Real estatate vs stock market returns over the short to medium term
Real Estate Professional · Las Vegas, NV · Member since 2013 · 225 posts · 74 votes
Real estatate vs stock market returns over the short to medium term
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Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votesQuote from @Alex Silang:
What do you think? I'm trying to balance my allocations.
I was reading how the baby boomers retiring and selling over their portfolios is going to a have a massive effect on equities. Like a annual 2% drop over the long term.
I was talking to a friend and she brought up that there's going to be a lot of volatility probably over the near term in the stock market. Meanwhile, a lot of the returns of real estate is fixed (Principal paydown, tax benefits, stable rent in many markets)
If you’re speaking of PASSIVE investing, it doesn’t matter, it’s equally likely either one will provide better returns, or both may provide similar returns.
It’s in ACTIVE investing where real estate wins. It’s nearly impossible for anyone except for a full time professional, employed by a top tier investment firm, utilizing propriety information and technology to add value or “alpha” in public equities market. Over 20 years, the 1 year, 3 year, and 5 year “champions” crash and burn.
In real estate investing, it's very possible for an experienced, knowledgeable and "talented" investor to add significant ROI by "active" investing. AND, one doesn't have to have been at top of their MBA class at a top 5 business school to be in a position to be successful.
I recently did an analysis of how I accumulated my wealth in real estate (low 8 figures), starting with $5,000 equity and $34,000 loan in 1979. Near as I can figure, 40% was just from cash flow, price appreciation, etc. 60% was from ACTIVE investing activities; creative financing (especially on the sell side to sell for higher price than all cash including selling with wrap around notes to earn the differential in interest rates), buying property with problems and fixing those problems; using CASH offers and as little as 1 day closing to drive acceptance of below market offers; buying properties in one purchase and selling off one or more for significantly higher prices; buying vacant properties cheap and finding long term 3N tenants; buying notes at large discount to principal balance and “working” (restructuring) the note; etc.
17 Replies
- Investor · Hendersonville, NC · Member since 2016 · 498 posts · 285 votes1y
I don't think the short term volatility we are seeing in equities right now has much to do with baby boomers trimming their holdings. That being said, price dips are usually a good opportunity to buy. Personally, I like having exposure to both, but lean toward real estate when I want more control and less daily volatility. This is honestly probably a question for your financial advisor or CPA or some other professional who has a better understanding of your current financial picture.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes1y
Quote from @Alex Silang:
What do you think? I'm trying to balance my allocations.
I was reading how the baby boomers retiring and selling over their portfolios is going to a have a massive effect on equities. Like a annual 2% drop over the long term.
I was talking to a friend and she brought up that there's going to be a lot of volatility probably over the near term in the stock market. Meanwhile, a lot of the returns of real estate is fixed (Principal paydown, tax benefits, stable rent in many markets)
Every investment strategy should be looked at long term. Over the long term real estate and stocks are neck and neck - that is being passive - if you were active in real estate then of course you should make more but are you accounting for your time you are spending.
As someone who only knows real estate, I still keep a diverse portfolio
7e investments53 Reviews - Rental Property Investor · Somewhere over the Rainbow · Member since 2021 · 1k+ posts · 1k+ votes1y
My suggestion would be to do what you're good at.
Expert in RE? Do that.
Expert in stocks? Do that.
I'm personally trimming my higher return positions (taking profits, reducing risk) and building up cash while DCAing like always. I expect stock market volatility and want to be there to buy the dip. It's coming...we don't know when, how long it will be etc, but the probability is increasing with time. P/E is up, greed is getting higher, CAPE is like 34 for the s&P
- Real Estate Broker · Northeast PA · Member since 2017 · 2k+ posts · 2k+ votes1y
It's hard to go broke taking a profit.
I'm sure someone can find a way to mess that up, but for most of us, taking some profit along the way will give you a capital reserve to deploy when you see another opportunity.
