I have a friend who invests heavily in the stock market and is very good at it. He has recently made the argument that it is easier, less stressful and financially better to take whatever money I was going to dump into fixing rentals and buying more and putting that money in even just an S&P 500 index fund (returning 10% on avg) and I would end up making more than I would on rental properties over a 20-30 year period. He argued, in those years, roofs will need replaced, foundations fixed and thousands of dollars a year in upkeep, vacancies, etc. After running some numbers and taking a look at my own returns in the stock market, I'm actually having a hard time disagreeing with this arguement. My original plan getting into rentals was to build a portfolio that would appreciate over time and would be paid off by renters. I did not however, think about the bigger repairs that come with home ownership over 20-30 years. Rentals clear a couple hundred bucks a month but the repairs such as roofs or foundations (that I have to repair now in one of my rentals) far outweight those gains. What am I missing?
Dollar for dollar? Yes, you'll do better in the stock market. The difference is in real estate: you can leverage an asset. If you have $100,000, you're buying $100,000 in stock. If you have $100,000 in real estate, you are buying a $400,000 property.
When you look at historical numbers, both have pretty close to similar returns, and over a long run one does not have returns that far exceed the other. At the end of the day, you want a diverse portfolio that probably includes both, but it's more about what you prefer. For example, my wife is one who does all our stocks, and I do real estate.
Dollar for dollar? Yes, you'll do better in the stock market. The difference is in real estate: you can leverage an asset. If you have $100,000, you're buying $100,000 in stock. If you have $100,000 in real estate, you are buying a $400,000 property.
When you look at historical numbers, both have pretty close to similar returns, and over a long run one does not have returns that far exceed the other. At the end of the day, you want a diverse portfolio that probably includes both, but it's more about what you prefer. For example, my wife is one who does all our stocks, and I do real estate.
Dollar for dollar? Yes, you'll do better in the stock market. The difference is in real estate: you can leverage an asset. If you have $100,000, you're buying $100,000 in stock. If you have $100,000 in real estate, you are buying a $400,000 property.
When you look at historical numbers, both have pretty close to similar returns, and over a long run one does not have returns that far exceed the other. At the end of the day, you want a diverse portfolio that probably includes both, but it's more about what you prefer. For example, my wife is one who does all our stocks, and I do real estate.
I see this argument so often, but you can leverage stocks as well. Invest on Margin (indefinite loan <5% right now). Or just leveraged stocks/ETFs.
You can do it a little more so in RE, but it's still an available tool in the stock market.
Here's a basic example...
Say I do 100k margin loan to invest at 5% simple interest - this costs me $5000/year. And is tax deductible. Let's assume your tax rate is 30%. This allows for a $5000 deduction, so we save $1500 in taxes. So controlling 100k costs me $3500/year...Expense is $3500 effectively for the year.
Now I hedge my risk by keeping 100k in a HYSA paying 4.5%. This makes $4500/year. I am taxed at 30% so it costs me $1350/year and I net $3150. Total income is $3150.
So Expenses $3500 - Income $3150 = $350. I am controlling 100k for $350/year and maintaining 100k liquidity for buying dips, downpayments, other opportunities. Say you didn't maintain the 100k in the HYSA (which is far from a requirement), you still control 100k for $3500/year.
So there is good leverage in the stock market as well in my opinion.
To take it a step farther - let's say the market does the average 8%. So I made 8k (from my margin loan) that cost me $350. 8000/350 = 2200%.
Margin is another reason why I don't understand hard money loans (unless you're extremely broke). Why would I borrow from a HML >10% when I can borrow on margin for 5%? You can borrow cash as well as stocks.
On top of this, we know the stock market is essentially designed to go up (if nothing else but inflation). So if you wanted, you would simply never pay the margin loan back. Just keep letting it go up. Your stocks are at least 2x your margin, so they should, if history repeats, grow faster than your margin loan. Then your heirs take the step up basis when you die, pay off the margin and have millions (since you literally never made a withdraw). Of course there are nuances with interest rates changing and all that, but that's the theory anyway.
That in part is why I am totally getting out of anything residential and am in favor of running a business over passive RE investing.
I have a friend who invests heavily in the stock market and is very good at it. He has recently made the argument that it is easier, less stressful and financially better to take whatever money I was going to dump into fixing rentals and buying more and putting that money in even just an S&P 500 index fund (returning 10% on avg) and I would end up making more than I would on rental properties over a 20-30 year period. He argued, in those years, roofs will need replaced, foundations fixed and thousands of dollars a year in upkeep, vacancies, etc. After running some numbers and taking a look at my own returns in the stock market, I'm actually having a hard time disagreeing with this arguement. My original plan getting into rentals was to build a portfolio that would appreciate over time and would be paid off by renters. I did not however, think about the bigger repairs that come with home ownership over 20-30 years. Rentals clear a couple hundred bucks a month but the repairs such as roofs or foundations (that I have to repair now in one of my rentals) far outweight those gains. What am I missing?
There's no need for an argument. "There is no right, there is no wrong, there is only...perspective"
Investing is all about risk/reward. There's many ways to invest, neither REI nor stock markets are immune from downturns. Only you will be able to detrmine your appetite for risk.
FWIW "invest & forget" in the stock market, I believe, is not a good strategy.
If you're goal is to hustle and start like a buisness RE will be your best option but if you're just looking to relax and not work so hard and take less risk then just put your money in the S&P 500 or other index funds
but@Chris Seveney you said good on leverage I would like to add that I wouldn't disagree with the historic facts you mentioned but I will point out that those statistics are not relevant for people that reinvested that money into the specific market RE/ stocks. Just invested once and hold. Side note I personally don't know much people that got RICH from stocks unlike Real Estate.
final shot . it comes down to what is your main financial goal? and how much are you ready to give towards that goal?
