Real Estate is Better than Stocks – Fact, Not Opinion.

61

Last week my colleague Mark Ferguson posted an article on this blog which argues that real estate investments are a better and more effective vehicle for achievement of financial success than stocks for most of us.

While the article was good, the comments were absolutely priceless.

Interestingly, if I were to describe the spirit of the comments I would have to use the word Emotional – people are seemingly deeply committed to their point of view on both sides of the issue.  Fitting – our beliefs define our reality, and we should be committed to them.  However, all of us must realize that perception of reality is somewhat different from reality…

I promise that if you read this article to the end you’ll have no choice but to accept that estate is a much more viable investment vehicle for vast majority of people reading.  You won’t have a choice, because regardless of your feelings on the matter I am going to provide you with a chain of logic based on universally accepted truths, even laws – realities that even stock investors generally do not dispute and you won’t be able to ignore.

And may be then we can put this argument to bed.  Ready or not, here it comes:

Efficient Market Hypothesis

I’ve spoken about this in the past, but it seems appropriate and even necessary to do a little review.  The Efficient Market Hypothesis is a theory that has been around since the 1960s, which states that the price of any security at any given time reflects all of the available information that is pertinent to the setting of value of said security.  It is presumed that in an efficient market all of the information which must be known in order to valuate an asset is freely and equally available to all of the participants in that market.

What this means is that in an efficient market there is an assumption that at the moment you purchase the asset, the price that you pay reflects the true value of that asset as set by the marketplace at large and based on all of the pertinent facts – price setting is efficient.

Think CNBC

Ever seen that tape at the top of your TV screen which shows price of stocks?  I haven’t had a TV in the house for about 4 years, since I discovered that it neither helps me get smarter, more informed, or more rested, but when I did have it I could spend hours glued to that tape.

Well – guess what?  If I wanted to pull the trigger on any of those stocks scrolling across the screen, the price that I would have to pay would necessarily have to be the very price on the screen at the time my order went in.  Importantly, every other participant in that marketplace wishing to take action on the same stock at the same moment in time would necessarily have to pay the same exact price.  There simply is not a legal way to achieve a better strike price than that which is set by the marketplace at large in an efficient market.  This is the essence of the efficient markets – efficient price-setting.

This Seems Fair – Does it Not?

It certainly is the indented effect – fairness.  However, this “fairness” comes with the un-intended, or intended (depending on how cynically you look at this) consequence of the individual investor being unable to perform any better than the market as a whole.  This is why Mark wrote, and a lot of comments corroborated, that if the market went up so did his portfolio, and visa versa – this is a design feature of the efficient marketplace.  And this effect is further amplified with the use of the popular diversification strategy. It does limit the risk of loss to an individual investor, but also effectively precludes the possibility of getting ahead of the marketplace in a substantive way.

Focus

Diversification, by the way, is not the strategy of choice for successful equity investors – they FOCUS.  This is to say that they evaluate companies, and when a good opportunity is spotted they allocate a very substantive portion of investable capital toward that opportunity.  This means that if they lose – they lose big; but if they win – they win very big.  This strategy hinges on an investor’s capacity to accurately analyze all of the pertinent data.  The term is Focus Investing and I believe it was coined by Warren Buffett who certainly is the most notable contemporary exponent of it.

If you don’t know who Buffett is, he is the guy who said “Diversification is protection against ignorance”.  Translation – if you don’t know how to invest (do not have access to or don’t know how to analyze pertinent data) then you should diversify.

Do you diversify…?

On to Real Estate

Real estate markets operate on principals that are the polar opposite of efficient, and is indeed inefficient in nature.  To start, price-setting in real estate is a function of something we call the “meeting of the minds”.  Ultimately, the strike price is that which the seller and the buyer agree upon; the two people (entities) who make decisions based solely on their respective circumstances, and having very little if anything to do with the market at large.  That last part is very important – having very little if anything to do with the market at large.  You make me an offer, and if I agree then we have a deal…

The above condition of the marketplace inherently means that a skilled negotiator may be able to negotiate a price which is considerably below the intrinsic value of the asset and below that which the market establishes – price-setting is inefficient, unlike the stock market.

More importantly, the inefficiency of the real estate market allows the investor to apply principals of strategic management and expandability to increase intrinsic value, something I’ve written about before on this blog, and something that is not possible in an efficient market – there, you are simply going along for the ride.