- 1yMelissa JusticeBusiness MemberRental Property Investor · Phoenix, AZ · Member since 2024 · 518 posts · 1k+ votes
You're right that demographics, like the Baby Boomer generation retiring and potentially liquidating equities, could put downward pressure on the stock market. Some analysts have indeed suggested that this could lead to slower long-term equity growth, maybe even something like the 2% annual drag you mentioned, especially if younger generations don't step in with equal buying power.
Your friend’s point about volatility in the near term is also well-founded. With interest rate uncertainty, geopolitical risks, and high valuations in some sectors, equities could see big swings. For someone focused on long-term wealth and stability, that can feel risky, especially if you're not trying to time the market.
On the other hand, real estate offers several structural advantages:
-Principal paydown acts like a forced savings plan.
-Depreciation and other tax benefits (especially if you’re using strategies like cost segregation or bonus depreciation) can significantly boost after-tax returns.
-Rental income, while not always immune to macro trends, tends to be more stable in good markets, especially when there's housing demand-supply imbalance.
Plus, in inflationary environments, real assets often perform well.
So what’s the move?
A blended strategy could work well:
-Keep some equity exposure (especially in tax-advantaged accounts like Roth IRAs or 401(k)s) for liquidity and long-term upside.
-Increase real estate exposure for cash flow, tax benefits, and stability, especially if you're in acquisition mode and can lock in good deals.
-Maybe explore private credit, REITs, or short-duration bonds as additional income-producing assets that can help balance volatility.Best of luck,
Melissa
- 1yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
Quote from @Alex Silang:
What do you think? I'm trying to balance my allocations.
I was reading how the baby boomers retiring and selling over their portfolios is going to a have a massive effect on equities. Like a annual 2% drop over the long term.
I was talking to a friend and she brought up that there's going to be a lot of volatility probably over the near term in the stock market. Meanwhile, a lot of the returns of real estate is fixed (Principal paydown, tax benefits, stable rent in many markets)
If you’re speaking of PASSIVE investing, it doesn’t matter, it’s equally likely either one will provide better returns, or both may provide similar returns.
It’s in ACTIVE investing where real estate wins. It’s nearly impossible for anyone except for a full time professional, employed by a top tier investment firm, utilizing propriety information and technology to add value or “alpha” in public equities market. Over 20 years, the 1 year, 3 year, and 5 year “champions” crash and burn.
In real estate investing, it's very possible for an experienced, knowledgeable and "talented" investor to add significant ROI by "active" investing. AND, one doesn't have to have been at top of their MBA class at a top 5 business school to be in a position to be successful.
I recently did an analysis of how I accumulated my wealth in real estate (low 8 figures), starting with $5,000 equity and $34,000 loan in 1979. Near as I can figure, 40% was just from cash flow, price appreciation, etc. 60% was from ACTIVE investing activities; creative financing (especially on the sell side to sell for higher price than all cash including selling with wrap around notes to earn the differential in interest rates), buying property with problems and fixing those problems; using CASH offers and as little as 1 day closing to drive acceptance of below market offers; buying properties in one purchase and selling off one or more for significantly higher prices; buying vacant properties cheap and finding long term 3N tenants; buying notes at large discount to principal balance and “working” (restructuring) the note; etc.
- Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes1y
Active real estate and passive stock market investing are not alternatives for the same goals. If you want control, the stock market is a non starter. If you want to be passive, active real estate is a nonstarter.
- Realtor · McAllen, TX · Member since 2025 · 141 posts · 58 votes1y
The only thing I leanred about the stock market is, when the market crashes buy the dip, and buy low and sell high. But I invest for the long term. In my opinion, stick with real estate.
- 1yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votesI do not try to accurately predict the markets for anything other than long term because in the short term anything can happen such as GFC, Covid, tariffs, wars, etc. there are certain events that cannot be anticipated (sometimes easier to predict in hindsight).
Quote from @Alex Silang:
What do you think? I'm trying to balance my allocations.
I was reading how the baby boomers retiring and selling over their portfolios is going to a have a massive effect on equities. Like a annual 2% drop over the long term.