If you're goal is to hustle and start like a buisness RE will be your best option but if you're just looking to relax and not work so hard and take less risk then just put your money in the S&P 500 or other index funds
but@Chris Seveney you said good on leverage I would like to add that I wouldn't disagree with the historic facts you mentioned but I will point out that those statistics are not relevant for people that reinvested that money into the specific market RE/ stocks. Just invested once and hold. Side note I personally don't know much people that got RICH from stocks unlike Real Estate.
final shot . it comes down to what is your main financial goal? and how much are you ready to give towards that goal?
Going to strongly disagree here.
The idea that stocks don't create wealth ignores massive sectors of the economy. You realize there are countless multi-millionaires minted purely through RSUs, specifically in Cali, and long-term equity holds. It's easy to get trapped in an "either/or" mindset, but the most robust wealth-building strategies utilize both.
You use real estate for the leverage and physical asset base, and you use equities for the liquidity and asymmetric upside.
Pitting them against each other just leaves money on the table. Much like real estate, there's a whole world in trading equities that's untouched by the novice that has incredible outputs.
I don't know if you realize, but@Joe C. mentioned that his friend is investing in the S&P 500 and other index funds, we didn't talk about trading in specific equities for this you either gotta be someone that can predict which stock will skyrocket 1000% at the time when nobody knows about it or heavy day trading which that is not traditional investing. And no, I do not know ppl that got rich from investing in the S&P 500....
next time please review the conversation before disagreeing!
I don't know if you realize, but@Joe C. mentioned that his friend is investing in the S&P 500 and other index funds, we didn't talk about trading in specific equities for this you either gotta be someone that can predict which stock will skyrocket 1000% at the time when nobody knows about it or heavy day trading which that is not traditional investing. And no, I do not know ppl that got rich from investing in the S&P 500....
next time please review the conversation before disagreeing!
You said
"Side note I personally don't know much people that got RICH from stocks unlike Real Estate."
I said what I said.
Moot point, and id argue indexes would perform better than stocks for the average Joe, so it's really not an argument you'd want to make. Lots of people are millionaires due to compounding interest in their 401ks via index etfs. Much like lots of people are millionaires due to equity in their house(non REI folks).
You can absolutely get rich from stocks, ETFs, or real estate. Again, just cause you don't doesn't mean it doesn't happen.
I would argue a small cap with high ROIC, low to no debt, and great leadership has the most asymmetric upside of anything we'd discuss-- RE, syndications, index funds, etc.,
I don't know if you realize, but@Joe C. mentioned that his friend is investing in the S&P 500 and other index funds, we didn't talk about trading in specific equities for this you either gotta be someone that can predict which stock will skyrocket 1000% at the time when nobody knows about it or heavy day trading which that is not traditional investing. And no, I do not know ppl that got rich from investing in the S&P 500....
next time please review the conversation before disagreeing!
Mendy, ignore him. He's obviously a troll. Your advice and observation is spot on.
@V.G Jason - I agree. I would have to think that the number of people who got wealthy off of stocks is significant. I think it's easier to measure people who got wealthy off real estate because most people in real estate get wealthy from their primary residence, not from investing in real estate. If you are going based on solely investing, there are a lot more millionaires in stocks than there would be in real estate. - that's just my off cuff opinion no facts to back it up.
end of day - many ways to make money and one is not really considered significantly better than the other - they all have different use cases - such as super wealthy use real real estate for wealth preservation as an example
I have a friend who invests heavily in the stock market and is very good at it. He has recently made the argument that it is easier, less stressful and financially better to take whatever money I was going to dump into fixing rentals and buying more and putting that money in even just an S&P 500 index fund (returning 10% on avg) and I would end up making more than I would on rental properties over a 20-30 year period. He argued, in those years, roofs will need replaced, foundations fixed and thousands of dollars a year in upkeep, vacancies, etc. After running some numbers and taking a look at my own returns in the stock market, I'm actually having a hard time disagreeing with this arguement. My original plan getting into rentals was to build a portfolio that would appreciate over time and would be paid off by renters. I did not however, think about the bigger repairs that come with home ownership over 20-30 years. Rentals clear a couple hundred bucks a month but the repairs such as roofs or foundations (that I have to repair now in one of my rentals) far outweight those gains. What am I missing?
>Rentals clear a couple hundred bucks a month but the repairs such as roofs or foundations (that I have to repair now in one of my rentals) far outweight those gains.
Your cash flow projection should be after including all expected costs and should include vacancy. Therefore, any projected cash flow should include the roof and foundation repair/replacement. Failure to include these cap expenses in any underwriting is a big mistake and leads to false cash flow projections.
>He has recently made the argument that it is easier, less stressful and financially better to take whatever money I was going to dump into fixing rentals and buying more and putting that money in even just an S&P 500 index fund (returning 10% on avg) and I would end up making more than I would on rental properties over a 20-30 year period.
Stocks easier, almost definitely but I will point out RE has varying level of effort. Is investing in a REIT more work than investing in sp500. Nnn investment only involves effort at tenant replacement which some big tenants will sign many year leases and then typically resign at lease end. At the other end of the extreme are flipping and. Self managed STRs.
Stressful? I think if you were in stocks at the Great Depression that it could be stressful but in general I agree stocks are typically less stressful than residential RE.
Financially better? Unlikely if you use leverage. Let’s use 10%/year sp500 growth and 5% RE appreciation (both these are fairly accurate but on RE you will find a range depending on the source but the number I use is 4.8%, rounded to 5%).