What all this means is that inherently and by definition it is more advantageous to invest in an inefficient market such as the real estate market, as opposed to the alternative.  This is especially true for a small investor.  You see – when Warren buys a stock, he takes a large enough position (focus investing) that he is able to affect change from inside the company.  You, as an individual investor, are not able to do this in the stock market, but you certainly can in the real estate market.  So, you can pay less, and then you can force value – making real estate market a much better opportunity for all of us reading this.

Here’s What I Want You To Do

I want you to go out into the world and buy a 6-plex for $200,000 which generates NOI of $1,800/month and is therefore worth $216,000 at a 10 CAP.  I want you to spend $15,000 on upgrades over the course of 45 days and bring the NOI up to $2,100/month, which would justify a value for the building of $252,000.  I want you to do this – but do it even better; spend less and do it faster!

I promise – if I can do it, so can you!  Yes indeed, I wouldn’t dream of telling you something that I haven’t done myself and this was a deal I did 2 years ago.  The deal was 100% financed (it wouldn’t be me if it weren’t), and after 45 days it put close to $700/month of cash flow on my income statement and some equity on my balance sheet to boot.  Actually, after 45 days the bank valued the property at $275,000, but this is closer to a 9% CAP and I don’t want to be as aggressive as that although this particular sub-market likely supports it…

What made this possible?

Simple – the real estate market is an inefficient market, which comes with inherent advantages over stock market.  I was able to pay lower than the intrinsic value and I was able to force value from there.

Understand, these advantages are inherent within the design and structure of the marketplace itself – Fact, not opinion!

Are you convinced?

Photo Credit: David Paul Ohmer

About Author

Ben Leybovich

Ben Leybovich has been investing in multifamily residential real estate since 2006. His area of expertise is creative finance. Ben works extensively with private as well as institutional financing. Ben is a licensed Realtor with YOCUM Realty in Lima, Ohio. He is also the author of Cash Flow Freedom University and creator of a cash flow analysis software CFFU Cash Flow Analyzer.

61 Comments

  1. Ben, I agree with your discussion on focus and that the real estate market is less efficient than the stock market.

    However, that inefficiency can work both ways.

    I issue the same challenge to you as I issued to Mark in his blog post (which you cite). Buy the house that Will Barnard purchased 3 years ago at the price he paid plus (at least half of) the financing expenses and legal fees that he has paid to evict the still-on-property squatters.

    Fair enough?

    • Haha – Kevin, I give you props for trying but you can’t win man. The business of investing is about likelihoods and percentages. There is risk everywhere – risk can not be avoided; and should not be avoided. The best we can do is mitigate it. My point – it is a lot easier to mitigate risk on average in an inefficient market than efficient. This doesn’t mean we don’t get stung once in a while…Agreed?

      • So how did Will get ‘stung?’ He, a very experienced, successful real estate investor bought the house at a discount and is probably looking at a loss right now even if he takes possession the day after his next court date AND the squatters cause no damage to the property. He had clear title and title insurance.

        Could he have purchased a put option on this house and limited his loss? Buying protective put options on stocks is the guaranteed way to MITIGATE against a loss in a stock position. Oh wait … you claim that it is easier to mitigate against losses in the inefficient real estate market than the efficient stock market. Something is amiss.

        • Kevin – if you don’t want to get stung, then don’t invest in RE. By all means, buy stocks man. To all his own… But, you should know that I am aware of one person who was able to manufacture significant wealth in one generation with stock, and it is a highly paid professional who had lots of disposable income all his life. I know many many people who made it with re. Your call – good luck Kevin!

        • Sample selection bias.

          As Kenny mentions below, SM investing and RE investing each have advantages and disadvantages.

        • Ben, how many people do you know that tried to ‘make it rich’ through securities investing and failed (even if they didn’t go broke)? How many people do you know that tried to ‘make it rich’ through RE investing and failed (even if they didn’t go broke)?

          Discussing only the successes only tells half the story.

        • @Kevin Yeats

          Ah, but Detroit has not been erased off the face of the earth completely, yeah? We can throw outlier examples back and forth all day I guess. My point is that with stocks it’s quite possible for the value of your investment to go to zero overnight (accounting fraud, etc). With real property on he other hand – if you buy a specific lot and house, you can instantly verify that it actually exists, just by looking. Transparency, and ability to manage risk.