I was talking to a friend and she brought up that there's going to be a lot of volatility probably over the near term in the stock market. Meanwhile, a lot of the returns of real estate is fixed (Principal paydown, tax benefits, stable rent in many markets)
in the long term, leveraged RE is likely to out perform unleveraged investments and RE is the most easy to leverage investment.
let’s say appreciation is at fed target of 2% (been a while since that has happened), and general stock market increase is 2.5 times the inflation so it hits 5%. Let’s say RE only matches inflation but was leveraged via an 80% LTV loan so the appreciation return is 10%. Then add equity pay down, cash flow, and tax benefits. With the current tax rules, I never expect to pay taxes on my RE gains.
smart RE investors even without value adds should typically be able to beat the stock market by a good margin.
Good active RE investors should be able to crush the returns of the general stock market due to value adds. My last 2 purchases are up $1.5m above my purchase price and value adds costs. This was achieved in a more challenging market than I had between 2010 and 2020.
i have been doing my underwriting since 2022 with zero market appreciation reflected for the first 5 years (short term uncertainty). After 5 years, I reflect a market appreciation that is less than the markets have experienced since 2010. I want my underwriting to be conservative.
good luck - Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes1y
You have to have a passion for bricks and land in order to succeed.
Without that passion, it's hard to keep going. I have seen too many try and not even get to square one. And real estate is really a decade-long game.
If you are getting into REI just for the ROI you won't get far.
- Member since 2020 · 351 posts · 329 votes1y
First off over the short term, if you are buying and selling in real estate you are likely to get killed because the transaction fees are high. Given modest assumptions on growth you likely need about two years for growth to overcome your buying costs and likely another 1-2 years to cover your closing costs, so you are unlikely to be able to sell in a 5 year period and see a profit.
In both cases you can be an active investor or a "passive" investor. In the case of stocks, being active should yield you an extra 2%. In the case of real estate, the returns are significant. In real estate both "passive" investing and "active" investing requires more time.
In the current market, buying real estate (single family homes) currently yields about 5% in cash flow from rents (after accounting for maintenance, capex savings, vacancy and management fees) and an extra 3% in appreciation (which approximately matches inflation). Markets with higher appreciation tend to have less cash flow and markets with lower appreciation tend to have more cash flow. But the underlying asset is returning about 8%. Now most folks will do 25% or 20% down, current rates are about 7% (although maybe 7.5%), so with the leverage you'll see a return of 13% (assuming 7%). As mentioned previously, the buying and selling costs are significant, over the medium term (~5-10years) I have found this amounts to a loss of about 1% for each the buy and the sell. So with the current market and rates, I expect an average investment purchase at market price to yield about 11%.
With stocks, I like to look at a metric called return on equity, which estimates the growth of the underlying assets of the company to estimate future returns. The S&P as a whole tends to yield about 8-10% with some higher and some lower. So I expect the S&P to grow at 8% yoy for the medium term (leaves room for margin compression and companies juicing their metrics). Now there is a class of stock in the S&P 500 which are referred to as the tech monopolies which have a return on equity of 15-20%, so those I expect to outgrow leveraged real estate. One final point, you can very cheaply be leveraged to 1.5-2x S&P 500 by buying deep in the money call options on index ETFs. The cost of this capital is 2%. So that would give leveraged S&P returns at about 10-13% depending how levered you are (note, you will miss out on the dividend with this strategy). (Note you have to make sure you exercise or sell the option before the call date otherwise you lose all your money)
With that said, I expect inflation to be modest over the next 10 years, which means I think real estate will outperform my estimates (higher appreciation and rent growth) and the S&P 500 to slightly underperform the estimates (inflation tends to hinder company growth).
- Investor · Saint Paul, MN · Member since 2024 · 28 posts · 16 votes1yWhy isn't this priced in? That's the question you ask any time you read or hear something predicting stock prices. When it becomes known that something bad will happen to a company's profitability tomorrow, the stock doesn't wait until tomorrow to drop, it drops today. Current stock prices are the Expected Value of future stock prices, minus the premium you get paid for taking the volatility risk.
Quote from @Alex Silang:
What do you think? I'm trying to balance my allocations.
I was reading how the baby boomers retiring and selling over their portfolios is going to a have a massive effect on equities. Like a annual 2% drop over the long term.
