Rental Property Investor · Sioux Falls, SD · Member since 2019 · 129 posts · 138 votes
My personal finance teacher is using the Dave Ramsey course and doesn’t agree with me that real estate is a good investment. Instead he teaches that stocks will make you a millionaire no matter what even if you don’t know what you’re doing, there is never a good reason to go into debt, and because Dave Ramsey went broke trying to invest in RE (which what he was doing was very dumb by the way). But these stocks have been around for what 10-20 years? Who knows if they will even be existent in the next few years?!? Shelter has been number one priority for all people before us, and will be after us. And land can’t be made anymore.
@Steve K. I know the NYSE has been around for a long time, I actually studied it for an essay. But I mean the big stocks right now. I know there will probably always be stocks to invest in, but I was just saying. You have no control over these things, which I know you can make money in stocks, but overall I think REI is better.
Gotcha so with the 10-20 years comment you were referring to mainly tech stocks, which have really boomed (and busted) in the past few decades. That’s a small part of the overall stock market. If you look at the S&P 500 companies the vast majority were founded in the 1800's or early 1900's: https://en.wikipedia.org/wiki/...
It's great that you're learning to think critically in school, I would encourage you to move away from looking at stocks vs. real estate as a binary where one is "better" than the other. They both have pros and cons and are certainly not mutually exclusive. Even on bigger pockets, which is RE-based, many of us have both stocks and RE investments, not either/or as they actually dovetail together nicely. For example having income from my portfolio of dividend stocks enables me to qualify for mortgage loans without any W2 income at all, which is a nice way investing in stocks has contributed to my investment goals and helped me also invest in RE. Also without the income taxes I pay on that dividend income, I wouldn't be able to take advantage of many of the tax benefits of owning real estate, so they work together.
Leverage can be used for both stocks and RE (it's called a margin loan in stocks), and you have control in stocks as well by researching companies and the market, buying and selling shares with the push of a button so it could even be argued that stocks offer more control because RE is less liquid i.e. if the market turns, values go way down and vacancy rates go way up, you can really feel totally out of control quickly, get stuck with a property and not be able to sell or cover your payments and have the bank take it like what happened to Dave and a lot of other people during the GFC 2009-2012 and other downturns. There are an infinite number of variables in RE that are beyond our control so the increased control argument is not without it's counter-arguments.
The one big advantage in RE which I really like that I can't think of an equivalent for in stocks is being able to use expertise to carve out a niche such as being good at marketing and finding deals, or being good at fixing properties in order to force appreciation by putting sweat equity into a property, etc. But that only works if the investor is willing to put in the work. I suppose the equivalent in stocks would be just carving out a niche, making it a job and getting really good at short selling or some sort of specialization in trading.
The vast majority of investors are busy with their careers and families, don't want to take on a second job and are just looking for the easiest way to park some money and get a return passively. So mutual funds/ETF's etc. probably make more sense for more people compared to becoming an active real estate investor, which may be what your teacher is alluding to and I'd have to agree. Real estate is not passive unless you're investing in syndications, REIT's etc. which isn't really much different than investing in stocks at the end of the day.
Engineer · Allentown, PA · Member since 2014 · 105 posts · 64 votes
6y
@Isaac Johnson keep in mind that although the numbers (that ive seen at least) tend to favor real estate, its not "better" for everyone. some people dont have the desire/capacity/drive/mindset to do real estate and stocks are 100% a better choice for them
Rental Property Investor · East Longmeadow, MA · Member since 2019 · 154 posts · 64 votes
6y
@Storm S.
Humbly disagree. Def should study technical analysis married with fundamental analysis. That’s like saying only invest in stocks and not reits or re.
Learn the golden cross, death cross, cup and handle 50/200 day moving averages, volume, rsi macd, Boulanger bands etc. make the moves before the big boys do and you will make money, even more so than them. I like Bill Gunderson’s ideology and another one who doesn’t invest in companies that don’t have earnings. Earnings drive stock prices over the long haul.
Rental Property Investor · San Gabriel, CA · Member since 2019 · 6 posts · 6 votes
6y
Either one would be beneficial to start at such a young age, but the stock market is probably more realistic for some, and if you open a Roth Ira at 18 years old and compound $6000 a year for 42 years which would be possible if that is the way we were taught, at 10% you would have around $3.8 million. And from my understanding after 59 1/2, so long as the account was going for at least five years. This is all tax-free, except for the +/-$3000 a year in income tax that was probably going to be paid anyways. REI is great, but not realistic for most 18-year-olds to jump right into. But you could always stack the cash for when you're ready. Definitely concentrate on making money, and figuring out the best way to invest it for yourself
Specialist · Huntsville, UT · Member since 2015 · 458 posts · 249 votes
6y
Although I agree that REI is one of the most stable ways to invest, there's no arguing that diversity is great. Never have all of your eggs in one basket. Diversity just makes good sense.