        • @Dmitri
          I understand your point, but let’s be realistic – it’s not “quite possible” for the value of your investment to go to zero “overnight”. It’s very, very, very unlikely, and the value almost never goes to zero. If you avoid investing (speculating) in penny stocks, you are very likely to return 8% in the long run. Diversification is also important.

        • Yes one can still find Detroit on the map … but I venture to say that there are parts of Detroit that no real estate investor would touch due to high taxes, low or no government services, high crime and no clear return on the investment.

          If you dig a little deeper than the headlines from 10 years ago, you will discover that Enron was publicly traded for many years after the bust (meaning a non-zero value). Look up Enron Creditor Recovery Corporation. Google states that ECRC “paid out more than $21.7 billion to Enron’s creditors, including $100 million in May, 2011” hardly going to zero and far from overnight.

          If you want to talk about fraud (or deception) please read Will Barnard’s “The Occupants from Hell.” The value of Will’s investment severely dropped when he discovered these occupants who claimed ownership. Dmitri, please tell me how Will could manage that risk? How transparent was that investment …. remember, Will is a highly experiences RE investor.

          But you are right, Dmitri, we could toss extreme examples back and forth. You pointed out one of the worst stock investments ever. I pointed out one of the worst RE investments ever. Neither example invalidates either type of investing.

        • Kevin –

          I know we come down pretty hard on Detroit. However, I know many people who are making fabulous Cash Flow in Detroit. Sure, the valuations are nowhere to be found, but knowledgeable and experienced operators are making very good money there – the key is knowledge…

          On the other hand, when Enron imploded the losses were total and across the board. Regardless of my knowledge base, as an individual investor in their stock – lights out time… There is a big difference between the two, wouldn’t you say?

        • Ben, flash back to early Jan. 2011. Will Bernard approaches you with an offer to syndicate RE deal. He proves that he is an accomplished RE investor with much experience so you agree and put up 50% of the funds ($250,000).

          Feb, 1 Will calls to inform you that he has a great house in the LA area under contract. He will purchase this house from a SINGLE woman and take possession on Feb 28.

          March 15th, Will calls you again and states that there are two occupants in the house but he will offer $10,000 cash for keys for them to vacate and that should take care of the situation. This creates a slight setback in Will’s rehab plans but other than a short delay, everything should be fine. (Do you think the value of your investment took a slight hit? If you wanted to exit this deal, do you think you would get your full $250,000 back?)

          Three years later and Will still has not set foot inside the syndicate’s house. Will has called you every so often to let you know what happened at each court date. You are not pleased with this investment. In his last call, Will tells you that these squatters, who are broke and living on disability, will make an offer to settle with Will and the syndicate over ownership. Your response to Will is “I will celebrate when MY check clears.”

          Now take that entire example and make the holding entity a publicly-traded company that has a stock that trades every hour the stock exchange is open AND has to report significant events to the stock exchange and shareholders as they occur as well as quarterly reports.

          What do you think that stock chart looks like?

          By the way, when Enron imploded, the stock did NOT make a straight decline. It bounced. Yes, it ended much lower after all that bouncing … but an investor (day trader) could have bought on a dip and sold on a high bounce. An investor could have also shorted Enron’s stock or bought puts on the stock. Could anyone do that on Detroit real estate or on Will’s and your house investment in SoCal?

          Lots of RE people here on BP laud real estate in part because they feel that they have control over their investments. How much control does Will have? How much is this investment costing Will?

        • Haha – Kevin,

          I would not invest in a deal like that with Will – ever. He wants to flip. He wants to speculate. A $500,000 house in Cali can not be rented for enough to generate CF. I don’t speculate…

          CF!!!!

        • Ben. it is interesting that you dispute a point that is NOT germane to the issue that I raise – the determination of value.

          But I am very tired of this whole topic. I concede. Every real estate deal that every investor make will only rain manna from heaven. Every stock, or bond, or any other investment is heading straight to bankruptcy with investors losing all of their wealth and force to live in the poor house subsisting on the scraps that benevolent and wealth real estate investors leave for them.

    • I will be happy to buy Will’s house if I can also take the profit he made from his other deals. It makes no sense to say real estate is a bad deal because of the worst possible case you can find and then say you have to buy that house after it has become the worst possible case. Would you by a house that is worth $0 now for $1000 because it was once worth $1,000?