A RE purchased correctly should have some initial cash flow after allocating for all sustained expenses (including future cap ex) and vacancy . It then should have long term appreciation that averages 5%/year nationally. Now examining these numbers further. Investors can typically purchase at 80% LTV (higher if they will owner occupy the property). The leverage from 80% LTV will 5x the returns. That 5% appreciation due to leverage produces a return of 25%. For the cash flow, its return is also 5x from leverage. But a deeper look at the cash flow shows rent growth but the largest expense (the mortgage) is typically fixed for up to 30 years. The implication is that in general the cash flow improves annually. If no cash extraction at the end of 30 years, the RE is paid for (mortgage is paid off) resulting in outstanding cash flow going forward.
During the time that the mortgage is paid, and the mortgage is paid by the tenant via the rent they pay, there is equity pay down.
Now let's look at a value add that can further improve the returns of RE. The best example of this would be an ideal BRRRR. Most of my RE investments have been ideal BRRRRs. An ideal brrrr has all the investment extracted after the refinance. This allows ownership of a property with only a short duration investment. After maybe 6 months, all investment has been extracted. From this point onwards, infinite return is obtained. Granted there was investment for a short duration so in reality it is not infinite return but it can easily be on-going over 100%/year.
RE can provide returns far in excess of what historically historically has been achieved by the sp500.
The sp500 is passive and historically has achieved near 10%/years. Most RE investments will have significantly more work than the sp500, but leveraged RE can be expected to achieve returns in excess of 10%/years.
I understand passive options. Sp500, fab 5, mag 7, various syndication options, etc. these can produce great returns. What is mag 7 return over the last 5 years? Of course it cannot continue to grow at this rate indefinitely, but do any of us expect this to be the year it grows less than 20%
I do not invest in RE to make similar return to passive expectations. I expect at least 25%/year return from RE and ideally much greater than 25%. So far my RE projections have shown to be conservative; I have achieved far better than 25%/year return from my RE.
It is imperative to perform accurate and conservative underwriting to have a return forecast. Failing to do this basically implies that there is no accurate return projection.
Note I am not saying anything is wrong with investing in passive options. There is value in passive earnings.
I also want to add RE is a passion for me. I enjoy many aspects of RE. I find my favorite are sophisticated value adds, but I also greatly enjoy owning quality properties (not all my properties qualify as quality properties). I enjoy mentoring in RE. It is bonus that RE has made me a lot of money. If I did not have these passions, passive options would be even more tempting (note I have various passive options from stocks, to mineral rights, to various syndications - these passive options diversify my investments)
Well, 18 years ago, I started with $15k. In the stock market, that would be about $70k. I make way more than that on my rental cash flow per year and the value is way more than 100x what the stock market has provided.
Now, to be fair, it took a lot of work. I bought hundreds of houses and duplexes from 2008-2016. I started with $15k as mentioned. I would buy a house, renovate it, rent it, and then refinance it to get all of my money back, plus more. I also used investor money and seller financing, so that I didn't have to use more of my own money. Flipping houses also allowed me to use those profits to reinvest.
To really accelerate my net worth, I leveraged OPM through syndications to buy 100+ unit apartment buildings starting in 2016. I have used money from further refinances and selling my original portfolio to reinvest in the existing portfolio.
Stocks and active RE is not the same. Active RE has more risk, but a far greater potential reward - and it's not even close.
Lastly, I will say that you could do all of the RE investing passively through a syndication or debt fund. The syndication can return you 15-25%+ and the debt fund is typically in the 10-15% range.
Well, 18 years ago, I started with $15k. In the stock market, that would be about $70k. I make way more than that on my rental cash flow per year and the value is way more than 100x what the stock market has provided.
Now, to be fair, it took a lot of work. I bought hundreds of houses and duplexes from 2008-2016. I started with $15k as mentioned. I would buy a house, renovate it, rent it, and then refinance it to get all of my money back, plus more. I also used investor money and seller financing, so that I didn't have to use more of my own money. Flipping houses also allowed me to use those profits to reinvest.
To really accelerate my net worth, I leveraged OPM through syndications to buy 100+ unit apartment buildings starting in 2016. I have used money from further refinances and selling my original portfolio to reinvest in the existing portfolio.
Stocks and active RE is not the same. Active RE has more risk, but a far greater potential reward - and it's not even close.
Lastly, I will say that you could do all of the RE investing passively through a syndication or debt fund. The syndication can return you 15-25%+ and the debt fund is typically in the 10-15% range.
This is pretty bad advice, but it's par for the course given what you presented.
$15k would be about $100k in the s&p if you invested 18 years ago, about 11% annualize returns.
$70k means you're admitting you're **** at this.
If you're going passive, go index/etfs. If you're doing this and needing the asset-- go with RE. Ideally, you do all of it-- RE, index/etfs, stocks. Stocks being something you really need to know what you're doing, like RE, to get the most juice with it. But otherwise RE & index/etfs.
Well, 18 years ago, I started with $15k. In the stock market, that would be about $70k. I make way more than that on my rental cash flow per year and the value is way more than 100x what the stock market has provided.
Now, to be fair, it took a lot of work. I bought hundreds of houses and duplexes from 2008-2016. I started with $15k as mentioned. I would buy a house, renovate it, rent it, and then refinance it to get all of my money back, plus more. I also used investor money and seller financing, so that I didn't have to use more of my own money. Flipping houses also allowed me to use those profits to reinvest.
To really accelerate my net worth, I leveraged OPM through syndications to buy 100+ unit apartment buildings starting in 2016. I have used money from further refinances and selling my original portfolio to reinvest in the existing portfolio.
Stocks and active RE is not the same. Active RE has more risk, but a far greater potential reward - and it's not even close.
Lastly, I will say that you could do all of the RE investing passively through a syndication or debt fund. The syndication can return you 15-25%+ and the debt fund is typically in the 10-15% range.
