Real Estate vs. CD Market investments

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Real Estate vs. CD Market investments

Ryan Daulton
New to Real Estate · Princeton, TX · Member since 2024 · 84 posts · 26 votes

I am brand new to real estate investing, but I’ve been listening to BiggerPockets podcasts for the past 3 months and I read 2 of Robert Kiyosaki’s books. But when I told one of my family members about my interest in real estate, he was very skeptical. What can I explain to him are all the advantages of real estate over other forms of investment, like the CD market which guarantees a 5% return annually?

Here is what he said about why I’d be better off putting my money in an index fund or a CD. Italicized sentences are my sentences.  Italicized sentences are my words:

  1. The mortgage interest rate is much higher than we’ve had over the past 20 years, so the returns would likely be much less for me if I bought something this year.
  2. Appreciation cannot be assumed with interest rates as high as they are. Is this true? For example, he said his brother has looked at homes in the Dallas area that have depreciated in the past 12 months.
  3. I will likely have some vacancies, and maybe evictions.
  4. I will need to spend money on repairs and maintenance.
  5. Other expenses: property tax, HOA (hopefully not), insurance, legal costs, and closing/selling.
  6. He told me most landlords he has talked to had to mortgage their properties and that most are actually losing money in years 2023 and 2024.
  7. Distressed sellers lack the capital for property maintenance. You can expect a lot of repairs to get the place up to par. Leaks, mold, and lots of hidden problems. He said this because I told him I was going to search for off-market deals.

How much are average closing/selling costs?

Here is what I told him were the advantages:

  1. The landlords he knows who have been losing money are probably only describing their cash flow (rent payments). But I could also profit off depreciation of the property annually, appreciation (especially if I make improvements), and tax deductions.
  2. Since I plan to buy a multi-family property and live in one of the units, this should give me a steadier cash flow even with vacancies.
  3. Assuming that I 1031 this property or hold on to it, I would never pay sales taxes on it.

Are there any other advantages? Is anything above incorrect?

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Bruce Lynn
Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes
2y

Don't take financial advice from broke cousins.

Don't let them kill your dreams, because they don't have any.

I would go to far as to say, don't ever talk finances with that cousin again.  Don't tell him of your plans, don't tell him about your investments, don't ask him about his.  Not the right person to support you.

Disadvantages1-2-3-4-5-6-7 all true and possible, this smells like opportunity, probably more risks than that....and property is more work than T-bills.

Advantages....1 is possible....not sure I understand 2....no cash flow from your side if you have vacancy.  1031 defers taxes not eliminate it, but there are ways perhaps, for example if you get big enough and 1031 into QOZ you have the poential to eliminate 100% of the capitol gains taxes.

#4 you forgot about leverage....for the most part you can't leverage T-bills, maybe 50% on ETFs.  ETFs can fall to zero...or even lose 20-30% in a day.  People can and do lose money in ETFs, go back and find the paragraph about the average investor loss in Fidelity Magellen fund back during Peter Lynch tenure.  I forgot the numbers, but fund went up like crazy, but avg investor tried to time the market and lost money.  Buying at the highs, selling at the lows.

Ask relators and investors in the Abilene area if prices have gone up or down in 2023-2024 or if they wish they had more money to buy more homes in the 1970s, 1980s, 1990s, 2000s, or whatever decade.  I've never met a long term real estate investor who wished they had bought less property.

If you invest $100,000 in T-bills this year at 5% in a year your return is 5000.

If you invest $20,000 to buy $100,000 of real estate and it goes up 5% your return on the $20,000 is 25%, not including the rent, the depreciation, the tax advantage, the ability to defer taxes, and your tenant paid down $1000-$1500 of your mortgage....these are the bare basics.

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  • Bjorn AhlbladPro Member
    Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
    2y

    My advice is don't give it a second thought. I don't talk to family, or friends or co-workers about what to invest in, not invest in, or what I invest in. I look at exchanges of ideas only on here.

    Between us, best is to have some money in both especially when interest rates are high. All the best! 

    8Reply
  • Ryan Daulton
    OP
    New to Real Estate · Princeton, TX · Member since 2024 · 84 posts · 26 votes
    2y
    Quote from @Bjorn Ahlblad:

    My advice is don't give it a second thought. I don't talk to family, or friends or co-workers about what to invest in, not invest in, or what I invest in. I look at exchanges of ideas only on here.