      Think of it this way. You said you thought Will’s deal may have been the worst luck/downside /bad deal you have ever seen. Yet Will is STILL Investing in Real Estate. What does that say about Real Estate?

  2. Kenneth Estes

    From the title, I was expecting fact…not opinion. Instead this article is entirely opinion. How many facts? None facts. What a let down.

    The closest thing to data was pointing to a deal that worked out for you. You know how many people who invest speculatively in the stock market I hear use similar “facts” to prove their points?

    The efficient market hypothesis is not the efficient stock market hypothesis. It applies to all markets, including real estate. The question is if you believe in it or not. If not, as this article argues, then you should be able to find “deals” in any market. Pointing to one real estate deal and drawing the conclusion that real estate is awesome is a straight up logical issue.

    The only article I’ve seen in this debate that actually uses facts (ie data) is my two month old one on real estate vs stocks. (https://www.biggerpockets.com/renewsblog/2013/07/17/real-estate-vs-stocks/)

    The conclusion is to match historical stock market returns you have to receive 6% cash flow and reinvest it every year. While that is doable in certain markets, it’s not a no-brainer and requires a lot of work. Is it worth your time? That totally depends on your personal situation.

    There are plenty of downsides about real estate being hard to dispose of and expensive to enter into (you’re paying one way or the other).

    Can we please just stop with these articles saying real estate is the absolute best investment? It has its advantages and disadvantages like everything else.

    Maybe we should try for a reasoned, data driven, approach, rather than stating opinions as facts?

    • I’m going to add to this a little and point out that the Efficient Market Hypothesis is a HYPOTHESIS – it’s right there in the title. I just did a blog post on the two Nobel laureates in economics who disagree about this very issue. The reason that Buffett does so well in the stock market (annual returns of 22% over 40 years) is that he finds the inefficiency – he buys stocks that are undervalued by the market and waits for them to be valued properly, he doesn’t always affect change in the company. Buffett is an investor, not a CEO.

      I would argue that the reason to not pick particular stocks is that almost no one can do what Buffett does – he is very, very good at it. For the most part, people are better off just investing in an index fund, as most mutual funds can’t beat the market on a regular basis.

      • Adrian – I completely agree that Buffet finds the inefficiencies. But, a joe-blow small time investor in stock can not do this effectively with stock – you must agree. With re, however, this is very possible indeed even for a very small investor. This is precisely what drives my argument for re.

        Thanks so much Adrian!

        • I do agree, and agree with Kenny that there are advantages and disadvantages to both, I just take exception to your assertion that RE is “better” than stocks.

      • Kenneth Estes

        Couldn’t agree more Adrian. In the article I reference above, I’m assuming you just dump your money in an index ETF and reinvest the dividends. Even doing this simple approach you would still have to get a historical cash flow of 6% on your real estate to match it.

      • I would say inefficiency and buying below market is different. With real estate you can buy properties below what the current market says they are worth. People in BP, myself and others in my market donut all the time. Undervalued means the market(millions of investors) have decided this stock is worth less than than it should be. It takes a full time SM investor to weed through the financials to find these deals. Then you still are depending on the market to change their mind on the value.

    • Kenny Estes wrote: “Can we please just stop with these articles saying real estate is the absolute best investment? It has its advantages and disadvantages like everything else.”

      Major thank you Kenny.

        • Haha – Kenny, it’s not that an investment vehicle is better due to leverage; it’s that it is accessible! Doesn’t matter how good something is if you can’t find a way to get in – RE opens the game to me and others like me, and this is definitely an advantage inherent to RE. We don’t have a high-paying gigs. We don’t have family money. But, we can leverage and that does the trick in RE.

          Sure – it comes with added risk. But, what doesn’t… I’d rather have a chance and loose than not have a chance at all. I know you do not agree, alas…

          Thanks a lot for commenting!

      • Your comment above is proof positive you have no idea how the stock market works.

        I could control tens of thousands of dollars of stocks via a call option without actually putting out the dollars needed to buy the stock. If the stock was to move above my strike price on the call option, I could sell that option for a substantial return in some cases.

        The key to properly investing in RE or SM is first knowledge, second buying a good asset.
        The idea that stocks are static and I cannot force appreciation is nonsense.
        For example: An investor owns 300 shares of Coca Cola, which is a stock that is mostly range bound in price, but over time has moved up with inflation of the money supply and from growth in the market. But in the short term you statement claims I needed to tie up 100% of the cost of the stock. With this static price position, I would not be making a return on the capital. However by simply selling call options (giving someone the option to buy my stock at the option strike price during a period of time) I would generate income into my account.

