Would you make more Money with BRRR or Stock market

[Mark Weins]

Stock market gains average 8% per year. I am not sure what the average year on year return for BRRRR is but if you compare the two which one would earn you more money for your investment assuming average BRRRR results over a period of 30 years?

[Chris Seveney]

@Mark Weins

Real estate and the stock market are very close on overall gains, during certain periods of time one does better, but historically over a lengthy period of time they are very close

So

It depends on the asset and the types of stocks you buy

In mass scale one will not outperform the other but if you bought Facebook since it’s inception vs one property - then it could be swayed significantly

[V.G Jason]

Do both. Why compare, they are apples to oranges in regards to everything. Passivity, liquidity, risk measures, etc.

[Kevin Sobilo]

@Mark Weins, I would say BRRR and I don't think it's close but BRRRR isn't 100% passive like buying stock.

With a BRRRR, you might gain 25-50% on your investment in the first year simply from the rehab. Some of that gain you will refinance out to use again and some equity will remain in the property. After that you have 0% invested in the property as you have ALL your money back from the refinance.

So, that from that point forward your ROI is INFINITY! Plus the income is tax advantaged unlike stocks. You can claim depreciation on your taxes for example.

I would say infinity is greater than 8% and it isn't even close! lol

[Alex Deacon]

@Mark Weins I have to agree with what @V.G Jason states. Real estate is not passive. Far from it. If you are not ready for stress, hard work, long hours and a huge learning curve then stay in the stock market.  If you ask Warren Buffet he would most likely say stay in the stock market. I don't know the stock market but I know the real estate market. Therefore what I know is less risky and potentially very profitable. Once your real estate IQ is high enough you can get infinite return on your money. I dont know if thats possible in the stock market

[Doug Smith]

I was the first Relationship Manager for a major bank's Private Client group on Florida's West Coast prior to us starting this company. I had all of my licensing as a stock broker and was charged with handling the investment portfolios for scores of clients. That being said, outside of a few "sentimental stocks", I've not personally purchased stocks in the past twenty years. I realized that brokers are glorified order takers. When you're investing in real estate, you can really inspect it. As a stock broker, I didn't get to tour the factories, meet the employees, directly interview the CEO and CFOs, etc of the companies that I was charged with placing my clients in. I felt dirty for doing it because I didn't believe in it myself. Real estate is one of the only assets I know that traditionally outpaces inflation. You may argue that I'm not diversified, but your welcome to your opinion. I stick with what I know and can inspect and I've outpaced the stock market considerably and consistently without the peaks and valleys. I'll end with posting this chart of home prices vs the CPI (inflation) and I'll leave it for you to decide..

[Jeff Nash]

Based on your comment you are looking at the performance of thr broader indices.  It depends on your strategy and obviously how adept you (or those you team with) are on making the right decisions. You can be a bottoms up person and try to pick winners (something like NVDA as I post this) or take a top down approach and focus on cycles and sectors. You can implement both strategies (concentrated portfolio and maybe trade a little more frequently versus passive buy and hold). The same can be done in real estate. To the extent anyone is able to, and based on personal risk tolerance and investment objectives, you would do a little bit of everything and diversify across many different asset classes (real estate, equities, fixed income,commodities, and other alts).    

[Henry Clark]

On your posts looks like you’re just starting out and maybe in Canada. Some of these might not apply there.

Real estate:               
1031 exchange, 2 out of 5 year sale tax free, syndication, BRRRR. Fix flip, house hack, trailer back, apartment hack, STR,MTR, depreciation, year one depreciation, wholesaling, BAH, seller finance, sweat equity.


Stocks Bonds:   More passive.  Less control, less valueadd or sweat equity           

OPM or leverage.  You can do with both but on Stocks you can get margin calls.  Real estate you can do 0%, 3, 5 , 10, 25, 40% down.  

[Konstantin Ginzburg]

There is no reason why you can't invest in both at once. It also really depends on the individual assets themselves. People can make decent profits in both the stock market and in real estate but they can also lose money in both those asset classes. If you are skilled as a real estate investor, then you can earn a much higher return on your investment when you factor in leveraged debt payoff, property appreciation, rental income, and tax benefits if you are comparing the average return to an index fund that is bringing in an 8% return but the real estate route will not be passive at all like the stock market would be. On the flip side, if you are very skilled at identifying high upside companies at launch then the ROI would be substantial. For example, buying Amazon or Google at launch would net a higher ROI than many real estate investments. My personal preference is investing in real estate and there is a high probability that many in this forum will say the same purely because this is a real estate investor focused forum.