    Between us, best is to have some money in both especially when interest rates are high. All the best! 

    I also want to remove any of my own doubts, since up to this point I've not experienced any personal gain.  I've just heard of others successes.  Are there other advantages that I left out?
    0Reply
  • Bruce Lynn
    Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes
    2y

    Don't take financial advice from broke cousins.

    Don't let them kill your dreams, because they don't have any.

    I would go to far as to say, don't ever talk finances with that cousin again.  Don't tell him of your plans, don't tell him about your investments, don't ask him about his.  Not the right person to support you.

    Disadvantages1-2-3-4-5-6-7 all true and possible, this smells like opportunity, probably more risks than that....and property is more work than T-bills.

    Advantages....1 is possible....not sure I understand 2....no cash flow from your side if you have vacancy.  1031 defers taxes not eliminate it, but there are ways perhaps, for example if you get big enough and 1031 into QOZ you have the poential to eliminate 100% of the capitol gains taxes.

    #4 you forgot about leverage....for the most part you can't leverage T-bills, maybe 50% on ETFs.  ETFs can fall to zero...or even lose 20-30% in a day.  People can and do lose money in ETFs, go back and find the paragraph about the average investor loss in Fidelity Magellen fund back during Peter Lynch tenure.  I forgot the numbers, but fund went up like crazy, but avg investor tried to time the market and lost money.  Buying at the highs, selling at the lows.

    Ask relators and investors in the Abilene area if prices have gone up or down in 2023-2024 or if they wish they had more money to buy more homes in the 1970s, 1980s, 1990s, 2000s, or whatever decade.  I've never met a long term real estate investor who wished they had bought less property.

    If you invest $100,000 in T-bills this year at 5% in a year your return is 5000.

    If you invest $20,000 to buy $100,000 of real estate and it goes up 5% your return on the $20,000 is 25%, not including the rent, the depreciation, the tax advantage, the ability to defer taxes, and your tenant paid down $1000-$1500 of your mortgage....these are the bare basics.

    10Reply
  • Ryan Daulton
    OP
    New to Real Estate · Princeton, TX · Member since 2024 · 84 posts · 26 votes
    2y
    Quote from @Bruce Lynn:

    Don't take financial advice from broke cousins.

    Don't let them kill your dreams, because they don't have any.

    I would go to far as to say, don't ever talk finances with that cousin again.  Don't tell him of your plans, don't tell him about your investments, don't ask him about his.  Not the right person to support you.

    Disadvantages1-2-3-4-5-6-7 all true and possible, this smells like opportunity, probably more risks than that....and property is more work than T-bills.

    Advantages....1 is possible....not sure I understand 2....no cash flow from your side if you have vacancy.  1031 defers taxes not eliminate it, but there are ways perhaps, for example if you get big enough and 1031 into QOZ you have the poential to eliminate 100% of the capitol gains taxes.

    #4 you forgot about leverage....for the most part you can't leverage T-bills, maybe 50% on ETFs.  ETFs can fall to zero...or even lose 20-30% in a day.  People can and do lose money in ETFs, go back and find the paragraph about the average investor loss in Fidelity Magellen fund back during Peter Lynch tenure.  I forgot the numbers, but fund went up like crazy, but avg investor tried to time the market and lost money.  Buying at the highs, selling at the lows.

    Ask relators and investors in the Abilene area if prices have gone up or down in 2023-2024 or if they wish they had more money to buy more homes in the 1970s, 1980s, 1990s, 2000s, or whatever decade.  I've never met a long term real estate investor who wished they had bought less property.

    If you invest $100,000 in T-bills this year at 5% in a year your return is 5000.

    If you invest $20,000 to buy $100,000 of real estate and it goes up 5% your return on the $20,000 is 25%, not including the rent, the depreciation, the tax advantage, the ability to defer taxes, and your tenant paid down $1000-$1500 of your mortgage....these are the bare basics.


     Thank you, Bruce!  Your answer helps.  He got his degree in Finance, founded his own company and he's not broke.  But at least now I have something more concrete.