        The trick in the SM is to deal with tried and true companies, that have at least a million shares changing hands a day. Like REI if you buy dogs no one wants, liquidity is going to be lacking, as will appreciation suffer. In the SM there will be no opportunity to deal in options on a crap stock.

        Diversification is a fools errand if it involves moving capital into lousy sectors when you have a solid sector of the market to invest in. I only deal with 4 stocks, these are companies that are not going to be effected by the whims of the public. Except maybe for short term falls in value where I will buy more shares.

        The above is exactly what Warren Buffet does, when a solid company falls in value for a temporary reason and falls into his value model he buys these companies. His foray into Coca Cola took 20 years of waiting until the market correction in 1884 brought Coke into his buy range. He did not as some in REI do try to buy high and force appreciation with granite counter tops.

        • Dennis – let’s think this through:

          My argument is what – that all things considered RE offers a better investment opportunity to vast majority of people. Why is this my perspective? Because the level of sophistication required to succeed in SM is not accessible to most – you make this point very eloquently in your comment above.

          I am aware the you can trade stock, puts and calls. I have a friend who writes his own high-speed algorithms and does well. So what?!?! I consider myself not a dumb guy, but that style of investing is too complex with too many moving parts – I choose to stay out.

          You are right – knowledge is everything, and the type of knowledge required for what you are suggesting is just not the domain of 99% of investors out there – thank you for proving my point for me!

          Continued success Dennis!

  3. Its amazing how few people at large “get it” when you increase rents by a very small amount, (assuming you have a fair number of rental units) and thereby increase net operating income and then capitalize it at say 7% how much profit you just made. Love it !!!

  4. Heck, I work in the stock market [I’m a financial advisor] and I agree with this article as well as Mark Ferguson’s piece from last week.

    Investing (in the market) is largely a rigged game. It is designed to nickel-and-dime the average investor, who simply can not compete with institutional investors, hedge funds, and black box trading systems. These large investors typically have access to information that outsiders don’t have. And, they can act much more quickly. Mutual funds? Don’t make me laugh.

    What I’ve noticed is that, despite my firm’s recommendations, most of my wealthiest clients have the bulk of their wealth in RE. These people include self-made people and business owners, as well as people who inherited their money.

    I’ve seen more people [myself included] “strike it rich” investing in RE than in stocks, to the extent that I’m slowly transitioning to a RE career.

    No comparison.

    • Haha – thanks for that John. That took balls 🙂

      I agree – I’ve researched this and spoke with a lot of people. It seems that most people with real money hold it in RE. Sure – they have a few bucks in the market, but that’s because they can afford to loose it. By and large, I only know of 1 person who amassed wealth in stocks.

      I’ve done research and came to the conclusion that the market is very hard to figure out, so much so that it feels like there are very large forces behind making it so. I’m not smart enough to crack that code, so I stay out. RE is easy 🙂

      Thanks so much for an honest and gutsy comment indeed!

      • Hi Ben, thanks for your nice reply.

        One of the best things about this job is that I learn so much from my clients. And one of the things I’ve learned is that the wealthy put their money into real estate.

        The paths to wealth creation, I’ve seen again and again, are real estate and entrepreneurship (starting your own business).

        The reason the market is hard to figure out is because of the computer trading, algorithms, insider trading, and nepotism to which most Main Street investors lack access. There ARE big forces behind it.

    • John,

      Why do you think they call you guys BROKERS.
      Selling old ladies and the uninformed pensioner a crap stock to make a commission is not SM investing. You guys are at this time setting up Mom and Pop Kettle for a big fall.
      Since our government has the interest rates rigged low (so the SM guys can profit) the pensioner is forced into the SM. At first they bought the good stuff, but now these stocks are out of their league, so they are steered to MF and the crap companies you guys are pushed to recommend.
      In the SM this is called Pump and Dump. This is much the same as the old RE sales of swamp land in Florida.
      The idea you don’t put your money in what you are selling is proof you are selling crap to people.

      But then again sadly for this retiring generation a fool and his money are soon parted.

      • I resent your lickspittle accusations. I think you’ve watched the movie Boiler Room too many times.

        My firm has made lots of money for our clients. And I’ve done very well investing in a conservative manner. But I see MORE money being made in real estate.

