true that real estate investing adds to required tax work. I once had a client that was a real estate investor, who owed me so much for tax consulting work, he gave me his new Lexus as payment for his bill with me. Sadly for me, this never happened with strictly stock market investors. 😉

          Also I agree with what you said about the big wealth being made by entrepreneurs.

          And John, your comments are money, too. And yes, I saw a ton of people that payed a terrible liquidity premium. My most common examples were older clients that would renew their Certificates of Deposit every year, for the last thirty years, instead of even buying a five year CD. And if five year CD’s were scary, imagine the mutiny I sometimes faced by suggesting such crazy ideas as municipal bonds. Even though CD rates are low, I could still almost double their income, just by switching to a five year CD, and then, if they had to, paying an early withdrawal penalty (although I knew there was a very good chance they would keep it to maturity). People are often not rational.

          Lastly, I think it is important to find a good investment match, to each person’s skills and temperament.

  4. Amy A.

    I was feeling pretty smug when I read your blog until I read the comments. The bottom line is, invest in what you understand. For example, Warren Buffet wouldn’t invest in tech stocks because he didn’t understand them. Real estate is pretty easy to understand. Stocks are as complex as each individual company.

  5. Matt R.

    I guess these are apples and oranges. Will a 200k single family home out produce 200k in stock with the largest company in the world? Historically that is far from likely as noted above. One was designed to be lived in the other is designed for investor returns. It is pretty difficult to compare those two. But I get your point still.

  6. Gene D.


    Loved your comments. I think when you add the amount of time an investor dedicates to researching and finding a deal, doing the management, paperwork, concentrated risk, etc when investing in real estate and put a monetary value on that opportunity cost vs purchasing a highly diversified index fund over a 10 year timeframe, the average investor is more likely to succeed by investing in index products.

  7. Gene D.


    By the same token, I think lack of transparency and liquidity, a very segmented industry with a ton of market variations provides an investor in real estate with an actual chance to generate long-term results that beat the stock / bond market averages by acquiring special local market segment or property type expertise. There are over 10,000 professional asset management firms, each studying their specific market segment or asset class 24/7, while even the most popular and dense real estate markets still provide huge inefficiencies for an investor to have an opportunity to exploit.

  8. Jeff S.

    When you buy stocks and bonds you are buying a piece of a highly managed business or you are trusting others to invest your money into debt in hopes of earning interest. When you buy a piece of RE you are buying a small business. Like any business you invest time and money over a period of time with hopes of appreciation and income.

    Like another poster my stock and bond investments over time have broken even. My long-term buy and holds have produced tremendous returns for which I am very grateful. I too wish I hadn’t wasted money on stocks.

    Another issue is the concept of diversification with stock and bonds. Going forward if you hold bond funds you are likely to lose asset value with increasing interest rates. We have experienced a long term decline in rates which has boosted bond fund portfolios.

    I know have known wealthy RE investors and I have known wealthy grandma types with CD portfolios, but not any rich stock investors.

    • Aleksandar P.

      “When you buy stocks and bonds you are buying a piece of a highly managed business or you are trusting others to invest your money into debt in hopes of earning interest.” – Based on this I can see that you really don’t know what investing in stock and/or bonds means.

      “Like another poster my stock and bond investments over time have broken even. ” – Can you tell us the time-frame of your investment as well as asset class you are invested in?

      ” Going forward if you hold bond funds you are likely to lose asset value with increasing interest rates.” – Not true. If you hold a bond until maturity you won’t lose anything. As a matter of fact, you will have your coupon rate return every year, plus the original value invested at the end of maturity. The same thing is with the bond funds that are funds consisted of bonds with different maturity dates.

      “I know have known wealthy RE investors and I have known wealthy grandma types with CD portfolios, but not any rich stock investors.” – You must be kidding?!. As Greg pointed out above, the stock ownership is much less public, comparing to RE. I would suggest you to read the book “The Millionaire’s mind” by Thomas j. Stanley. You would be surprised how many wealthy stock investors are around you.

  9. Andrew Syrios

    I think the big advantage to real estate is that it is much easier to find bargains. The stock market is more or less efficient, but the real estate market has tons of motivated sellers and value add opportunities. Then add in leverage as you mention and you can exponentially increase your returns if the property goes up, but insulate yourself from those same losses if it goes down by having lots of equity in the property from day one.

  10. Aleksandar P.

    Thank you for your excellent points and for bringing up some sanity in this, seem to be, never-ending discussion. I respect Mindy and love her contribution to BP, but this article is so wrong, on so many levels, as you pointed out in your response.
    The point of this article “What is much easier to anticipate are real estate returns. You have much more control over how the story ends” can be very misleading, particularly for the Bigger Pockets newbies and could damage them financially on the long run. If RE newbies invest in learning about investing in public companies at least 50% of the time they invest in learning Real Estate, I can guarantee that at 60%-70% of them would leave RE and invest their hard earned money in the group of stocks (or Index for that reason) at good valuations, and expect 8-9% annual returns on the long term basis while leaving themselves more free time to spend with family and invest in the current or future career.

  11. Jeff S.

    ALEKSANDAR P. Just noticed you asked a question.

    “Can you tell us the time-frame of your investment as well as asset class you are invested in?”

