REAL ESTATE IS BETTER THAN STOCKS!
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.
@Isaac Johnson
I’m on your side 100% however...
“If you argue with a fool then there are two”
-Doris Smith
@Isaac Johnson
As the saying goes, timing is everything in life.
Give me stocks all day in early ‘80s, ‘02-‘03 or ‘09-‘11. Since nobody has a time machine and we’re talking from today forward, I’m happy being in quality cash flowing RE.
-RP
@Isaac Johnson Education and a willingness to learn from different points of view can't stop at any point in time in my opinion. I find it also hard to demonize an industry due to a singular example of someone lossing it all due to their individual decision making. At the end of the day I'm sure your teacher has the greatest intentions for you and the rest of the class to have a strong entrance into investing and the work force in whatever capacity you see fit.
I started in the stock market because i didn't know anything else. Looking back, I'm a little upset I didn't ask more questions to understand REI more but overjoyed I did something! I feel so much further ahead due to making what I thought was the best decision with the information I had at the time. Despite some of the greatest periods of economic growth over the last few years, many decline to invest in anything out of fear.
Consider it a blessing you are as learning as much as you are and seeing/hearing so many different points of view at such a young age. You'll have opportunites to make more informed decisions.
Best of luck
I definitely like real estate more, but, I am a huge fan of diversification. Do both!
I will question that proposition because real estate takes lots of time. Investing in stocks can be more passive. For some, personal time consumed should be highly factored into the equation of returns.
@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.
Great points a usual Steve, that really show why doing both is an excellent idea and this dogmatic belive in "Re rules, stocks drool" is a limiting belief.
To further play devil's advocate for stocks I'll add a point about leverage and one about management.
Leverage: You can magnify your stock's returns by trading on margin, which is true, but that is really using double leverage. I've looked at a lot of 10ks and I have yet to come across a publicly traded company that doesn't have some sort of debt in their capital structure. In reality if you buy a stock you are already getting baked in leverage, since the company itself has taken on debt to finance operations, just like most REI. Now that level of debt can vary a lot, with Johnson & Johnson having a Debt to Equity ratio of around .4 and Waste Management having one a hair lower than 2. Regardless, when you buy stock you get the advantage of debt, so the old trope about RE being better than stocks because of leverage makes no sense.
Management. There is no getting around the advantage of REI is that you control your own destiny and you have FAR less control with stocks. That is a double edged sword. In managing your own RE you are limited by, well your own limits. Whether that be knowledge, skills, abilities, or time. We all have things we are good at and not good at. When buying stocks, you have the advantage of being able to pick from the cream of the crop in terms of managers who have demonstrated pedigree, experience, and education, all you have do do is look for them and when shares of their companies trade for an acceptable price, buy. Easier said than done, I know.
Now I fall squarely in the "why not do both camp" so I am by no means am I anti-REI; simply looking to add some nuance to the topic at hand.
@Isaac Johnson. Never met a teacher that has a high net worth. Most college professors are really smart as well, but many dont teach how to make money. Most teachers and professors teach wonderful concepts and I do not profess to be smart
But, I have $800,000 tied up in stocks and they produce $3000 in monthly dividends
I have $10,000 in RE monthly cash flow with less than $800k of my cash tied up
Cash on cash returns have always been better for me in RE, not to mention my net worth is largely due to RE
moral of the story. There are those who teach, and there are those who do. Dave Ramsey is great for the masses who cannot control their money (and I took the course), but it will not make you rich, just prevent the typical debt. My advice, do both and diversify, but my wealth is clearly from RE. My stocks just make me feel better.
@Scott Pearson hard to save up cash for RE deals. I took his class and thought it was great for average american who cant manage their money, hence the “baby” steps. The big boy steps uses leverage and credit, which Dave does not agree with. If I listened to Dave I would not have $4 million in RE equites and maybe own a $250,000 property outright. I prefer my monthly cash flow rather than having that deed. I love good debt. Dave thinks there is none. I leverage my Alaska credit card for fix ups on flips and fly everywhere for free and pay off my balance monthly. Dave does not believe in a credit card or having much credit. Dave would cost me a lot of money.
@Isaac Johnson I completely agree. That being said I still love my vanguard index funds. I put money in and collect good returns with zero thought. Real estate is a better return but It is my full time job. Dave Ramsey’s also speaking to millions of people. He is sending out a message that is tailored to people that are better off focusing on their debt and easy investments.
The name of the game is to make money, not get occupied with dogma or ego. Stocks are great and real estate is great. Own both!
@Isaac Johnson try taking out a loan on stocks and have someone else pay them off for you
@Isaac Johnson
As a reasonable approximation, if you are no better at stock picking, or real estate picking, then the average investor you can expect your investment to increase at the average rate of appreciation, minus transactional costs.
Transactional costs are much higher in real estate. And historically returns are similar to lower on a non-leveraged basis. So at a high level, an investor without a significant advantage against the market as a whole will do better with stocks.
However the opportunity to build an expertise in a regional/niche real estate opportunity is greater and more likely for an individual investor, vs. building an expertise in investing in most any class sector or individual stock without insider info.
It’s much easier to build expertise that’s superior to the average market in real estate then in the stock market as a whole, and it’s that expertise and knowledge that fuels outsized returns.
Without said expertise, put your money in something with low transactional costs. Be it REITs stocks or other.
