I believe, at least in the past 10 years, that this question has been asked a lot. The truth be known, had I been left to my own designs, I would have gotten involved as a stock day-trader in 2000 instead of becoming a real estate investor. I have my loving wife Vicky, definitely the smarter of the two of us, to thank for redirecting my efforts.
The CNN article above does its best to fairly compare the two investment classes, but you would have to be in a fog as you read the article, to not realize that this article really is intended to ensure the “stock” advocates that they have made the right decision by investing in stocks.
So… where does that leave us real estate investors?
Are we uninformed schmucks? Or are we the ones who will get the last laugh?
I will provide a response… but before I do let me share a quick story…
A very close friend and mentor of mine spent 25 years building his business. In late 2006 he sold the business and placed the proceeds into an irrevocable trust tied to a stock market index. Great tax strategy, but probably not a great investment strategy. Well, you know what happened in the ensuing time-frame. By the time 2008 was over he had lost over 50% of his overall wealth and almost 40% of the principal amount of his wealth. OUCH! This event was so significant it actually caused him to change his lifestyle to accommodate for his losses. And the really tough part about this story is that he felt totally helpless because the vast majority of his wealth was tied up in something he not only had no control over, but couldn’t get control over.
Scary stuff… won’t you agree?
Now on to my response, which will focus on why I believe we as real estate investors get the last laugh.
Lets review all of the advantages of being a real estate investor.
First for clarification purposes I am broadening the definition of real estate investor to include activities such as rehabbing, wholesaling and other common “profit” making activities in this discussion.
The biggest advantage I see for real estate investors is that we have much more control over our outcomes than stock investors. While I realize that no one can control market directions, we real estate investors have much more control over our offer and sales prices, can often times take action to increase property values, and we have control over the level of our profits — assuming we purchased correctly to begin with.
The more obvious advantages are the gains to be made through positive cash-flow, capital gains deferrals, depreciation, leverage, re-amortization and the wonder world of tax free refinance events. And if done correctly, an investor’s overall return on investment can exceed 50% to 100% — or more.
In today’s market it is possible to purchase properties at such a substantial discount, that making double and triple digit returns is the norm not the exception.
And, where else can you put a asset under contract with little or no money down and with a high degree of certainty of very little risk, and potentially make $3,000 to $10,000 in just a few weeks?
One other critically important advantage of real estate investing over stock investing is that the average “Joe or Jane” just like you or I can get into real estate investing, quickly learn the mechanics and expect to succeed. In my discussions with others, you don’t find this environment with stock investing.
One last thought; our entire tax code is set up to encourage and foster real estate. From the assistance the Government provides to homeowners through interest and property tax deductions to the support real estate investors get through depreciation, 1031 exchanges and tax-free cashout refinancing, real estate is, at least for now, a favored asset class within our tax codes. I can’t think of many other investments that offer such great incentives.
So there you have it! I know that I am preaching to the choir with this post, but perhaps you know someone who is thinking about getting into real estate. If so please pass this article to them and ensure to let them know you got it from BiggerPockets.
Photo: Public Domain