This is pretty bad advice, but it's par for the course given what you presented.
$15k would be about $100k in the s&p if you invested 18 years ago, about 11% annualize returns.
$70k means you're admitting you're **** at this.
If you're going passive, go index/etfs. If you're doing this and needing the asset-- go with RE. Ideally, you do all of it-- RE, index/etfs, stocks. Stocks being something you really need to know what you're doing, like RE, to get the most juice with it. But otherwise RE & index/etfs.
Do not invest in "passive" syndications.
Actually, I used the average in the market from 2008. You just picked 11% as a number, not actually thinking of what transpired in the market during that time.
Let's say I invested $15k and crushed it in the market. I outsmarted everyone and made 20% annualized. That means I make about $400k. Still way, way worse than my real estate portfolio.
Btw, I gave no advice. I told what is possible. Stocks are fine if that's what you're looking for. If you want better returns, go with real estate or many other alternatives.
Well, 18 years ago, I started with $15k. In the stock market, that would be about $70k. I make way more than that on my rental cash flow per year and the value is way more than 100x what the stock market has provided.
Now, to be fair, it took a lot of work. I bought hundreds of houses and duplexes from 2008-2016. I started with $15k as mentioned. I would buy a house, renovate it, rent it, and then refinance it to get all of my money back, plus more. I also used investor money and seller financing, so that I didn't have to use more of my own money. Flipping houses also allowed me to use those profits to reinvest.
To really accelerate my net worth, I leveraged OPM through syndications to buy 100+ unit apartment buildings starting in 2016. I have used money from further refinances and selling my original portfolio to reinvest in the existing portfolio.
Stocks and active RE is not the same. Active RE has more risk, but a far greater potential reward - and it's not even close.
Lastly, I will say that you could do all of the RE investing passively through a syndication or debt fund. The syndication can return you 15-25%+ and the debt fund is typically in the 10-15% range.
This is pretty bad advice, but it's par for the course given what you presented.
$15k would be about $100k in the s&p if you invested 18 years ago, about 11% annualize returns.
$70k means you're admitting you're **** at this.
If you're going passive, go index/etfs. If you're doing this and needing the asset-- go with RE. Ideally, you do all of it-- RE, index/etfs, stocks. Stocks being something you really need to know what you're doing, like RE, to get the most juice with it. But otherwise RE & index/etfs.
Do not invest in "passive" syndications.
Actually, I used the average in the market from 2008. You just picked 11% as a number, not actually thinking of what transpired in the market during that time.
Let's say I invested $15k and crushed it in the market. I outsmarted everyone and made 20% annualized. That means I make about $400k. Still way, way worse than my real estate portfolio.
Btw, I gave no advice. I told what is possible. Stocks are fine if that's what you're looking for. If you want better returns, go with real estate or many other alternatives.
The S&P 500 CAGR since April 2008 is 11%. Again, you really have no idea what you're talking about.
I can trade anecdotes too—I’ve had a year trading pre-build allocations(not intentionally) in Miami with annual returns that would smoke any apartment syndication or index, or stock. But that’s irrelevant, and I would never suggest that. But see, I can show what's "possible" too. The right answer for the OP is equites, index, and real estate but focusing on where your specific edge lies.
And FWIW, your "edge" in real estate does not apply today. You aren't going to be able to recycle as efficiently today as the yester-years, you're just not.
Suggesting debt funds is particularly poor advice; they offer the zero control of a stock with the limited liquidity of real estate. Congrats you're suggesting an asset class that inherits the primary weaknesses of both worlds.
Well, 18 years ago, I started with $15k. In the stock market, that would be about $70k. I make way more than that on my rental cash flow per year and the value is way more than 100x what the stock market has provided.
Now, to be fair, it took a lot of work. I bought hundreds of houses and duplexes from 2008-2016. I started with $15k as mentioned. I would buy a house, renovate it, rent it, and then refinance it to get all of my money back, plus more. I also used investor money and seller financing, so that I didn't have to use more of my own money. Flipping houses also allowed me to use those profits to reinvest.
To really accelerate my net worth, I leveraged OPM through syndications to buy 100+ unit apartment buildings starting in 2016. I have used money from further refinances and selling my original portfolio to reinvest in the existing portfolio.
Stocks and active RE is not the same. Active RE has more risk, but a far greater potential reward - and it's not even close.
Lastly, I will say that you could do all of the RE investing passively through a syndication or debt fund. The syndication can return you 15-25%+ and the debt fund is typically in the 10-15% range.
This is pretty bad advice, but it's par for the course given what you presented.
$15k would be about $100k in the s&p if you invested 18 years ago, about 11% annualize returns.
$70k means you're admitting you're **** at this.
If you're going passive, go index/etfs. If you're doing this and needing the asset-- go with RE. Ideally, you do all of it-- RE, index/etfs, stocks. Stocks being something you really need to know what you're doing, like RE, to get the most juice with it. But otherwise RE & index/etfs.
Do not invest in "passive" syndications.
Actually, I used the average in the market from 2008. You just picked 11% as a number, not actually thinking of what transpired in the market during that time.
Let's say I invested $15k and crushed it in the market. I outsmarted everyone and made 20% annualized. That means I make about $400k. Still way, way worse than my real estate portfolio.
Btw, I gave no advice. I told what is possible. Stocks are fine if that's what you're looking for. If you want better returns, go with real estate or many other alternatives.
The S&P 500 CAGR since April 2008 is 11%. Again, you really have no idea what you're talking about.
I can trade anecdotes too—I’ve had a year trading pre-build allocations(not intentionally) in Miami with annual returns that would smoke any apartment syndication or index, or stock. But that’s irrelevant, and I would never suggest that. But see, I can show what's "possible" too. The right answer for the OP is equites, index, and real estate but focusing on where your specific edge lies.