@Isaac Johnson
But why can’t a real estate investor ALSO invest in the stock market? I feel like there’s a really strong stigma of “it’s either one OR the other... never both”... Just my thoughts as I currently do both 👍
@Isaac Johnson where is the documentation that supports your statement? I do both and have ran the numbers on buy n hold vs index funds. I’d love to see your math that supports this. What I found is that they are as close to equal with re just a bit better because of tax deductions. The other thing re offers is more opportunity to force equity. I would love to see the numbers you came up with to support your opinion...
@Isaac Johnson I like RE better also but I have a portfolio that includes both and you should consider that as well. You can invest in stocks tax deferred which is a great benefit. If you have a major financial crisis like Dave Ramsey had and don’t have a back up plan then you are screwed like Dave was. I hear people say all the time that RE makes millionaires. It does but you can go broke with RE as well. Diversification is the best pathway to wealth. I live in Florida so with my RE I could be a hurricane season away from devastation No matter where you are living disaster can happen. Should that stop you from being an investor. No it should make you plan for it. I plan by having insurance and by having enough money in stocks to go liquid if I need to while I wait for insurance to pay up. My last claim took 8 months It was just one unit and I was liquid enough to get the rehab done while waiting for the claim to get processed. If not for that then I would have had a Year of no income from that house. I had it back on the market in two months fully remodeled and better that before Beware of what any “ teacher ‘ is selling. They won’t be there when a setback happens. RE is for turtle investors not for rabbit investors the people who get rich with Real Estate have been at it a long time and have worked really hard.
@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?
IMO I think he says that because he's speaking to people in debt that made poor choices. So, to avoid that spend money you can afford to lose. Not all RE is good.
It is the other way around. With stocks, one can invest along with the powers that be (e.g. SP500 index fund) who exercise significant control over the direction of the stock market. I sleep well knowing that if I lose a 100k my syndicators will lose a trillion dollars.
With REI, one is on one's own at the mercy of local, state and federal pols (e.g. Dodge-Frank, California's rent-control law). There is a talk about eliminating 1031 exchange tax breaks.
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.
There are plenty of gurus out there in the world. Thankfully you and your teacher will part ways then you can continue your real estate journey. Come back 10 years later as a millionaire as ask your teacher how Dave Ramsey is helping him out. Until then just chill out about his point of view, his intentions are there and he needs to save face in front of his class or he'll lose control. Would you be open to his view on finances? Maybe you could find a diamond through the rough.
@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.
Go to his office hours and ask if he has ever read rich dad poor dad, or watched the rich dad radio show/podcast? He may even earn more of your respect.
@Isaac Johnson I think you just answered your own question, if there was any question to begin with.
Stocks are for passive investors, who are either too busy ( probably working a 9-5) or too lazy, and would rather let someone else manage their money.
Is Real Estate more hands on? YES!
Do you have more control? YES!
Your vehicle and exit strategy are the two biggest questions when it comes to Real Estate.
BRRR, Flip, Wholesale........?
@Isaac Johnson I completely agree. That being said I still love my vanguard index funds. I put money in and collect good returns with zero thought. Real estate is a better return but It is my full time job. Dave Ramsey’s also speaking to millions of people. He is sending out a message that is tailored to people that are better off focusing on their debt and easy investments.
The name of the game is to make money, not get occupied with dogma or ego. Stocks are great and real estate is great. Own both!
Agree 100% on owning both; let me go out on a limb and say, what if investors spent the same amount of time with stocks (not funds) as they do with real estate? Would their returns be similar? I feel sometimes its not an apples to apples comparison. Reading the news, 10ks and 10Qs earnings reports,annual reports, analyst reports, market analysis, podcasts cnbc etc etc. You would be able to side step losses, find some good quality small,micro, and mid cap up and comers. Personally I rode Ulta and Nvdia a few years back which allowed me to pay off student debt and helped with the down payments on all of my real estate deals.
My personal advice, is to learn as much as you can about everything. Be eager to learn, and worst case scenario, it will make you a more well rounded well versed communicator and networker. Good luck all
@Isaac Johnson
Just remember this. If the top 25 companies in the US suddenly tank, we’re all screwed whether you invest in RE or the market. The Great Depression will be upon us all again, probably worse. I just looked at my portfolio and right now I’m about 50/50 between RE and the S&P 500. The interesting part for me, is my index funds is what got me wealthy first and since 2014 I’ve invested far more in RE. Both vehicles have been quite successful.
@Isaac Johnson
Ask him if he knows what diversification means. Then ask to see his portfolio (don’t actually do that). Maybe he’s rich, but I’m betting no.
Just smile and nod, smile and nod. Dave Ramsey’s plan is great for those in debt. But at about 75% of the way through the program, Dave and I had to part ways.
@Isaac Johnson, good for you for sticking up for your thoughts! A way I like to have conversations with opposition is to ask questions.
What if I could buy a property all in (20% down) for 40,000, and make 9,000 in net profit a year. Well, these numbers are not unrealistic and can be done on REI. While the stock market has good years such as the past 2, it fluctuates and will average a return between 6-9%. With the appropriate systems and processes in place, REI can be close to passive with your management oversight!
I would ask him to explain why REI is a bad investment if it can produce stable cash flow. This is not something new, as land has been around longer than indexes and exchanges. I'd be interested in others thoughts!
Thank you for this post and thread!
-Mike
@Isaac Johnson not necessarily. It’s whatever you’re good at that’s going to be the deciding factor. And equity investing has such a low barrier of entry it can be easy to get started. As opposed to real estate where barriers can be much more difficult. Solid returns and compounding interest go along way my man. But yes real estate is also a great investment tool, one that I prefer but I’m also heavily invested in the markets.