Real Estate Agent · Santa Barbara, CA · Member since 2016 · 518 posts · 283 votes
6y
@Luke Saglimbeni I disagree I was going. to school to become a quant and work for a hedge fund before I got into real estate private equity and all the successful hedge fund managers either use quant strategies or fundamental based strategies, none of them are using technical analysis, the only people using it are the amateur traders and that’s because the brokerages push it hard because it causes them to trade more and generates them more commissions. In addition all the academic research on the topic refutes the claim that technical analysis works. Look into the efficient market hypothesis. Any gains you make off of technical analysis are purely just based on luck.
Rental Property Investor · East Longmeadow, MA · Member since 2019 · 154 posts · 64 votes
6y
@Storm S.
Thanks for the info. I guess everything you read on. Investopedia isn’t accurate. I’d use a little bit of everything to maximize the probability of profitability. They say fundamentals tell you what to buy and technical analysis tells you when to buy it. As the saying goes I’d rather be lucky than good. On that note good luck and happy investing
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
6y
I have made money in both stocks and REI. Stocks are more passive than the route I used for RE. My RE has produced better returns.
In addition, when I pull money out of an RE I have to place it somewhere. Do I leave it in a FDIC? Of course not. It gets invested in something that is more likely to produce a better return.
I see a lot of RE purchases being made today (mostly by newer RE investors) that are unlikely to out produce the nearly 10% lifetime return of the S&P 500. I believe many/most of the RE investors starting today will not achieve a better return than the S&P 500 and are likely to exit RE investing in less than 10 years.
Therefore, I am in the camp that most young investors would be better off investing in stocks, ideally using a ROTH, rather than enter a very competitive RE market that has shrunk cap rates in most markets that have any historical appreciation.
Reston, VA · Member since 2017 · 67 posts · 68 votes
6y
When you but stock you're buying ownership in someone else's business, the main risk there is they're the one running it. You have to make an estimated guess at its value. With real estate, you're starting and running your own business and for me that's why it more often than not is more successful. You focus on a singular business and have total control over its success. One isn't necessarily better than the other, but I think with persistence it's hard to fail in real estate.
Dallas, TX · Member since 2019 · 20 posts · 2 votes
6y
@Isaac Johnson It depends on what you know and how well you know it. If you know a lot about stocks (businesses) and not much about REI, it will be a bad idea to jump into REI and vice versa. Success depends on you and not the investment vehicle. The more you know about something, the better investor you become. Stocks and Real Estate are just tools that can lead to success or failure.
Real Estate Investor · Springfield, MO · Member since 2017 · 1k+ posts · 2k+ votes
6y
@Isaac Johnson, it's always a pleasure to see a person who takes an interest in investing early on. You have the advantage of lots of time on your side, presumably, and can succeed well in either area.
A few comments on some of the ideas that are floating around in these discussions:
1) I'm a Dave Ramsey fan too, but I also invest in real estate. If you want to make a polite inquiry of your finance instructor, ask about the difference between compound interest (like CDs or savings accounts) vs. annualized returns (stocks). Ramsey uses his "Ben and Arthur" model to teach the power of compounding interest, and that's really good. BUT, then he applies it to stock market returns, which is not correct. Annualized returns account for both the gains and the losses. Compounding assumes the investment always grows and earnings from previous years are always available to generate more earnings the next year, and the next, and so on. Not true with stocks. If you start with $10,000 in stocks and gain $10,000 in year one (100% return) then lose $10,000 the next year, you do not have a return of 50%.....you're back to square 1 and have a return of 0% for 2 years of investing. There was no compounding, and it would have been the same result had you not invested for those first two years as if you invested at the start of year 3. You can frame the discussion saying you talked to a stock market investor (i.e. "me") who told you about using the correct metric to apply to stock market returns. Use the example I gave above.
2) "Buy real estate, they're not making any more of it." Well....that's true in a sense. But "they" made a LOT of it the first time around. There is TONS of real estate all over our country. I forget where I read this (and so can't be 100% sure of it's accuracy), but the article said that the entire population of the WORLD (not just the US) could fit in a space the size of the state of Connecticut. It would be crowded for sure, but it could be done. Kind of a fun thought-game that leads us to realize that leaves a LOT of real estate open. All this to say, you want to buy GOOD real estate, not crap. I've bought crap real estate before that was worth less than what I paid for it due to unrecorded city work liens, Govt restrictions, difficult title issues, past due taxes, and environmental contamination. Ugh! So do your due diligence and you should be okay.
