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Real Estate Or Stocks: Which Is A Better Investment?

Published: 11/05/2020 | Updated: 01/01/2021 by Financial Samurai 238 Comments

Real estate or stocks? That is the question so many of us want to know in order to get rich. As an investor of both asset classes for decades now, the answer comes down to your financial means, risk tolerance, personality, and ongoing returns. Your preference for real estate or stocks will also be highly dependent on where you are in life as well.

We’ve got real estate tycoons and we’ve got stock market tycoons. We’ve even got wealthy bond investors such as Bill Gross who pulled in over $100 million a year when he led PIMCO. Therefore, obviously, you can get rich in real estate, stocks, and bonds.

It’s important to realize there are no renter or cash tycoons. The return on rent is always -100% every single month. Meanwhile, we can only get ~0.5% or so on cash these days, which may not even beat inflation. To get rich, you must take calculated risks.

Even though I worked in equities (stocks) for 13 years, for the average person, I still prefer real estate over stocks. Perhaps it’s because I had a front row seat watching so much carnage during the 2000 dotcom bubble and the 2008-2009 financial crisis that has me jaded.

That said, I firmly believe everyone striving for financial independence should own both stocks and real estate. The percentage weighting of each asset class as part of your portfolio will then be up to you to decide.

Real Estate Or Stocks? Why Real Estate Is Better

In the debate between real estate or stocks, let me first make the arguments as to why real state is a better way to build wealth than stocks.

1) You are more in control with real estate.

Every physical real estate investment you make puts you in charge as CEO. As CEO, you are able to make improvements, cut costs (refinance your mortgage now that rates are back down to all-time lows), raise rents, find better tenants, and market accordingly.

If you have the personality that likes to take charge of situations, you probably prefer owning real estate over stocks. Just be careful thinking you know too much for your own good.

Of course you are still at the mercy of the economic cycle, but overall you have much more leeway in making wealth-optimizing decisions. When you invest in a public or private company, you are a minority investor who puts his or her faith in management.

Sometimes managers commit fraud or blow their companies to smithereens through unwise acquisitions. Nobody cares more about your investment than you.

2) Leverage with other people’s money.

Leverage in a rising market is a wonderful thing. Even if real estate only tracks inflation over the long run, a 3% increase on a property where you put 20% down is a 15% cash-on-cash return.

In five years you will have more than doubled your equity at this rate. Stocks, on the other hand, generate roughly 7% – 10% a year including dividends. Leverage also kills on the way down, so remember to always run the worst case numbers before purchase.

3) Tax advantageous.

Not only can you deduct the interest on up to $750,000 in mortgage indebtedness on your primary home as of 2020, you can also sell your primary home for tax free profits up to $250,000 for singles and $500,000 for married couples if you live in the home for the last two of a five year period.

Once you get into the 24% federal income tax bracket, you should really start to consider owning real estate. At the 32% federal income tax bracket, owning your primary residence is a must.

All expenses associated with managing your rental properties are also deductible towards your income. Income limits do apply however, so make sure you don’t make much more than ~$175,000 a year total.

Real estate or stocks? Let's look at the 2021 tax brackets

4) Tangible asset.

Real estate is something you can see, feel, and utilize. Life is about living, and real estate can provide a higher quality of life. Given we’re all spending much more time in our homes due to the pandemic, the intrinsic value of real estate has gone way up.

Stocks aren’t event pieces of paper anymore, but ticker symbols and numbers on a screen. The only way stocks can provide utility is if you sell and use the proceeds. With real estate, it’s like getting a two-for-one special.

When the world comes to an end, you can seek shelter in your property. Real estate is one of the three pillars for survival, the other two being food and shelter.

During the March 2020 stock market meltdown, real estate significantly outperformed. If you held stocks then, you may have panic-sold. With real estate, you likely held on and continued collecting rent.

5) Easier to analyze and quantify.

If you can calculate realistic expenses and rental income that’s all you really need when it comes down to valuing a piece of property. If you can borrow at 3% and rent out for a 6%+ yield, you’ve likely found yourself a winner. Real estate is immediately exploitable if you have the financial means to invest.

There’s not only the cash flow component but the underlying equity component that helps investors build wealth. Stocks require you to trust what the company reports.

There are countless ways for companies to massage their numbers to make things look better than they really are e.g. adjusting accounts receivables, adding one off gains, and using various amortization or depreciation strategies to name a few.

Take a look at Redfin for the latest estimates, comparables, and sales history. It’s so easy to do research on real estate compared with researching stocks.

See: How To Correctly Analyze And Value Rental Property Investments

6) Less visible volatility.

Your house value could be tanking and you would never know it since there isn’t a daily ticker symbol. During bad times, the utility of your home really helps soften the blow as you enjoy your home and create great memories.

During the 2008-2009 downturn, I still got to enjoy my vacation property in Lake Tahoe 15-20 days a year even though its value was plunging. Meanwhile, looking at the TV or computer screen just made me mad. When your investment is less volatile, it’s much easier to stay the course and not sell at the bottom.

During the March 2020 stock market meltdown, real estate outperformed tremendously. Money rotated out of stocks and into tangible, less volatile assets that produced income. As of November 2020, real estate prices continue to be soaring across the nation as a whole.

Take a look at this investment performance chart by Fundrise, my favorite real estate crowdfunding platform. Notice how steady the Fundrise platform portfolio has performed since 2013.