[Carlos Ptriawan]

Quote from @Mark Weins:

Stock market gains average 8% per year. I am not sure what the average year on year return for BRRRR is but if you compare the two which one would earn you more money for your investment assuming average BRRRR results over a period of 30 years?

 1. stock market is very efficient market
2. housing market is very inefficient market slow market

because of these two, 90% of my investments are in real estate. It's just too easy sometimes in real estate if you know what you are doing LOL

[Henry Clark]

$7,000 sell for $210,000 two years later.  Just mow the grass

$10,000 sell for $50,000 one year later.  Just mow the grass.

Buy for $9,000 per acre and sell for $50,000 per acre. Hire a bulldozer to put roads in and clear ground for $2,000.  And mow the grass.

$310,000 down sell and make $1.2mm two years later

$300,000 down sell and make $1.6mm 2 years later

Buy for $30,000 and sell for $45,000 three years later and make $30,000.  Yep not $15,000.  Gotta love new age math.  

You need to start your snowball and build up cash.   Also learn while your mistakes are cheap.  Preferably learn from other peoples mistakes.   For example. I can tell you, your stock market investment can go to zero in one month.  

[Account Closed]

Too many varying circumstances to compare the two. 

[Peter Mckernan]

Quote from @Mark Weins:

Stock market gains average 8% per year. I am not sure what the average year on year return for BRRRR is but if you compare the two which one would earn you more money for your investment assuming average BRRRR results over a period of 30 years?

You can look at the metric, they are close, but you have a lot of different savings and other valuable ways to increase that money on the investment of a BRRRR. One way to increase that and move that money into another asset by 1031 to increase your income, your ROI and overall cash on cash. This also saves on taxes, and puts you father ahead than the stock market, and the tax implication on other investments are not as powerful as the ones you get with real estate. One example is bonus deprecation and cost segregation on properties (this is going away slowly over the next 4 years), but you could really reap the benefits of this type of investment. 

Another option would be a self-directed IRA in the stock market, which could set you up to invest in a deal with your money that has been growing in the IRA on its own, then take that money deploy it to a property for an investment while you are getting a return to your IRA during the holding period which it is has compound that income and make the investment exponentially better than 8% returns. 

[Andrew Postell]

@Mark Weins this is a good post and I can see that you have some good comments above but I think there's other things to analyze here too.  Let me point out a few things here if you don't mind:

1. Since I have been born, the S&P 500 has grown at 11.28% per year.  So that's where I take my measurement from.  If real estate doesn't beat that, then I invest in the S&P 500.  And there are several index funds to choose from.

2. There are risks to purchasing individual stocks - meaning, if you purchased any of the origial DOW Industrial stocks...well, only 1 is even still around.  So investing in individual stocks is a little different than investing in a Mutual Fund or Index Fund.  

3. Keep in mind that so many commodities have come and gone through history.  Did you know that Tulips used to be a commodity?  But in the 5,000 history of modern humanity housing has been there.  Countries have gone to war over it.  Housing/Land is valuable and will continue to do so for generations in the future.

4. There are stocks that provide "cash flow" (they're called dividends) and I can buy a stock for $5.  Pretty hard to buy a house for $5.

5. Even if things got crazy and my house is worth $0 I still have a physical asset.  One that I can use and continue to leverage.  If my stock goes to $0 - I'm out.  I lost everything.

6. Matching 401(k) - I consider myself a part time real estate investor.  My regular job matches a certain % of my contribution into my 401(k).  So even if my 401(k) has 0% returns...I still get 25% returns because of my company match.  You better believe I am maxing out that match every year. 

7. This is the BRRRR Method forum. So the way we acquire properties with the BRRRR Method is by leveraging the asset and increasing the value ourselves. That's really hard for the average person to do in the stock market. There are plenty of people who have used the BRRRR Method and acquired a home with tens of thousands of dollars in equity for nothing out of their pocket. My best scenario has been $3,800. $3,800 to gain $70,000. That's really hard to beat with any asset class. And that's why we talk about the BRRRR Method so fervently. If you can show another technique where I can take a very small amount of money and make a very LARGE amount of money then I'm all ears! But if you tell me crypto...I might have something to say about it, lol. The BRRRR Method is very hard. I don't want to sell it on being something that is easy to do - it's not. But if you can do it then your returns are limitless.

