ROI: Stock Market vs. Real Estate Investment

 

ROI: Stock Market vs. The Real Estate Market

What is the biggest thing you look for when investing?

Return On Investment (ROI)!!

No matter the investment, as an investor you know that diversification is good for your portfolio because it decreases risk and reduces fluctuations in returns. Now the question is, when diversifying, why not pick an asset that produces the highest ROI (100% higher than the stock market based on 2013 statistics)? Why not invest in something that can be insured? This seems like a simple answer, but it is not something that every investor is doing. People continue to throw their money at stocks because they know it will stay somewhat consistent, and they are scared off from housing because of the crash in 2008.

Here is a history of the DOW from 1900's-1990's.

Stock Market History of Returns

Decade Average Return Per year 1900s 9.96% 1910s 4.20% 1920s 14.95% 1930s -0.63% 1940s 8.72% 1950s 19.28% 1960s 7.78% 1970s 5.82% 1980s 17.57% 1990s 18.17% http://www.stockpickssystem.com/historical-rate-of-return/

This shows that the average return throughout the 20th Century is 10.582%. 

When it comes to real estate investment an expected return should be 20-25% per house. For example, a house with a purchase price of 50k, a rehab of 20k, and an after repaired value (ARV) of 100k has 30% in equity. With the closing costs and realtor's fees you incur after you re-sell the property, there will be 20-25% return on your money. When rehabbing a house, the ideal situation would be to buy-rehab-sell within 90-135 days (30-45 days to rehab, 30-45 days to market, 30-45 days for buyers to close). Lets compare this 3 month return to the return you would receive after 3 months in the stock market:

Here is the most recent statistics of the DOW, in the past 3 months (From January 1st, 2013 - March 27th, 2013).

http://finance.yahoo.com/echarts?s=%5EDJI#symbol=%5Edji;range=20130101,20130327;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;
This shows that the average return in the first 3 months of 2013 is 8.3%. Here is an example of a few properties that I have done in this same time period:


          






The return on these houses after they have been rehabbed and resold is (in order of pictures) 21.21%, 21.79%, and 20.03%. 

Here it is clear that the ROI that I received on one house is 255.54% greater than the 8.3% you would have earned in the same time period (3 months), and 200.43% greater than the average ROI for the past century. These types of deals happen all of the time, and especially in Texas. You can refer to one of my previous posts that illustrates the economic state of the major Texas cities a.k.a. "The Texaplex." I am currently doing 20-25 houses a month, and 100 houses per month statewide. If you would like more information about real estate investment and/or would like to receive an updated inventory of all of the houses I have available to sell to investors please use the contact information at the bottom of this post to get in touch with me (phone or email). 




Contact Information:

Rich Darragh

314-954-2051

[email protected]