    1Reply
  • Bruce Lynn
    Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes
    2y

    Also you can't 1031 a personal property, only investment property.  So not sure about 1031 on the MF that you occupy.  Maybe some alternatives, like buy a second one, move into that as your primary, then after a year or two 1031 the original one.   Way too early to think about that, but your 1031 intermediary probably knows the law and the ins/outs when you get to that point or are thinking about it.

    0Reply
  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    2y

    @Bruce Lynn, It's even better for @Ryan Daulton than he thinks.  Because he'll live in part of the MF he will get the profit associcated with that unit tax free up to $250K or $500K if married.  On the other units he will 1031.  So he will get some of the profit tax free.  And the rest of the profit will be tax deferred.  You can't do that with a T-bill.

    Ryan, everything your relative said could very well be true.  But that doesn't mean that everyone of those things has to be true.  Mostly he's interjecting opinion about an industry he doesn't know intimately.  But Do Not Ignore him!!!!!  Instead use everything he said as a laundry list for you to source and underwrite your deals.They are all true at some point.  But they are also opinions at this point.  And they can all be avoided.  

    The two groups of people that have always ruled the world are Banks and Land owners.  He's a bank.  You're choosing to be a land owner.  Go for it.

    The 1031 Investor5140 Reviews
    WebsiteView Page
    6Reply
  • Ryan Daulton
    OP
    New to Real Estate · Princeton, TX · Member since 2024 · 84 posts · 26 votes
    2y
    Quote from @Dave Foster:

    @Bruce Lynn, It's even better for @Ryan Daulton than he thinks.  Because he'll live in part of the MF he will get the profit associcated with that unit tax free up to $250K or $500K if married.  On the other units he will 1031.  So he will get some of the profit tax free.  And the rest of the profit will be tax deferred.  You can't do that with a T-bill.

    Ryan, everything your relative said could very well be true.  But that doesn't mean that everyone of those things has to be true.  Mostly he's interjecting opinion about an industry he doesn't know intimately.  But Do Not Ignore him!!!!!  Instead use everything he said as a laundry list for you to source and underwrite your deals.They are all true at some point.  But they are also opinions at this point.  And they can all be avoided.  

    The two groups of people that have always ruled the world are Banks and Land owners.  He's a bank.  You're choosing to be a land owner.  Go for it.


     Thank you for your input, Dave!  I do not want to pretend there are no risks, just want to know what my risks are.  I will remember to look out for these items.

    1Reply
  • Jeremiah Phipps
    Lender · Sarver PA · Member since 2024 · 61 posts · 16 votes
    2y

    Let's keep our number simple. Let's say you purchase a property for a $100000. And your renovation costs are $50000. Now you're into this project for $150000. And let's say you're ARV (you're after repair value) Is $300000 And let's say you're using your own cash. And not using a hard money lenders or gap funders. So now you add $35000 for your closing.( That is both purchase and sale of property) So now you're into the property for a 185000. Your profit will be $115000. That is roughly 62% ROI On your investment, that is why people who get into real estate and become millionaire... Now depending on how financially blessed you are, you could potentially do this 4 times a year. That is an infinite ROi

    2Reply
  • Ryan Daulton
    OP
    New to Real Estate · Princeton, TX · Member since 2024 · 84 posts · 26 votes
    2y

    @Jeremiah Phipps I understand this now.  This is powerful, assuming I assess the rehab costs accurately.  Because I can increase the equity with less expense than its market value if I do it myself.

    1Reply
  • Corby GoadeBusiness Member
    Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
    2y

    There is a lot here to unpack, so I'll keep it simple. 

    -Don't take real estate advice from someone who has never invested in real estate. 

    -Interest rates are (relatively) irrelevant. You get returns on your equity AND the debt, which you can't do with a CD or any other vehicle. 

    -The tax advantages are much greater than what you are assuming- AND they become exponential over time. 

    -I own properties that LOOK like I am losing money on- on paper- but when you add in the appreciation and tax advantages, I'm actually way ahead. 

    -If you are living in a unit of a MFH, you need to include your housing cost savings as profit too- those deals are the BEST way to get started. 

    Real estate investing can change your life. I have never heard of anyone who retired early by putting their money in CDs- which may be the worst investment there is. CDs are for scared people who are content to live in a cubicle- be weird, do things your family thinks are crazy and leave them in the dust. 

    My family said I was crazy too- being reckless and taking on unnessarry risk. They all kept telling me how dumb it was...until it wasn't. Now they all come to me for financial advice and ask for help. 