Ready this article that Brandon Turner wrote a few years ago:  https://www.biggerpockets.com/...  Many of us have been using that technique for a long time.  I am selling 2 properties this year and buying 4 properties.  And nothing extra is coming out of my pocket.  It's a game changer.  

Hope all of this makes sense.

[Carlos Ptriawan]

Quote from @Henry Clark:

$7,000 sell for $210,000 two years later.  Just mow the grass

$10,000 sell for $50,000 one year later.  Just mow the grass.

Buy for $9,000 per acre and sell for $50,000 per acre. Hire a bulldozer to put roads in and clear ground for $2,000.  And mow the grass.

$310,000 down sell and make $1.2mm two years later

$300,000 down sell and make $1.6mm 2 years later

Buy for $30,000 and sell for $45,000 three years later and make $30,000.  Yep not $15,000.  Gotta love new age math.  

You need to start your snowball and build up cash.   Also learn while your mistakes are cheap.  Preferably learn from other peoples mistakes.   For example. I can tell you, your stock market investment can go to zero in one month.  

 This is very good example.

So this is the sample why I am saying real estate is very inefficient hence there're lot of opportunities *IF* you know what you are doing.

Stock market is very different in that aspect.
1. regardless you are a Ghana investor or California investor, you purchase at the same price at given time, so your knowledge almost has no valua add to your investment
2. Due to sizing of stock market, 50% of S&P stock market is heavily invested/positioned into Microsoft and Apple. Basically you put your money half into Tech company, no diversification actually. As tech is very influenced by interest rate, so the movement of your investment is also affected so much by interest rate

3. Housing market in other way around, is more influenced into hyper local supply-demand market rather than global aconomy and index; making real estate is very niche business to enter. Real estate is something that you only understand, and able to exploit, with your own way. If you success, it happened because of your intelligence, not because of market.

[Mason Liu]

So let me chime in with a slightly different perspective (my background is in Finance, but mainly focused in alternative investments including real estate).

I don't believe it is a fair comparison to say if Stock Market returns are better or worse than BRRRR. Firstly, the stock market is not an investment, it is a marketplace in which you can purchase any publically listed equity / ETF / mutual fund position. You'd need to identify what specifically in the stock market you are investing in. For example, the S&P500 market index has gained roughly 11.82% annualized since 1928. The DJIA market Index gained roughly 5.42% annualized since inception in 1896. Point being, what you invest in in the stock market can vary drastically. You could have went all in on just Apple stock for 10 years and your annualized compound return would have been 28.76%.

In this context, you asked how the stock market compares against "BRRRR", which is a real estate investment strategy, not an actual investment. If you're talking about the actual investment, you'd have to be referring to an actual property, whether single family/multifamily/commercial etc. Once you identify a property you need to 1) acquire at a discount 2) value add via rehab 3)rent out 3)refinance 4) continue to manage the property. Assuming all are done, you'd get a good rate of return for your sweat equity and ability to find a good deal. However, this can vary drastically depending on the operator, as well as the amount of leverage that is used. The rate of return varies drastically upon if you put 5% down vs 20% down, given the same deal.

All is to say there is no right or wrong answer because in this context the question is too vague. You can find a single stock holding that has outperformed 99% of all real estate deals in the population over the last 10 years, and you can also find a real estate deal (whether BRRRR or not) that has outperformend 99% of all stocks. You have to get a bit more granular. Also, investing in a stock/ETF/fund is truly passive, whereas a BRRRR deal is active, so you should expect a premium in the form of additional return for your efforts.

Hope this helps.

[Nicholas L.]

@Mark Weins

can you provide more background?

this is like saying - would i make more money starting a restaurant, investing in a silicon valley start-up, or buying AT&T stock and living off the dividends?

i have no idea... what are you interested in?  what do you want to do?  what are you good at?  how do you want to spend your time?

[Luka Milicevic]

There is a report that somewhere around 150 pages long that takes the historical returns of stocks for the past 100 years and compares them to RE over the past 100 years. 