And FWIW, your "edge" in real estate does not apply today. You aren't going to be able to recycle as efficiently today as the yester-years, you're just not.
Suggesting debt funds is particularly poor advice; they offer the zero control of a stock with the limited liquidity of real estate. Congrats you're suggesting an asset class that inherits the primary weaknesses of both worlds.
Mendy and you are second rate. My advice stands.
You should really bow out. I can tell by your responses and insults the arrogance that clouds over you.
Let's hear your results, since you're such an amazing investor and everyone else's advice is second-rate. I'd love to compare your "amazing returns."
And you're right, I can't repeat what I did in 2008-2015. Today I do much better, but of course, that's because I have nearly two decades of experience.
To your last point, debt funds and RE syndications historically far exceed the S&P. S&P has done historically well over the past decade, and still doesn't beat syndications. And before you spout out that I gave bad advice on debt funds because of the lack of liquidity, have a clue what you're talking about. There are a ton of debt funds that are very liquid.
The S&P 500 has averaged about 10% a year long term, which is solid and hard to ignore.
Real estate works a bit differently though. When you factor in leverage, appreciation, tax benefits, and debt paydown, your actual return on the money you put in can often come out higher than that 10% number. The key difference is you’re controlling a larger asset with a smaller amount of your own capital, so the math compounds differently.
On diversification, I’ll just echo what others are saying here. Stocks and real estate don’t always move together. There are plenty of cycles where one is up while the other is flat or down. Having exposure to both tends to smooth things out over the long run, and most investors who build real staying power usually end up with a mix rather than going all in on one.
One thing I think gets overlooked though is that rental real estate is not passive income, at least not in the beginning. It’s a business. You’re dealing with tenants, repairs, vacancies, contractors, insurance, taxes, all of it. The leverage is great, but it comes with real operational work that stocks just don’t require.
If you want real estate exposure without owning physical property, REITs are also a completely valid option and a lot more passive.
There's no right or wrong answer when it comes to an investment; you just have to pick a path and follow through. Personally, I believe being a successful investor means you have multiple investment options so you don't rely on one path.
Why not start investing in stocks and get into real estate?
Both. With the caveat that there are no clear experts at picking stocks. Brick and Mortar RE plus low fee TSM index funds have been very good to me over the past 30+ years.
Both. With the caveat that there are no clear experts at picking stocks. Brick and Mortar RE plus low fee TSM index funds have been very good to me over the past 30+ years.
Both. With the caveat that there are no clear experts at picking stocks. Brick and Mortar RE plus low fee TSM index funds have been very good to me over the past 30+ years.
Hey Joe, your friend does have some solid points, and a lot of people in this thread have brought up good ones too. As an investor myself, I'm a big fan of diversifying. I don't really see it as an either/or thing.
Like others have said, one of the biggest things real estate brings to the table that stocks just can't touch is the tax advantages. And honestly, this is where most people's "S&P vs. rentals" math falls apart, because they're only comparing cash flow and appreciation without factoring in what the IRS lets you do on the real estate side.
Whether you're going after it as non-passive income to offset your W-2 or business income (think real estate professional status, short-term rental loophole, cost segregation studies, bonus depreciation), or you're using it as passive income to offset other passive income (like stocks) there's a real strategy behind all of it. Depreciation alone can make a property that "only clears a couple hundred a month" actually show a paper loss that saves you thousands at tax time. Then you've got 1031 exchanges to defer gains, cash-out refis that pull tax-free money out, and a stepped-up basis for your heirs that wipes out depreciation recapture and capital gains when you pass it on. Try doing any of that with an index fund.
To really see the advantage though, you have to run the numbers and yeah, it's more work than just dropping money into VOO and forgetting about it. But with the work usually comes the reward.
If you're still having a hard time seeing the benefits or pushing back on his argument, I'd really suggest running your numbers by a CPA who actually strategizes with you, not just one who files your taxes in April. The right CPA will look at your whole picture, make sure everything is structured correctly. Happy to connect!
I have a friend who invests heavily in the stock market and is very good at it. He has recently made the argument that it is easier, less stressful and financially better to take whatever money I was going to dump into fixing rentals and buying more and putting that money in even just an S&P 500 index fund (returning 10% on avg) and I would end up making more than I would on rental properties over a 20-30 year period. He argued, in those years, roofs will need replaced, foundations fixed and thousands of dollars a year in upkeep, vacancies, etc. After running some numbers and taking a look at my own returns in the stock market, I'm actually having a hard time disagreeing with this arguement. My original plan getting into rentals was to build a portfolio that would appreciate over time and would be paid off by renters. I did not however, think about the bigger repairs that come with home ownership over 20-30 years. Rentals clear a couple hundred bucks a month but the repairs such as roofs or foundations (that I have to repair now in one of my rentals) far outweight those gains. What am I missing?
The math your friend is missing is leverage: while the S&P 500 returns 10% on your actual cash, real estate allows you to earn returns on the bank's money. If you put 20% down on a property, a modest 3% market appreciation actually nets you a 15% return on your invested capital, which, when combined with the mortgage paydown and the massive tax shielding provided by depreciation, creates a "total return" that far outpaces stocks over 30 years. Big-ticket repairs like roofs should be viewed as capital expenditures (CapEx) that preserve a leveraged asset, not just "lost" cash flow, because unlike a stock portfolio, you can eventually 1031-exchange that equity into larger, more stable assets without losing 20% of your wealth to the IRS. I hope that helps.