        Is that point so hard to understand?

    • You should advise your clients to open a Scottrade account, buy the Vanguard Index fund that tracks the S&P 500, dollar-cost average each month into more shares of the index, while setting up FRIP (scottrade reinvests all dividends without a commission) to reinvest all dividends into more shares. Scottrade only has commission of $7 per trade. Each investor would have $123 commission expense per year along with Vanguard’s net expense ratio of 0.05. Your clients will NOT get “nickled and dimed” and by avoiding those fees they will in fact do better than the “average investor” that does incur those costs (same gross return, less expenses).

      Your clients will do very well over time, you however, may go broke.

  5. Hi Ben,
    you are right that you can pay less than value in real estate. n 1983, market for selling was tough. I bought 12 condos from builder, and convinced him that he will benefit tax wise by selling all 12 as a package, and saved 50 k. If he sold each unit at 30k as a condo, he will pay hefty tax, but not as a package. Paid 250k, with 50 k dn,

    • Kris – I agree! The thing is – there are no rules in RE. You can offer your car as down-payment and if you offer the right way and to the right seller he’ll agree. All kinds of things are possible in an inefficient market.

      I truly don’t understand why anyone would buy mutual funds…

      Thanks so much Kris!

  6. I appreciate that this is a real estate site and that the overwhelming majority of people here invest in real estate. But this article is logical fallacy. Investing in stocks and investing in real estate, while they still have the word ‘investing’ in them, are two totally different beasts. Investing in stocks is, well, investing. You buy your mutual funds and it goes off, does its thing and works for you. Investing in real estate is a business. You need to (in your example) find that property, know what its value is, what its value could be, what to do to attain that value, negotiate a good price, line up financing, collect rent, pay bills, work with contractors………. Much more involvement and effort, just like running a business. If you want to talk about those that treat stocks like a business, day traders, we can. But that changes things as they do a lot of the same or similar things mentioned in the business of real estate. A better business comparison, for some versions of real estate investing anyway, might be the people that pump and dump penny stocks.

    I invest in real estate because I have the skill set to buy, rehab, sell, rent and manage properties. I invest in stocks as I want a way to invest for the long run by profiting from others running a business without having to do so myself. Also for liquidity and diversification (yes, I actually want that!). Which is better? I can’t say because they are completely different.

    And, in response to your “leverage makes RE better” statement, I can borrow up to 70% on my stocks at 3%. Not much difference in LTV to many investor loan requirements currently and at a much better rate. Is it 100% financing, no. But it’s also an investment and not a business.

  7. Just as an FYI the efficient market hypothesis is false. If it were true investors like Buffett wouldn’t exist, he himself will point this out in numerous videos. True all information is available for everyone, but people come to different conclusions about those facts (for example some people think a Ferrari is worth every penny, others see it has a huge waste of money, same facts different price) Stock market prices are established by human emotions. (whether we decide to buy or sell a given issue) and more times than not we are irrational in our decisions.
    Human emotion is why the theory is false. It is an academic theory that “should” be true, but in practice isn’t.

  8. Interesting article. I personally believe the best approach is a balance portfolio that includes RE, stocks, bonds, etc.

    As for inefficient markets, it’s important to remember that RE isn’t the only inefficient market. Many stock markets throughout the world (developing countries, etc.) fit the definition of an inefficient market.

    You could argue that RE in other countries is less efficient than in the U.S. So if someone really believes an inefficient market is the way to returns I would expect their investments would be outside the U.S.

    • Thanks for your comment Tom.

      Perhaps RE in other countries is even more inefficient. But, their currency is less stable and management requires outsourcing. That, for me, negates the benefits – I like to stay in control of management.

      Thanks so much for reading Tom!

    • Micha,

      I am a first generation American. I was born in Russia and lived in Austria and Italy before arriving to America in 1989 with 2 suitcases. My credibility resides in the fact that I have assembled a portfolio of 28 units which generates CF of $3,500/month + having been financed 100% at the front door. I did and continue to do this without a high-paying job or family money.