Stocks average 8%

RE averaged 7.7%

Based on that the return for stocks is slightly better.

However....those are unleveraged returns and don't factor in the many tax benefits of owning RE. 

This answer really depends, but technically the BRRRR method is a temporary investment. Meaning the money you invest is refinanced out and put back in your pocket whereas the stock investment stays in the market until you sell.

Overall, the BRRRR method for me is basically like owning RE for free. I don't have any actual money in the deal so any and all gains are not measurable as an ROI because I have no dollars to measure it against.

Either way, I invest in both. Invest wisely and invest often!

[James Hamling]

Quote from @Mark Weins:

Stock market gains average 8% per year. I am not sure what the average year on year return for BRRRR is but if you compare the two which one would earn you more money for your investment assuming average BRRRR results over a period of 30 years?

Ok, simple napkin math. 

Let's say you DO 100% "make" 8% return, on both, stocks and REI, does that make them "equal"?

Stocks, let's say you put "as-much-as" $350k in and got 8%. Congrats, your clearing as much as $28k annual "gain" pre-tax. 

Now, in REI, that $350k translates to $1.5m in assets under control. So at 8%, it's not on that $350k anymore, it's on $1.5m isn't it, which is $120k! 

Now I could go nauseum about the differences in tax impacts, or operational returns (rents vs dividends) management costs for assets (PM vs ETF) etc etc etc.. But I don't have to, because that 1 factor along, LEVERAGE, is such a MASSIVE game-changer in returns, that everything else is just icing on the cake. 

There is no comparison, unless your a master of leverage on W.S. (Options) which FYI, is known as the easiest way to go broke on WS, than REI blows the doors off WS returns.

[Timothy W.]

Quote from @Mark Weins:

Stock market gains average 8% per year. I am not sure what the average year on year return for BRRRR is but if you compare the two which one would earn you more money for your investment assuming average BRRRR results over a period of 30 years?

First of all, you need to understand that this forum is heavily populated by salespeople with a vested interest in real estate transactions occurring.  You're going to get a lot of recommendations for real estate for that reason.  That caveat aside, it's hard to compare the two because I hold thousands of shares of stock in varied companies for varied reasons.  Some of my stocks are investments in real estate.  It's hard to have that kind of variety in real estate at the level of humans.  Even Trump has his few types of real estate investments he does.  There are no Trump self-storage facilities.  

Real estate is better when you run your real estate investments like a business, learn a niche, master that niche, and maximize yourself within that niche, then move on to the next niche.  The most successful investors I know (over a million a year in net cash flow) operate in 2-3 niches max.  They are also workaholics.  That's not a joke.  The successful investors I know run about 80 hours a week and are always on the phone.  It's just how they're wired.  My dad is this way and is 71 years old and there are no signs he's stopping any time soon.  

That's certainly not the only way to do it.  Josh Dorkin built this forum and was famously open about minimizing his actual investments in real estate in terms of owning numbers of property or doing numbers of deals.  Unlike most people in the education space, he was honest about that.  To my knowledge he only did 2 deals that he owned, his house (which if you know how to follow, he made a KILLING on that to a level most people don't understand) and the sale/recapitalization of this forum.  Pretend he made no money on the sale of bigger pockets (I said pretend) and pretend he isn't involved in investing in startups.  If you know how to follow what he did with just his house he's set for life (probably his kids too) on a conservative investment for dividends from that single transaction.  I don't know that you could buy one stock that would do that for you.

You know what it comes down to.  Real estate is your business.  Stocks are someone else's business.  Sometimes you're better and sometimes someone else is better.  Sometimes your best value is in researching how someone else is better than you and making your money investing with them.  Be honest with yourself, try both and see what's better for you.

[Matthew Paul]

If you had AB stock and Target , I would say real estate 

[Carlos Ptriawan]

Quote from @Luka Milicevic:

There is a report that somewhere around 150 pages long that takes the historical returns of stocks for the past 100 years and compares them to RE over the past 100 years. 

Stocks average 8%

RE averaged 7.7%

Where is this RE average 7.7% coming from ?

I am 200% pretty sure the RE return % is vastly different between California, Ohio or MN.

[Carlos Ptriawan]

Quote from @Timothy W.:

Quote from @Mark Weins:

Stock market gains average 8% per year. I am not sure what the average year on year return for BRRRR is but if you compare the two which one would earn you more money for your investment assuming average BRRRR results over a period of 30 years?

