4 Plex vs S&P500

[Cody M.]

Hello all! 

Working on a 4plex opportunity that will produce a 11% CoC return after expenses. What's your thoughts doing that vs just putting into the S&P and being 100% hands off? I'm aware of the benefits with REI (appreciation,tax write offs, etc) but love see other investors mindsets.

Thank you

Cody 

[Henry Clark]

OP.  @Nicholas L. and @Henry Lazerow noted the big hitters in the discussion. This Stock versus REI comes up fairly often.

S&P 500:

The primary advantage the stock market has is Liquidity.  And that strength is a huge weakness for a majority of investors. Whereas REI takes a little more effort, time and "thought" to liquidate.

The second advantage the stock market has is it sets a Market price. This is good from a lazy investors standpoint, but I prefer REI where the investor determines the price/value add/etc.

S&P 500 index fund.  Normally a fund would be considered spreading Risk.  But today the Magnificent 7, plus they are generally in the same tech field; the S&P 500 is anything but a spreading of risk.  Plus, the P/E ratio is so high anything can take the market down.  Even a free new AI search platform out of China can disrupt the market.  Plus "Product Cycles" have grown faster and faster over history.  Hunter gatherer, farmer, horse, iron age, steam engine, auto, computer, etc.  The cycles have gotten faster and faster.  The current AI cycle which is now in the Product development stage will move to a Commodity phase in an instance.  Not being able to realize the Earnings needed to support the current P/E ratios.

Unfair REI advantages.  The US government intentionally has built in unfair advantages for REI. % downpayment leverage, 1031, $250k capital gain exclusion, year one 100% write-off, Cost Segregation, Refi, depreciation, expense write-off, etc. House hacking, BRRRR, value add, deal analysis versus Stock market determining value, 25/30 year mortgages- the debt after about 15 years goes down to half the value or relative cost with inflation, The government will have to either default, print money, or loan money. By default the Dollar has to get significantly devalued, which means your future debt decreases in cost significantly. You will make money off of your debt. This is not true of your Stock investments, they will go up in Price, but you will be taxed for that.

Who calculated the 11% COC return? Is this after income tax, is CAPEX built in- do you have a stair step model on the roof, windows, hvac, floors, foundations, etc; will property tax go up after the purchase, is this an Appreciating or Depreciating market and asset, does the 11% cover say 3% inflation, Occupancy rate assumption, current tenants, Sensitivity to 5 year balloon term refi interest change. This 11% doesn't factor in any Value add or other Appreciation so hopefully there is a greater return than reflected.

Do the deal.  Calculate your downside risk and understand or mitigate it.  Even if you break even your ahead in future deals.  If you do bad on a Stock or the Index, what learning moments will you bring to the table and how far out will you be able to apply them.