I think stock market investing is great for people who truly want passive income, which is why I do it in addition to real estate investing. I've been investing since 1999, so I weathered both the Dot Com Bubble and the Great Recession of 2008-2010. Glad to say I'm still "up" considerably, though not nearly as high as would be the case if 12% compound interest was working in my favor. Overall, my annualized returns are in the 9-10% range, which is pretty decent considering the level of work I have to do is I set up an auto-draft one time to fund my brokerage account with monthly contributions. Then I simply park it in an S&P Index Fund. Easy cheesy. Last month I made over $10,000 in one account just by .... well, breathing. Real estate requires a bit more work than that, especially in the beginning.
Good luck to you. I think the fact that you're paying attention will help you do well. Take the good ideas from your class and apply them.
Real Estate Investor · Springfield, MO · Member since 2017 · 1k+ posts · 2k+ votes
6y
Btw, one more fun thought on "they aren't making any more of it"....
Again, true, but they are getting more efficient as using what laready exists. For example, in high population density areas you typically find high-rise apartment complexes. What used to a be several blocks of single story row houses housing 40 families is now a 100 story skyscrepaer housing 10,000 people. In that sense real estate can be "made"...building vertically or by drilling downward, which while not as common is an option in some areas, especially for non-residential uses.
Developer · NY/NJ/PA · Member since 2018 · 758 posts · 935 votes
6y
I agree with him. Stocks are better for most people. Just invest long term in a index fund. It’s set it & forget it.
Real estate is great when you are active in the business. I’ve seen it too many times that people get sick of their rentals or get burned trying to flip houses.
RE takes some skill & hard work. Investing in an index fund is easy and simple.
I would suggest that you spend time understanding why people, for example, Dave Ramsey (no debt), Robert Kiyosaki (max leverage and grow), and John Bogel (index funds) advocate for the positions they do.
One of the primary advantages of youth is the ability to learn from other's experiences. Rather than trying to think of it as "good" or "bad" it is a more nuanced idea around what it is "good for" or "bad for". For example, real estate is an excellent investment in terms of leverage. It is easy to take a 30 year loan and turn a small amount of money into ownership and/or control of a much bigger asset leading to accelerated growth rates. The thought of doing this with an index fund is laughable. On the other hand, index funds require no education, no research, no effort, and are very liquid. Real Estate requires all of those things and is moderately illiquid. So it is easy to say "I want the asset that maximizes growth", but if you were giving that advice to the entire population, where 60% of the people can't handle a $500 expense without debt, that may not be a very wise idea.
I would also caution you to consider the idea of selection bias. When you ask a real estate forum "Which is better, stocks or real estate?" the answer you get back is almost pre-determined. Just like if you had asked this in a Boglehead forum, except it would be mostly the opposite answer. I suggest you consider all points of view equally, rather than pre-determine who is right or wrong. I think you will find that even those with which you end up disagreeing can teach you something.
The question you should be asking yourself is why some people fear debt and some people embrace it? Why does real estate work so well for some people and not others? Why do some people despise stocks and other love them? In other words, actually learn. That is my advice
Rental Property Investor · New York City · Member since 2019 · 703 posts · 538 votes
6y
@Isaac Johnson - Dave Ramsey owns property and he's not against investing in RE because he owns RE. Dave Ramsey's show is about getting people out of debt and putting them on the right course. Lots of his callers are in debt because of poor real estate choices.
Rental Property Investor · Sioux Falls, SD · Member since 2019 · 129 posts · 138 votes
6y
@Anthony Rosa it's not the course, but it's more the way my teacher at school is teaching us. He has a negative view towards REI because of the time when Dave Ramsey went into debt, and says there is never a good reason to have debt.
Rental Property Investor · Sioux Falls, SD · Member since 2019 · 129 posts · 138 votes
6y
@Fred Cannon he says that there is never a good reason to have debt, and the course starts by telling us about the time Dave went broke because of REI, so my teacher has a negative view towards it.
Rental Property Investor · Sioux Falls, SD · Member since 2019 · 129 posts · 138 votes
6y
@Anthony Rosa Dave says to only invest in RE with cash, and only if that cash is less than 5% of your liquid net worth. See where there is a missed opportunity if this is how we invested?
Real Estate Agent · Member since 2019 · 1 post · 0 votes
6y
@Isaac Johnson... hi look you want to invest and 2 think very easy first stock, you don't need a lot of money to start 2 real estate... is one big company right now in stock and you take a look going right now... Dishey... that going to be next Netflix... soon...
Rental Property Investor · OH (ohio) · Member since 2018 · 166 posts · 113 votes
6y
I think Dave Ramsey has some awesome advice, and would be a great path for most of America who’s in debt and living beyond their means. I’m in college and have those professors, some you can argue rationally with and others fail you if you disagree. If they’re rational I use presentations and projects to show my side, acknowledging their view, and they appreciate another opinion. If they’re one sided and unreasonable it’s an awesome chance to apply some Chris Voss techniques from his book “never split the difference”. Show you understand their position, make them feel powerful (mainly what they want) and they’ll be more open to your idea. Usually haha some are just crazy. Great negotiation practice though