You know what it comes down to.  Real estate is your business.  Stocks are someone else's business.  Sometimes you're better and sometimes someone else is better.  Sometimes your best value is in researching how someone else is better than you and making your money investing with them.  Be honest with yourself, try both and see what's better for you.

 This is why in the eyes of beginner (of both real estate investment and stock investment), they think both investments are passive.

If simple house hacking itself is full of active business activity, a BRRR is even harder *hyper active* business activity with its unique reward/risk scenario, it's very far from passive activity and it should not be compared.

Saying 8% return could be incorrect as well as it's all depends on when you buy, if one started investing at market top in 2021 they would see their account depleted rather than stable 8%. In both markets (real estate and stock), conditions are harder than even a year ago.

[James Hamling]

Quote from @Carlos Ptriawan:

Quote from @Luka Milicevic:

There is a report that somewhere around 150 pages long that takes the historical returns of stocks for the past 100 years and compares them to RE over the past 100 years. 

Stocks average 8%

RE averaged 7.7%

Where is this RE average 7.7% coming from ?

I am 200% pretty sure the RE return % is vastly different between California, Ohio or MN.

The closest a person can get to an Apples-2-Apples comparison to find "which is best", I believe, is by taking O vs how rental real estate performs. 

O is "The" dividend stock, as in #1. It has a monthly div payout, decades of operations and history, stability and appreciation in similar trend to real estate. It's closest thing to an accurate comparison I believe. 

When we "dig in" we find on asset value over last decade of holding, one could have made as-much-as 100% return on asset price with O. For real estate holdings over last decade, that's generally 100%-200%.    O has grown it's div. distribution since Jesus was a pup, just like real estate. When we dig into this, we see O stays rather close to the 5% yield mark on div distribution. Real Estate over last decade, seems to hold in similar proportion of asset price of about 3/4 of a %, that's to say rents at 3/4% of the market value price of real estate. 

So in this, they are rather similar. Real Estate appreciation outpacing O has resulted in outpaced cash-flow distributions. 

But.... we have all the but's here again because with O a persons maximum leverage is 50%, meaning if have the margin account can by $100 in stock for every $50 one has. In real estate leverage is 75%, or, 50% more.     

Using leverage in stocks is dangerous, if one tries to use that max leverage one is VERY open to a margin call, having assets sold off without control if price fluctuations drop down for 48hrs. In real estate, no margin calls. I can use 75% leverage and sleep easy without a care in the world, I will never get a call from a lender saying there going to sell my property because comps that week are less than my holding. 

So with this, all things being equal in returns, real estate has (a) more leverage power and (b) less risk in use of leverage. 

Unless your last name is Heinz or Hilton, odd's are you need leverage to "get wealthy", so leverage matters, it matters a lot. 

[Steve Vaughan]

Quote from @Mark Weins:

Stock market gains average 8% per year. I am not sure what the average year on year return for BRRRR is but if you compare the two which one would earn you more money for your investment assuming average BRRRR results over a period of 30 years?

My average BRRSR return was 40% per year the first 3 years, but they took years of knowledge, harvesting seeds of marketing /networking and were few and far between
Similar in 'stocks' would be to comb financial statements,  buy a company seriously under-valued, stabilize it, add value and run it properly.  
A better apples to apples comparison would be REITs or broad index funds, which performs better in general? 

[Carlos Ptriawan]

Quote from @James Hamling:

Quote from @Carlos Ptriawan:

Quote from @Luka Milicevic:

Unless your last name is Heinz or Hilton, odd's are you need leverage to "get wealthy", so leverage matters, it matters a lot. 

 This is why this kind of question is bit dangerous when read by newbie. They would expect just to throw money at both, do nothing and voila....guaranteed 8% return.

Without true understanding of risk , leverage, margin call, DTI debt ratio, appreciation/cash-flows ; this is bit hard to answer.

If they want to compare with CD, then it would be easier to answer, as return is almost guaranteed and truly passive.

Expecting average 8% return from stock index for the next 10 years, are kinda dangerous assumption as well as we're on the slowing path of economy for next decade, it seems Fed is going to print money more carefully which would affect the trajectory of stock index/401k appreciation as well.