      I take time away from my family to share some of the knowledge I’ve picked up in the process of attending the school of hard knocks. Most people are willing to overlook a spelling mistake in light of the quality of content I deliver every week. However, if you are more interested in spelling, may I suggest http://www.thefreedictionary.com/

  9. I could go a long time before I read another article on stocks vs RE. These articles just seem to regurgitate the same opinions and arguments from both camps and do not “end” the debate. These seem to be a sure fire way for bloggers to get a ton of comments on their posts, but never seem to add any value to BiggerPockets. Just my .02

  10. Chris Rosenberg on

    Just a heads up, I skipped over all the comments.
    These stock vs real estate articles are getting a little tiring. Do you actually think the stock market is efficient just because of the efficient market hypothesis? People make money in the stock market because “Mr. Market” is actually inefficient. And small guys like us have a huge advantage over guys like warren buffet. He is limited to investing in enormous companies. We can buy the smallest of companies that are growing fast. There is also safe money to be made in options if you take the time to learn the strategies.

    • Hello fellow investor from “Graham-and-Doddsville” !

      I absolutely agree. Real Estate investing/Stocks etc… one isn’t the superior vehicle, that is too broad a statement to ever be true. A given property, a given stock valuation at an opportunistic time in the market is the superior investing strategy.

      To blindly say “this is better, it’s all I do, and all YOU should do” limits your potential, and calls to question your expertise. To state both (or all) investment vehicles are valid and one should try to take advantage of them all when the given time is right, is the superior strategy.

      Examples
      Housing surplus resulting in cheap valuations, low interest rates from lagging economy provides many great opportunities in Real Estate.

      The economic/stock market collapse of 2008/ early 2009 provided a great time to buy. Many stocks are up many hundreds of percent from that time (Just 4-5 short years) even buying and index fund you’ve doubled your money and held long enough for the profits to be long-term capital gains, not to mention the dividends you should have received and reinvested along the way.

  11. I am not going to say that investing in stocks is better than investing in RE or investing in RE is better than investing in stocks because at the end of the day they both have to be managed to be successful and management is one of major elements to their profitability. I will say this, I have far more ability to effect the profitability of my real estate investments than I ever will have over my mutual fund investments. Why does one have to be better anyway? The beauty is we can all have both!

    By the way, Ben I like your articles even if some people commenting on this article think you are only trying to get a lot of comments/posts, ha ha ha ha. People are funny!

    • I vote Daren H. the best answer!

      We are told to diversify the quotes from W. Buffet the doing so is a fools errand is taken out of context since this is exactly what he has done. Warren does not own one sector of businesses he owns different business across the board, from insurance to ice cream (DQ).
      His quote was directed to holding stocks of various types, stick with what works as he has done.

      The safest bet is not to rely solely on low income, or high end income, or for that matter commercial office space. Each of these sectors could have a correction as we have witnessed. Instead it makes more sense (in my opinion) to own SFH and multi units, and work a contracting business, and own a franchise. True multiple streams of income, I have added stocks to this stream only because by buying trophy assets can I mitigate the work required to track them and remove myself from the wild market swings. If these stocks correct they will come back and while low it is time to buy more.

      I don’t have the systems in place to own much more REI and this is why I am not interested in buying more unless the owner gets down on his knees and begs me to buy his property (that almost happened).

      On a professional hvac website one of the largest posted threads was a question asking what caliber handgun others like to carry. Last I looked it had over 6000 replies spanning more then 50 pages. This may be a different crowd for that question.

      • Now Buffett is highly diversified, but when he started out with smaller sums of money he was often only in a handful of issues, selling ones that were still favorable for something that was even more favorable. He now has a problem of large sums of money. Meaning he can only invest in very large companies. Smaller ones don’t even affect the bottom line of Berkshire. He recommends that if you do in fact know what you are doing in stocks, diversification is a terrible mistake.

        It is worthwhile to note, Buffett recommends diversification for the average investor. As the average person won’t put in the due diligence to select stocks intelligently. Diversification DOES protect against mistakes, however it can also limit large gains. He says if you own 50 stocks can you really like #50 as much as #1? If not, why not put the money from 50 into 1? The caveat is, if you don’t really know which is better. Hence, his recommendation to own a low cost index fund. He recommends to not waste your money in mutual funds, either.

      • Buffett’s statements regarding diversification mean that you should not diversify for the sake of diversification, they do not mean that you should avoid investing in too many different stocks.

        I agree with your assertion that any particular segment of the market could correct, but you have to balance that with the risks/downsides that come from having your fingers in too many pies and not doing as well as you could in any one or two by specializing.

Leave A Reply

Pair a profile with your post!

Create a Free Account

Or,


Log In Here

css.php