    10Reply
  • Ryan Daulton
    OP
    New to Real Estate · Princeton, TX · Member since 2024 · 84 posts · 26 votes
    2y

    Great and thorough answer, @Corby Goade!

    1Reply
  • Jassem A.
    Investor · PA · Member since 2013 · 1k+ posts · 602 votes
    2y

    The difference is you can get 4-6% with a CD and 12-100% with real estate. If you are earning less than that in real estate then you are doing it wrong.

    1Reply
  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    2y

    @Ryan Daulton

    slightly different perspective here.

    you're both right.

    look, I'm on Biggerpockets because I'm a real estate investor.  And I plan to continue to invest.  I'm finishing up a light rehab now; I'm selling a property that didn't work out the way that I thought it would; and I'm trying to qualify an off market lead I've been working for over a year.

    But with that said - it actually IS a challenging time to invest, with rates and prices high; low inventory; tremendous competition for deals both on and off market; contractors booked up; and more.

    everything you listed as their objections are VALID.  so the question for you is, how will you address them?

    just because you buy a property does not mean you will be successful.

    here are some good threads to read:

    https://www.biggerpockets.com/forums/12/topics/1171104-the-m...

    https://www.biggerpockets.com/forums/48/topics/1159104-overl...

    last question - can you house hack?  If you can house hack, house hack.

    4Reply
  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    2y

    @Corby Goade

    i obviously agree with everything you said... but I assume these folks are just trying to look out for OP.

    and it seems like there are a lot of people that come on BP because they read Rich Dad Poor Dad, or watched a Brandon Turner webinar, and then spend a bunch of money on a random property, get crushed by capex, and disappear.

    i think the points / 'objections' raised are valid.  there just needs to be a plan to address them.

    3Reply
  • Jassem A.
    Investor · PA · Member since 2013 · 1k+ posts · 602 votes
    2y

    @Nicholas L.

    Pittsburg probably not the best location for rentals or flips. It is a pretty good market for originating owner financed notes. Lots of deals to be found at tax sales.

    0Reply
  • Ryan Daulton
    OP
    New to Real Estate · Princeton, TX · Member since 2024 · 84 posts · 26 votes
    2y
    Quote from @Nicholas L.:

    @Ryan Daulton

    slightly different perspective here.

    you're both right.

    look, I'm on Biggerpockets because I'm a real estate investor.  And I plan to continue to invest.  I'm finishing up a light rehab now; I'm selling a property that didn't work out the way that I thought it would; and I'm trying to qualify an off market lead I've been working for over a year.

    But with that said - it actually IS a challenging time to invest, with rates and prices high; low inventory; tremendous competition for deals both on and off market; contractors booked up; and more.

    everything you listed as their objections are VALID.  so the question for you is, how will you address them?

    just because you buy a property does not mean you will be successful.

    here are some good threads to read:

    https://www.biggerpockets.com/forums/12/topics/1171104-the-m...

    https://www.biggerpockets.com/forums/48/topics/1159104-overl...

    last question - can you house hack?  If you can house hack, house hack.

    Wow these are great examples @Nicholas L.. Thanks for sharing 

    0Reply
  • Ryan Daulton
    OP
    New to Real Estate · Princeton, TX · Member since 2024 · 84 posts · 26 votes
    2y
    Quote from @Jassem A.:

    @Nicholas L.

    Pittsburg probably not the best location for rentals or flips. It is a pretty good market for originating owner financed notes. Lots of deals to be found at tax sales.

    Thank you
    0Reply
  • Jassem A.
    Investor · PA · Member since 2013 · 1k+ posts · 602 votes
    2y

    @Ryan Daulton No problem, this will be the case anywhere you can find livable homes under 50k and with a population that is not on a quick upwards trajectory. People still want to live in these areas but it may not be easy for them to qualify for a mortgage or the banks may not want the particular property on their books because of peeling paint, loan amount, etc.

    1Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    2y
    Quote from @Ryan Daulton:

    over other forms of investment, like the CD market which guarantees a 5% return annually? 

      I haven't found the tbill or CD yield to be enough of a premium over money market mutual funds to lose liquidity for. 

      Last time I looked, you are only being paid .22% more, so I stay 2-3 days liquid with no early withdrawal penalties. 