Speaking of volatility, there's a lot of evidence that you can't "skip" it through market timing without losing a commensurate amount of return. Its literally what you are getting paid for when you hold stocks. It's the reason someone else was willing to trade you the stock for cash, even though the stock will be worth more than the cash in 20 years.
If your portfolio's volatility is too much to bear, you should make a long term change to your stock / bond / RE allocations. Just don't keep switching back and forth, you will probably end up buying high and selling low. - Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes1y
@Alex Silang beyond all my various "everything" in REI, I am also an active trader.
I have "played" in not just taking positions but am mostly active in trading Options, and even short positions. By most measures I am considered an Advanced level trader.
I view Real Estate as my "safe, sure bet, simple" investing environment.
In real Estate I have an ability to influence the asset that only the MM's have in Wall Street.
Wall Street is, at it's simplest level, a Casino. It is.
There is 101 different "games" one can play and the vast majority who play do loose $.
The Market Makers (MM's) are the dealers at the various "games". And they ever so rarely loose. Yet, for some reason there is no end to the novices who come in singing a song that there gonna bust the dealers.....
There is no control or influence in Wall Street, the best one can do is what I do, I sit in-between those novices and the dealers. I "read the room" and work to anticipate what will happen next. This is coined "Scalp Trading". I use all kinds of indicators to try and peg what's happening, what intentions are on each side, what the ingredients present are, and then use one of my trading tools to "scalp the movement".
But still, it's all just guessing. As much as one can argue "but I have this data, that historical chart, this trend line" yada-yada-yada, it's still just guessing. So it's gambling. A lot like taking a bet on if the next person buying pull-tabs will hit, miss, and by how much.
Real Estate is totally different.
People have 3 fundamental needs; Food, Water, Shelter.
It's all math of I bought this "shelter", how much demand for "shelter" is there here.
You can update things, paint etc to improve the market value.
Can rent, sell, C4D, STR, on and on.....
Wall Street and Real Estate are so vastly different when dig into it.
So for me, when the Casino has the "open bar" and people are playing drunk, loose, and very predictable making easy $ on the scalp, I scalp.
When I want to INVEST, it's always Real Estate.
Because Wall Street is NOT investing, it's gambling, it's always gambling. Gambling on a scalp, gambling on the economy, gambling on a company, gambling on an industry etc etc but it's all gambling in Wall Street EXCEPT for the "house" aka Market Makers.
- Investor · Hendersonville, NC · Member since 2013 · 754 posts · 281 votes1y
Oh ya I find stocks to be discomfitting investments, or as James says, gambles. You are basically holding a tiny fraction of ownership of a publicly traded company you know a little bit about--and there is much you do not know. Some companies will pay you 1%, 2%, 3% or so of your value of shares in dividends--the "profit" from owning these shares. Now, you can conceivably sell for more than you bought the shares for--if everyone else in the market is pretty sure that selling is a bad idea (that's why they want to pay you more than you paid for that sliver of the ownership). Or you could sell for less than you paid, which is a principal loss. Furthermore, the government and states tax you 20%, 30%, maybe 40% of your principal gain and keeps that (for the first year, or maybe 20% after that). Which means you really need to be lucky, or perseverent, or both, in order to come out ahead. Now, the market has gone up about 8% throughout its history (taxes aside) but in some time periods you might lose 40% of the value of the shares you have. You have no hard assets. The value of these shares are very much based on the psychology of the buyers/sellers, and the short term profit predictions/results of the companies--and "investors" are very fickle and easily spooked and companies are pretty hard to get your head around. Many of the companies that were in business in prior years went out of business while shares were held by the public. Operators of the business play financial games as well. Finally, put a mad man in charge of a country and some weird stuff can happen to the values and the velocities of companies--as we saw with Germany in the 1930s and are seeing in the United States right now.
- 1yLuke MachenPro MemberInvestor · Greensboro, NC · Member since 2024 · 3 posts · 0 votes
Not really an answer to your question, but for discussions sake - I think you use make the same argument against real estate. More boomers own properties than stocks..
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