Your friend has some solid points, and most investors actually do best by mixing both rather than treating it as either-or. The piece that's easy to miss in the math is the tax side of real estate - that's usually where the comparison breaks down. Things like depreciation, real estate professional status, the short-term rental loophole, and bonus depreciation through cost segregation can turn a property that only clears a couple hundred a month into a paper loss that actually saves you thousands at tax time. Beyond that, you've got 1031 exchanges to defer gains on a sale, cash-out refis that pull tax-free money out of equity, and a stepped-up basis for heirs that can wipe out depreciation recapture and capital gains when the property passes on. Index funds just don't offer that same toolkit. It does take more effort to capture those benefits, but that's where the bigger reward usually shows up. Every situation is different though, so it's worth running this past your own CPA or tax advisor first.
I personally believe it's best to invest in real estate due to the ability to leverage financing, which exponentially increases your investment over time. Market appreciation is the least predictable, but historically, you'll make the most money among the five wealth generators. Real estate values nationally have never decreased over any 10-year period. As long as you're playing the long game, you'll be good, historically.
I have a friend who invests heavily in the stock market and is very good at it. He has recently made the argument that it is easier, less stressful and financially better to take whatever money I was going to dump into fixing rentals and buying more and putting that money in even just an S&P 500 index fund (returning 10% on avg) and I would end up making more than I would on rental properties over a 20-30 year period. He argued, in those years, roofs will need replaced, foundations fixed and thousands of dollars a year in upkeep, vacancies, etc. After running some numbers and taking a look at my own returns in the stock market, I'm actually having a hard time disagreeing with this arguement. My original plan getting into rentals was to build a portfolio that would appreciate over time and would be paid off by renters. I did not however, think about the bigger repairs that come with home ownership over 20-30 years. Rentals clear a couple hundred bucks a month but the repairs such as roofs or foundations (that I have to repair now in one of my rentals) far outweight those gains. What am I missing?
Your friend isn’t totally wrong about stocks being simple and consistent, but the comparison is a bit one-sided because it treats real estate like it’s only monthly cash flow minus repairs, when that’s not really where most of the wealth comes from. With rentals, the bigger drivers are leverage, loan paydown by tenants, rent growth over time, tax advantages like depreciation, and long-term appreciation, which can stack together in a way that’s very different from a flat average return. Yes, roofs, vacancies, and maintenance are real costs, but good investors underwrite those from day one by setting aside reserves and buying deals where the numbers still work after everything is included, not before. The difference is that stocks give you a smooth, passive market return, while real estate is more of a controlled, leveraged asset where outcomes depend heavily on how well you buy and manage, and in strong deals over long periods, those extra levers can often push total returns beyond what a simple index fund comparison suggests.
The debate often gets framed as a pure returns comparison, but the real question is which vehicle gives you the most control over your outcome — and real estate has a clear edge there because your decisions (buy price, rehab quality, tenant selection, property management) directly shape the result in a way that index fund investing just doesn't. Dan H.'s point about the BRRRR strategy is critical: if you're able to recycle your capital, the effective return on the money that stays deployed can be extraordinary, which no passive fund can replicate. That said, the foundation question is whether you're underwriting conservatively enough — factoring in full CapEx reserves, vacancy, and management costs from day one is what separates investors who build real wealth from those who get surprised by a roof replacement.
There is so much opportunity in AI right now, it is absolutely insane. I personally wouldn't touch RE for the next 10 years at the minimum.
Just look at AMZN - look at their growth compared to their stock price. It's lagged the SP 500 despite insane growth. The stock price WILL catch up, and it's going to be massive when it does. You could go full port in AMZN and likely smoke 99% of RE investors. And if you invest in RE it's highly probable that you would be in the 99% getting smoked.
Now I am talking residential type RE. Commercial can be a much different story since the value isn't based on what your neighbors house sold for (ie: comps which is the dumbest thing ever) but rather what the asset brings in.
If I could go back I would've just stuck with the market. I would definitely have more money at this point. Not that my RE didn't make gains, it did, just not to the extent of the market over the last 5 years.
There is so much opportunity in AI right now, it is absolutely insane. I personally wouldn't touch RE for the next 10 years at the minimum.
Just look at AMZN - look at their growth compared to their stock price. It's lagged the SP 500 despite insane growth. The stock price WILL catch up, and it's going to be massive when it does. You could go full port in AMZN and likely smoke 99% of RE investors. And if you invest in RE it's highly probable that you would be in the 99% getting smoked.
Now I am talking residential type RE. Commercial can be a much different story since the value isn't based on what your neighbors house sold for (ie: comps which is the dumbest thing ever) but rather what the asset brings in.
If I could go back I would've just stuck with the market. I would definitely have more money at this point. Not that my RE didn't make gains, it did, just not to the extent of the market over the last 5 years.
In your specific case, I disagree. I would've bought two incredible properties(as STRs) that you could manage from afar and utilize when you wanted to(not booked). And 40% LTV in current environment, 80% in the low rate era. The combination of appreciation + rental yield in primo properties will beat most stocks, and you'd have utility + tax havens that are not touched by any paper asset. But the rest of the capital I would've kept in the market and lesser degree Tbills and just rotate in.
Looking at the last 3 or so years will be a bit unfair. Real Estate will re-rerate, it's a gradual then sudden appearance.
Consider 2023-2029 era of real estate akin to the 2000s for equities. Just frozen. I would argue buying now is not so bad, it's really just what you buy.
As for equities, yes margin is a form of leverage but I would say options is a lot more robust way to do it. In the case of real estate, your margin is paid for by the tenant in your case your margin is paid for by realizing gains. As for option, looking at the chain I can own 1,000 shares of MSFT at the price of 300 shares.
There is so much opportunity in AI right now, it is absolutely insane. I personally wouldn't touch RE for the next 10 years at the minimum.