    The time frame of my first investments in RE are 1991 to RE present with 90% leverage in a robust economic city (Portland, OR). Non leverage stock mutual funds in a 457 tax deferred plan with more invested over time than the RE rental units. Sold out during the crash. When the market crashes I am out. Break-even.

    • Gregory Hiban

      Exactly, the liquidity of the stock market is a double-edged sword. Those who are calculating and emotionless in their investing buy as things go down. Those who are emotional panic and sell, then lose all of the upside after the crash as well.

  12. Ciprian L.


    On the BP podcast you said that you invest in stock market because the RE it’s overpriced in your area.

    Now that the stock market went on sale, you are complaining?

    When I saw it going on sale, I just bought some more. I hope that the stock market it will go even lower so I can add to my portfolio, while waiting for RE to go on sale.

  13. Jinhee Park

    I bought TESLA stocks 2 years ago and had a 67% ROI then sold them when they were about to fall, and I used those funds to put down a down payment for a rental which is producing 10.3% cash on cash return and 12.3% annual appreciation. I think I made a smart move to switch from stocks to real estate.

    Regarding the power of leverage, I’m using an FHA loan to put down only 3.5% of a $250,000 value 4-plex so I’m using $8750 out of my pocket to control an asset that will produce $9000 of monthly cash flow for the next 7-10 years as I will be using this 4-plex as a primary residence and medical airbnb. This really is a great ROI! I’ll be getting my money back within a few months after purchase. This is the power of leverage only possible in real estate.

    You didn’t mention the tax benefits of investing in real estate. The depreciation and mortgage interest deduction will save you so much money in taxes for years down the road while you hold the real estate property.

  14. Scott S.

    Using the $200,000 of Apple stock example and the timeline of 20 yrs, had one purchased $200k of AAPL in 1998 it would now be worth $42 million!

    At $200k house in 1998 might be worth $1M today in a high appreciation area. Not bad, but it certainly wasn’t a hands-off, passive investment like a stock purchase.

  15. Derrick Shannonhouse

    Lot of great points made on both sides throughout this thread; one of the better threads I’ve read here. The one positive to real estate that I haven’t seen come up yet though (unless I missed it somewhere) is that most people accumulate stock market wealth in qualified plans (401k & IRA), unless they are really high earners (top 5% or higher) and have additional money to invest above and beyond qualified plans.

    While there are positives to qualified plans, the fact that your money tied up until 59.5 for me is a huge disadvantage. Sure, you can take money out before that time, but it’s obviously extremely inefficient with the 10% penalty, and especially if your a high earner already paying a high tax rate.

    This is probably the primary reason I lean towards real estate because I can plow most of my savings into real estate and stand a decent chance of having enough cash flow by age 50 to walk away from my current job, and it’s very tax efficient since I will be paying very little tax with depreciation expenses factored in.

    Being able to potentially retire at 50 with a tax efficient portfolio versus having to wait until I’m 59.5 to start withdrawing from 401k is a big advantage in my mind.

  16. Vaughn K.

    So most of this has already been said, but I don’t think anybody stated it quite explicitly enough… Of all the high net worth people I have known in my life, not ONE has ever become wealthy primarily via investing in stocks. That’s because they just don’t grow fast enough to turn almost nothing into a fortune. They will just modestly grow an already there amount of money. They all owned businesses or made their money in real estate. Business is its own crazy deal, and many people are not cut out for it, but real estate for the long haul is about as simple as it gets. Perhaps not easy, but simple.

    What makes your average person be able to make so much money from real estate is simple… Leverage. Period. Leverage is always inherently risky in a certain sense, but with cash flowing real estate it is as risk free as anything can get in this crazy world. This is what makes it magical for growing wealth fairly quickly.

    For a typical 20% down situation let us say you put 20K down on a 100K property. Now let us assume incredibly mediocre returns. Let’s say it appreciates over the long haul at a mere 2% a year, basically just keeping up with inflation. That alone is now netting you 10% return a year. Your positive cash flow will vary, but let’s pretend it is a measly 2% as well. Now you’re at 20% return. Almost as good as Buffett! If both of those were at 3% a year, your return is now 30% cash on cash. Lord help you if you bought at 5% or 10% down, then the numbers get real crazy! Even though that’s totally doable for the first couple properties if you want to live in a duplex or quadplex for awhile. Pull out equity to expand and buy more properties as often as makes sense and you can keep those cash on cash numbers at those rates indefinitely. Those numbers aren’t scalable to multi billion dollar skyscrapers or anything, but for somebody that just wants to make a few million, or low decamillions there are plenty of properties to do that with.

    THIS is the main reason people build wealthy faster in real estate. Period. That’s not accounting for forcing appreciation, buying below market, or anything else. You could pull that off buying already remodeled houses/complexes and just letting them do their thing. You throw even a touch of creativity into it and it can only go up.

    Margin loans on stocks are A LOT more risky, and most people just don’t do it. Which is probably wise. Comparing 100% paid of real estate to stocks is a moronic way to compare, because unless you’re deleveraging at the tail end of your life there’s just no reason to do real estate like that. 20% down, if not less, is perfectly safe and secure.

    And that’s it. It is as simple as that. Using leverage in real estate is super easy and relatively safe over the long haul. That’s why IN THE REAL WORLD so many people make a lot better returns on RE. Nothing more or less to it. How this isn’t obvious to some people is beyond me. Hypotheticals are one thing, but real world to real world this is how it plays out for most people.

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