The Big Advantage Real Estate Investing Has Over Stocks

by | BiggerPockets.com

If you’re an investor or simply researching investing options, you’ve probably heard the question debated: “Is investing in real estate better than the stock market?”

We might be a bit biased, but today, we’re going to delve into the argument for why real estate is superior.

In this video, Matt Faircloth shares two big reasons that real estate makes a better investment and explains exactly why:

  • If you’re an active investor, you’re controlling your investment. You’re present for the day-to-day investing activities, which might include finding deals, rehabbing properties, and locating great tenants. In other words, you’re able to execute actions that can benefit how your investment makes money, unlike in the stock market, where you have little to do with actions that affect stock price.
  • If you’re a passive investor, you have collateral. That collateral may be in the form of owning property or owning a chunk of property. Or maybe you’re a lender, meaning you have collateral in the form of a loan. If you’re smart, you can use that to control your investment, unlike in the stock market.

Related: Real Estate vs. Stocks: Which Has Performed Better Over 145 Years?

The Big Advantage Real Estate Has Over Stocks

What do you think: Is real estate a better investment than stocks (or does the perfect portfolio combine both)?

Weigh in with a comment!

About Author

Matt Faircloth

Matt Faircloth, Co-founder & President of the DeRosa Group, is a seasoned real estate investor. The DeRosa Group, based in historic Trenton, New Jersey, is a developer and owner of commercial and residential property with a mission to “transform lives through real estate." Matt, along with his wife Liz, started investing in real estate in 2004 with the purchase of a duplex outside of Philadelphia with a $30,000 private loan. They founded DeRosa Group in 2005 and have since grown the company to owning and managing over 370 units of residential and commercial assets throughout the east coast. DeRosa has completed over $30 million in real estate transactions involving private capital including fix and flips, single family home rentals, mixed use buildings, apartment buildings, office buildings, and tax lien investments. Matt Faircloth is the author of Raising Private Capital, has been featured on the BiggerPockets Podcast, and regularly contributes to BiggerPockets’s Facebook Live sessions and educational webinars.

5 Comments

  1. Rob Cook

    I agree Matt. A couple other advantages to RE investing, over the stock market. As you stated, and unlike almost all other potential assets which can be invested in real estate is the one which offers me the most control. You cannot buy distressed priced gold or silver. And you cannot influence the market value of it once you own it, unless your name is Hunt, or Rockefeller, etc. I can often buy real estate at nearly half market value, and double its value again by good management and renovation, etc. Note that real estate sellers are NOT a huge, collective market voice and as individuals, can be irrational, selling way below market price for a variety of reasons. Thus bargains abound, often not advertised like an ask price on stock shares. Valuation of real estate assets is not as exacting or simple to accomplish as in stocks, resulting in arbitrage opportunities for us – try that in stocks in today’s electronic traded world. I also can assess risks very confidently due to my knowledge and the transparency of RE investments. NOT REITS or FUNDS or any other phony baloney wall street BS, just actual brick and mortar properties I see myself and can personally understand completely before buying in. I generally go it alone, without any sort of partner beyond a lender occasionally, so ALL the risks of partner involvement are eliminated.

    As an aside, I was literally shocked to see all the comments regarding you previous post, stating their dissatisfaction that you provided the information via video, without a verbal translation for them to read. Not judging whether or not they are right or wrong about their preference, but I do feel they were generally offensive in their approach towards you. They obviously do not understand that you are not paid to produce ANY BP content, and do so 1) out of a sense of generosity to share and help, 2) to build your own brand so that someday you might make a couple of bucks for the hundreds and thousands of hours you put into providing FREE content for all of these over-demanding commentors’, and 3) that that is a stupid way to thank you for your effort and to encourage you to continue to give so they can take your info…for free. The internet is truly warping people’s social skills, and maybe even common sense and intellect. They apparently want you to not only give to them freely and at no charge, but to do so in a format they demand, instead of that you select to employ. Oh well, less competition for you and me brother! So keep it up, I love the videos (and I am a lawyer, so I do know how to read). Ignore the takers’/ingrates’ ugliness and press onward. Thanks Matt!

  2. Rob Jafek

    I’d also consider the volatility, and real estate has been far less volatile than equities. In The Federal Reserve Bank of San Francisco’s Working Paper Series, there’s a paper called “The Rate of Return on Everything, 1870–2015” It’s substantial at 123 pages, but demonstrates that real estate returns are roughly equivalent to equity returns (out performs over 145 years, but has underperformed by a bit since the 1950s), but real estate is way less volatile, meaning that on a risk adjusted basis it is superior. In other words, if you want about the same returns, and to be able to sleep at night: real estate is the way to go.

    Here’s the link: https://www.frbsf.org/economic-research/files/wp2017-25.pdf?fbclid=IwAR18lKOAI_xwoNEJ1TTJ6s06zoJcHKf7FupF5PpVR9z2y9oQYhm4abEvHvU

    It looks like someone else on BP may have done a write-up/summary, but to be honest the paper is very accessible, and IMO its worth the time to review. For example, @Noel Felix III, there’s some great charts to grab if you want to post to social, just don’t mention the whole thing is 123 pages – that might scare them off!

  3. Frank Sanchez

    or…

    The Big Advantage [Stocks] have Over [Real Estate Investing]

    If you’re [a passive] investor, [focus on your career rather than getting another job.]

    If you’re a passive investor, [invest in broadly diversify index funds that closely track their respective benchmarks. Select an asset allocation according to your risk tolerance and only reblance afater a 5% deviation.]

    It works both ways,

    Frank

  4. Devin D.

    I agree 100% and experienced it first hand. I invested a rather hefty amount of capital several years back into a couple startups (fields I work in) that lead investors to believe they were much further along then they were. Over some time one of these companies was hit with several law suits as a ultimate result of poor management and oversight (these were NASDAQ tested and success proven execs) and I found myself with a 400k dollar loss. To say just a little that was devastating and I knew I could do better and I was pretty sure a monkey could do better.

    Enter my reentry into REI. I had little capital to start out with but cut living expenses and was fortunate to have a well paying W2. In short during the first 7 months of moving to REI investing rather than stocks I’ve doubled my new worth and added a steady stream of income to the point that I technically have reached Financial Independence.

    Control is the point and though I’ve taken an active investment approach I now have a system that can be replicated and I’m in full control to make the most out of every deal and to mitigate risks as the market evolves. Index funds will never deliver these kinds of returns or 20%+ annual dividends.

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