Just look at AMZN - look at their growth compared to their stock price. It's lagged the SP 500 despite insane growth. The stock price WILL catch up, and it's going to be massive when it does. You could go full port in AMZN and likely smoke 99% of RE investors. And if you invest in RE it's highly probable that you would be in the 99% getting smoked.
Now I am talking residential type RE. Commercial can be a much different story since the value isn't based on what your neighbors house sold for (ie: comps which is the dumbest thing ever) but rather what the asset brings in.
If I could go back I would've just stuck with the market. I would definitely have more money at this point. Not that my RE didn't make gains, it did, just not to the extent of the market over the last 5 years.
In your specific case, I disagree. I would've bought two incredible properties(as STRs) that you could manage from afar and utilize when you wanted to(not booked). And 40% LTV in current environment, 80% in the low rate era. The combination of appreciation + rental yield in primo properties will beat most stocks, and you'd have utility + tax havens that are not touched by any paper asset. But the rest of the capital I would've kept in the market and lesser degree Tbills and just rotate in.
Looking at the last 3 or so years will be a bit unfair. Real Estate will re-rerate, it's a gradual then sudden appearance.
Consider 2023-2029 era of real estate akin to the 2000s for equities. Just frozen. I would argue buying now is not so bad, it's really just what you buy.
As for equities, yes margin is a form of leverage but I would say options is a lot more robust way to do it. In the case of real estate, your margin is paid for by the tenant in your case your margin is paid for by realizing gains. As for option, looking at the chain I can own 1,000 shares of MSFT at the price of 300 shares.
I STILL go back and forth on the STR thing - exactly like you mentioned. Primo location and not super levered. Those spots I think you're in great shape - you actually get the cashflow, tax deductions, appreciation (due to location) and the loan paydown over time. Ideally this is one you would keep for a very very long time as well. Plus being able to go on vacation to your own place. I'm definitely going to do this one day. That is 100% the way to go in RE, I'll be back one day where I can give myself plenty of time to find the deal I want. Or if the other deal I'm working on doesn't pan out.
Man I just don't know enough about options yet (and I'm kicking myself for it). I invested in the market back from 2015-2020 (graduated college in 2015 w/ like $200 in my bank account lol).
Then started RE in 2021-2023 (acquired 5 LTRs, duplex, fourplex, SFHs), bought a few acres of land in 2024 to develop, and had to get a few things situated (finished a rehab from a SFH I bought in 2023, then had some major repairs on another rental) then all back to the stock market all 2025 and so far in 2026.
It is interesting w/ options because you're buying the right to own the shares at a specific strike price, but if the price is too low then your option expires worthless. Then the opposite for puts. I'm sure you know a lot more about this than me though. I might start with some small ones once I get a bit more comfortable and go from there. Just keep them small. The margin I'm comfortable with so far - it could get sketch if the market dropped big time and interest rates increased substantially at the same time. I have about 10% margin invested right now, I'm reserving some for a downpayment for a deal I'm working on. If it pans out, I'll have to post it on here. If not I'll start the journey for a STR and/or develop that land.
There is so much opportunity in AI right now, it is absolutely insane. I personally wouldn't touch RE for the next 10 years at the minimum.
Just look at AMZN - look at their growth compared to their stock price. It's lagged the SP 500 despite insane growth. The stock price WILL catch up, and it's going to be massive when it does. You could go full port in AMZN and likely smoke 99% of RE investors. And if you invest in RE it's highly probable that you would be in the 99% getting smoked.
Now I am talking residential type RE. Commercial can be a much different story since the value isn't based on what your neighbors house sold for (ie: comps which is the dumbest thing ever) but rather what the asset brings in.
If I could go back I would've just stuck with the market. I would definitely have more money at this point. Not that my RE didn't make gains, it did, just not to the extent of the market over the last 5 years.
In your specific case, I disagree. I would've bought two incredible properties(as STRs) that you could manage from afar and utilize when you wanted to(not booked). And 40% LTV in current environment, 80% in the low rate era. The combination of appreciation + rental yield in primo properties will beat most stocks, and you'd have utility + tax havens that are not touched by any paper asset. But the rest of the capital I would've kept in the market and lesser degree Tbills and just rotate in.
Looking at the last 3 or so years will be a bit unfair. Real Estate will re-rerate, it's a gradual then sudden appearance.
Consider 2023-2029 era of real estate akin to the 2000s for equities. Just frozen. I would argue buying now is not so bad, it's really just what you buy.
As for equities, yes margin is a form of leverage but I would say options is a lot more robust way to do it. In the case of real estate, your margin is paid for by the tenant in your case your margin is paid for by realizing gains. As for option, looking at the chain I can own 1,000 shares of MSFT at the price of 300 shares.
I STILL go back and forth on the STR thing - exactly like you mentioned. Primo location and not super levered. Those spots I think you're in great shape - you actually get the cashflow, tax deductions, appreciation (due to location) and the loan paydown over time. Ideally this is one you would keep for a very very long time as well. Plus being able to go on vacation to your own place. I'm definitely going to do this one day. That is 100% the way to go in RE, I'll be back one day where I can give myself plenty of time to find the deal I want. Or if the other deal I'm working on doesn't pan out.
Man I just don't know enough about options yet (and I'm kicking myself for it). I invested in the market back from 2015-2020 (graduated college in 2015 w/ like $200 in my bank account lol).
Then started RE in 2021-2023 (acquired 5 LTRs, duplex, fourplex, SFHs), bought a few acres of land in 2024 to develop, and had to get a few things situated (finished a rehab from a SFH I bought in 2023, then had some major repairs on another rental) then all back to the stock market all 2025 and so far in 2026.
