How passive investing can create loss of control.

If something is going to cause you stress and anxiety, would you prefer to have control over that thing, or just be along for the ride? I’ve adopted the mindset of 100% ownership for everything in my life. If I’m out of shape, it’s because I make bad choices when it comes to diet and exercise. If I’m late for an appointment, it’s not the traffic jams fault, I didn’t leave enough time to adjust for a traffic jam. If I invest a bunch of money and lose it, I made a bad choice on where to invest my money. For that reason, I’m glad I chose real estate and not the stock market.

I don’t want to go off on a long rant about stocks compared to real estate. That’s been beaten to death. I just want to focus on one aspect of stocks vs real estate. Control.

I understand the draw of stocks, bonds, mutual funds etc. It’s a lot less hands on than real estate investing and therefore a lot less work. Yes, you can put a lot of effort into educating yourself about stocks, and you can make real estate basically completely passive with REITs or being a money partner, but for most real estate investors, real estate investing is like running a business. It’s a lot of work. Like many other things in life, the more you put in, the more you get out.

One of the great downfalls that comes with being a hands off investor, as is the case with stocks, is the complete lack of control. You're on the train tracks that will take you to your inevitable destination. Hopefully it’s where you were planning to go. You can get off the train, or get back on, or even get on a different train, but you are never in control of where the train you’re on is headed.

Many people opposed to real estate investing will talk about how they never get a phone call that a toilet is broken, a pipe burst or tenants skipped out on rent and kicked holes in the walls on the way out. Those things cause a lot of stress for people, which I understand.

For me, as unfortunate as those scenarios are, these are all problems that can be solved, and I have the tools and knowledge to solve them. Sometimes these scenarios can even become opportunities. Opportunities to upgrade you rental units, opportunities to increase rent and most of all, opportunities to learn. To learn how to prevent something similar from happening again. As they often say on BiggerPockets, real estate investing is about solving problems and creating opportunities.

The stock market provides very little recourse when things go wrong. Stocks are manipulated by global, national, local, economic, political, environmental and individual influencers, to name a few. How can you control any of these things? The best you can do is try to predict. The Coronavirus has crippled the stock market recently. Is that something the general public has any control over? If a CEO of a major company resigns and stocks in that company plummet, can stock owners in that company insist the CEO stay on board? If a major class action lawsuit forces a company to declare bankruptcy due to a defect in the manufacturing process of a part, can stock holders in that company do anything? A war in the middle east, a new president or even just one billionaire deciding to take his money out of a particular stock can cause major market fluctuations. Sometimes events causes a rise in markets, sometime a decline, but rarely does the stock holder have anything they can do about it, and for me, that’s a thousand times more stressful than finding out a pipe burst in a property I own.

There are times when real estate prices will change for reasons beyond a real estate investors control. For that reason, I choose to not speculate on property value. I focus on debt pay down and cashflow. If you look at rental prices and vacancy rates in the places I invest, they have been stably increasing for decades. If real estate values drop, debt pay down continues, if prices go up, that’s the icing on the cake.

The fact that real estate investing is far more work than investing in the stock market is its strength, not its weakness. The fact that your are involved in almost every aspect of the investment means you get to have control. A virus on another continent, a lawsuit against the CEO of a major company or the shortage of a major resource will have little or no effect on the value of your real estate.

I know some people have lost over 10% of their investments in the stock market in the last few days. There is no recourse they can take and for most, there is no lesson they can learn. I’m not anti stock, and I hope the market recovers quickly. For me though, this was just a reminder of why I love real estate. Real estate = real control.