      Anyway, househack yes.  Buy right and have written screening criteria. 

      75% of landlording effectively is tenant selection. Most that have tenant problems, evictions,  etc selected poorly. 

      4Reply
    1. Nicholas L.Pro Member
      Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
      2y

      @Jassem A.

      I'm having success with my portfolio, including a handful of seller finance deals that were home runs.  It definitely has been much harder to find deals since the increase in interest rates.

      0Reply
    2. Jassem A.
      Investor · PA · Member since 2013 · 1k+ posts · 602 votes
      2y

      @Nicholas L. higher interest rates should mean better deals since less people using bank leverage to buy. It is also better not to use leverage when originating notes because there is less risk and most lenders would not allow that anyway.

      0Reply
    3. Nicholas L.Pro Member
      Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
      2y

      @Jassem A.

      I'm not sure I agree, I've done several successful BRRRRs, and now that interest rates have increased I can still BRRRR, but when I refinance I am more likely to break even rather than cash flow.

      0Reply
    4. Jassem A.
      Investor · PA · Member since 2013 · 1k+ posts · 602 votes
      2y

      @Nicholas L. I don't brrr anymore but when I did I would usually buy foreclosures with cash and then do the work myself before leasing them and then borrow about 2-4 times what I had into them. It worked for a while until I got to over 20 and then became too much headache with maintenance. Now I just do owner financing and it usually doesn't require any maintenance especially if I am not on the title. If I do stay on the title then it's usually only grass and cleanouts and occasional repairs but I still do those myself.

      0Reply
    5. Travis Kallay
      Member since 2023 · 15 posts · 4 votes
      2y

      If real estate investing was a random "property grab" with no thought of running a business, yes, you can take a snapshot of a period of time and say "look- no money here."  The truth is that any business can lose money in the short term and long term.  If you start simple and small and stack the deck in  your favor, odds are you will find it easier to see where your path might lead.  Ask your family members how much of their discretionary cash they put in safe, guaranteed investments and how much they sink.  20/80?  50/50?  Take the cash they sink and ask them if it's better to split that in half and save for a well thought out business investment or sink the entire amount into whatever they like to blow their money on.  Still have that safe investment and maybe have to wait a little longer to enjoy that money while you make a some more long term.

      0Reply
    6. Carlos Ptriawan
      Member since 2019 · 7k+ posts · 4k+ votes
      2y
      Quote from @Ryan Daulton:

      I am brand new to real estate investing, but I’ve been listening to BiggerPockets podcasts for the past 3 months and I read 2 of Robert Kiyosaki’s books. But when I told one of my family members about my interest in real estate, he was very skeptical. What can I explain to him are all the advantages of real estate over other forms of investment, like the CD market which guarantees a 5% return annually?

      Here is what he said about why I’d be better off putting my money in an index fund or a CD. Italicized sentences are my sentences.  Italicized sentences are my words:

      1. The mortgage interest rate is much higher than we’ve had over the past 20 years, so the returns would likely be much less for me if I bought something this year.
      2. Appreciation cannot be assumed with interest rates as high as they are. Is this true? For example, he said his brother has looked at homes in the Dallas area that have depreciated in the past 12 months.
      3. I will likely have some vacancies, and maybe evictions.
      4. I will need to spend money on repairs and maintenance.
      5. Other expenses: property tax, HOA (hopefully not), insurance, legal costs, and closing/selling.
      6. He told me most landlords he has talked to had to mortgage their properties and that most are actually losing money in years 2023 and 2024.
      7. Distressed sellers lack the capital for property maintenance. You can expect a lot of repairs to get the place up to par. Leaks, mold, and lots of hidden problems. He said this because I told him I was going to search for off-market deals.

      How much are average closing/selling costs?

      Here is what I told him were the advantages:

      1. The landlords he knows who have been losing money are probably only describing their cash flow (rent payments). But I could also profit off depreciation of the property annually, appreciation (especially if I make improvements), and tax deductions.
      2. Since I plan to buy a multi-family property and live in one of the units, this should give me a steadier cash flow even with vacancies.
      3. Assuming that I 1031 this property or hold on to it, I would never pay sales taxes on it.

      Are there any other advantages? Is anything above incorrect?


       Warren Buffet decides to invest in a CD right now, so there you go.

      0Reply
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