It is interesting w/ options because you're buying the right to own the shares at a specific strike price, but if the price is too low then your option expires worthless. Then the opposite for puts. I'm sure you know a lot more about this than me though. I might start with some small ones once I get a bit more comfortable and go from there. Just keep them small. The margin I'm comfortable with so far - it could get sketch if the market dropped big time and interest rates increased substantially at the same time. I have about 10% margin invested right now, I'm reserving some for a downpayment for a deal I'm working on. If it pans out, I'll have to post it on here. If not I'll start the journey for a STR and/or develop that land.
Your issue with margin isn't the rates, it's volatility. Options prey on that, margin gets destroyed by it. Old saying on our desk.
Margin let's vol trade you. Options let you trade vol.
Margin works when the risk is sort of static. As soon as there's vol to the downside, vix rises, as your requirement gaps up as the price gaps down and it becomes a liquidation fiasco. Last bout of that was tariff time in Apr 25, margin req for smh gapped up, qqq had some large ones and anyone in TQQQ on margin got wrecked.
It's basically an umbrella for sunshine that gets taken back once it starts raining. And no, you can't go inside. Well, not unless you wire or agree to liquidate at the bottom.
1. When you run a return analysis, you have to factor in a reserve for CAPEX(Capital Expennditures).
Certain items like Roofs, HVAC's, flooring, water heater, etc need to be replaced every so often.
For me, a roof on average will cost be $6,000 and last about 20 years. Therefore, I should budget $25 every month towards a new roof.
Therefore, a roof replacement shouldn't surprise you or be a burden to you.
2. Stocks / corporate entities need maintenance similar to a rental property but the board of directors / employees / managers of the company are taking care of that.
You can delegate your rental investments to a property management company to help take away the pain of managing a property.
3. Rental properties require more work than ownership of any stock investments. If you can make 10% annually in thes stock market, you would need to make atleast 12% to make it make sense. You need to be compensated a premium to make it make sense.
If you can't make a premium in real estate, you should stick to stocks.
Outside of time decay, which is a real ***** itself, it's almost always better to hold equity positions via options.
Holding raw shares is the equity equivalent of paying all-cash for a house. It feels safe, but it destroys your capital efficiency.
Buying shares ties up 100% of your liquidity for a 1:1 return profile.
Theta forces it to be efficient just also diabolical. It also forces velocity though.
Lots of structures to trade. I think options get a bad rep cause you hear people do them wrong. Properly structured they are quite prolific. I owe the first half of my career to them.
Outside of time decay, which is a real ***** itself, it's almost always better to hold equity positions via options.
Holding raw shares is the equity equivalent of paying all-cash for a house. It feels safe, but it destroys your capital efficiency.
Buying shares ties up 100% of your liquidity for a 1:1 return profile.
Theta forces it to be efficient just also diabolical. It also forces velocity though.
Lots of structures to trade. I think options get a bad rep cause you hear people do them wrong. Properly structured they are quite prolific. I owe the first half of my career to them.
Man you are lightyears ahead of me with this stuff. Thank you for the insight though, definitely a lot of research to be doing here. I definitely need to do a deep dive into options and go from there.
I do hear a lot of people doing them wrong, I think that's what dissuaded me at first. And I just don't know enough to do it yet (but I wish I did and I think I can get there). But I also don't think it's incredibly hard to be a lot better than the average retail investor.
At the same time, this is an exciting time. I don't know if AI is a bubble, but I think it is the next big thing. Between AI, robotics, satellites there is a TON of opportunity coming up. I do have limited experience though, so I still have to have some caution. But man, the faster I can learn now the faster I can implement everything
Outside of time decay, which is a real ***** itself, it's almost always better to hold equity positions via options.
Holding raw shares is the equity equivalent of paying all-cash for a house. It feels safe, but it destroys your capital efficiency.
Buying shares ties up 100% of your liquidity for a 1:1 return profile.
Theta forces it to be efficient just also diabolical. It also forces velocity though.
Lots of structures to trade. I think options get a bad rep cause you hear people do them wrong. Properly structured they are quite prolific. I owe the first half of my career to them.
Man you are lightyears ahead of me with this stuff. Thank you for the insight though, definitely a lot of research to be doing here. I definitely need to do a deep dive into options and go from there.
I do hear a lot of people doing them wrong, I think that's what dissuaded me at first. And I just don't know enough to do it yet (but I wish I did and I think I can get there). But I also don't think it's incredibly hard to be a lot better than the average retail investor.
At the same time, this is an exciting time. I don't know if AI is a bubble, but I think it is the next big thing. Between AI, robotics, satellites there is a TON of opportunity coming up. I do have limited experience though, so I still have to have some caution. But man, the faster I can learn now the faster I can implement everything
No one can tell what will be a bubble or not. Just look at the fundamentals, if it's priced aggressively because of fundamentals decipher how much more? If it's priced aggressively and fundamentals don't support it now there's your issue. Earnings have been stellar.
For example, we're in an AI bubble so people go to safe stocks like Costco. That's created Costco forward and trailing P/E higher than Nvidia so what's the bubble AI or safe stocks?
And yes, ofc I know a lot. It's what I did for the first parts of my life. If you go to the crypto thread can go more in depth there. The thread supports equities too, don't need to talk strictly about Bitcoin.
Hello Joe! Thank you for the post. This is always a fun topic to debate, and one in which I find myself in with my coworkers at the firehouse a lot.
The main advantage of real estate over stocks, is the concept of leverage. With leverage, you are essentially putting other people's money (lender) to use for you. If you hold onto the house long enough and maintain the property, then appreciation will take care of the rest for you. Heck, you could even buy a new house, rent out the old one, and now you have a tenant covering your mortgage payment and upkeep costs while the appreciation continues to do its work.
I'm not saying it's a surefire way to get a great ROI. There are plenty of bad deals out there, but with patience and a knowledgeable mentor around you, real estate can be a great investment!