When 2020 numbers come out, I’m guessing Fundrise will likely continue to produce high-single digit returns for 2020. You can sign up with Fundrise for free to explore.

What Was Fundrise's Investment Performance in 2019?

7) A source of pride and satisfaction.

Making money for money’s sake is a pretty empty feeling after a while. There’s not as much pride or satisfaction when you check your stock portfolio to see that it’s up.

Conversely, every time I drive by my rental properties I feel proud to have made the purchases years ago. In fact, I often take a route so I can purposefully drive by my rental properties because they make me feel happy.

I know that my money is working as hard as possible so I don’t have to. Real estate is a constant reminder that taking calculated risks over time pays off. There is an indescribable feeling nobody tells you once you’ve closed on your property.

Even though the bank probably owns most of it in the beginning, you literally feel like the King or Queen of your castle. When you die, you can pass on your pride to your children or closest companions to let them create their own memories.

Further, there is a “step-up” function where your heirs inherit the property based on the value of the property at the time of passing so that the cost basis is higher, which helps lower tax liability if the property is ever sold.

8) More insulated from exogenous variables.

Real estate is local. If you’ve made a good decision to buy in an economically strong region, you will be more insulated from the national economy or the global economy. Spain blowing up is likely not going to affect the rent you can charge. Brexit actually helped drive mortgage rates lower as foreign investors bought safe US Treasury bonds.

With COVID-19, more people are looking to buy homes because more people are spending more time at home. The longer we live, the more bad stuff we will experience.

In fact, the badder the things that happen, the lower mortgage rates tend to go as investors seek the safety of bonds. Therefore, not only does real estate provide comfort during uncertainty, real estate also becomes more affordable. As affordability increases due to a decline in mortgage rates, demand increases and pushes prices up further.

Check out Credible, my favorite lending marketplace to get pre-qualified lenders competing for your business for free in under three minutes. Mortgage rates are back down to all-time lows. Take advantage. I got a new 7/1 ARM for 2.125% with no fees!

Real estate or stocks

Of course, industries in your area could suddenly disappear and leave you broken as well. As a result, it’s a good idea to diversify into lower cost regions of the country with higher yields.

I do this through real estate crowdfunding and focus on real estate investments in Texas, Nebraska, Utah, and Tennessee. I believe there’s a long term demographic shift away from expensive coastal cities.

9) The government is on your side.

Not only do you get generous mortgage interest tax deductions and tax free profits, you get bailouts if you can’t pay your mortgage. The government also aggressively went after banks to force them to extend loan modifications to bad and good creditors.

For example, during the 2008 – 2009 financial crisis, I got a free loan modification from 5.875% to 4.25% on a 30-year fixed mortgage. The government went after Bank of America and Bank of America was forced to given many of its customers a mortgage rate break for free.

There are plenty of non-recourse states such as California and Nevada which don’t go after your other assets if you decide to stop paying your mortgage and squat for months. When was the last time the government bailed individual investors out of their stock investments?

During the pandemic, the government forced banks to provide mortgage relief for homeowners. Although it is unclear whether there will be mortgage forgiveness down the road.

Real estate or stocks

Real Estate Or Stocks: Reasons Why Stocks Are Better

Now that I’ve made an argument for why real estate is my preferred asset class, let me now argue why stocks are better for building wealth.

1) Historically higher rate of return.

Stocks have historically returned 8-10% a year compared to 2-4% for real estate over the past 60 years.

You can also go on margin to boost your stock returns, however, I don’t recommend this strategy long-term. If you get caught in a sell-off on margin, your brokerage account may force you to liquidate holdings to come up with cash when things go the other way. You could lose everything.

Conversely, your bank can’t force you to come up with cash to pay off mortgage debt quicker or move out so long as you are paying your mortgage.

2) Much more liquid.

If you don’t like a stock or need immediate cash, you can easily sell your stock holdings and receive cash in three days. If you need to cash out of real estate you could potentially take out a home equity line of credit (HELOC). However, HELOCs cost money and it could take at least a month to set up. Selling a home could take as shot as 14 days or as long as never if mis-priced.

The only problem with liquidity is that it is more easy to panic-sell during extreme uncertainty. We humans are emotional. When you see your stocks go down 30% in one month, it’s only natural to try and protect your capital by selling. Unfortunately, panic-selling has proven to be a historically bad move. Personally, I believe the need for liquidity is overrated.

3) Lower transaction costs.

Online transaction costs are now free no matter how small the transaction. The real estate industry is still an oligopoly and still charges a 3.5% – 6% commission to sell.

You would think the invention of Zillow would lower transaction costs, but unfortunately they’ve done very little to help lower expenses. Thankfully, Redfin has helped lower transaction costs, which is one of the reasons why I’m a shareholder.

4) Less work.

Real estate takes constant managing due to maintenance, conflicts with neighbors, and tenant rotation. Stocks can literally be left alone forever and pay out dividends to investors.

Without real estate maintenance headaches, you’re able to focus your attention elsewhere such as spending time with family, your business, or traveling the world.

If you don’t feel like managing your stock portfolio, you could hire a traditional financial advisor or go with a digital wealth advisor like Betterment or a digital/hybrid advisor like Personal Capital for much less.

Personal Capital is actually doing a free investment portfolio review with a financial advisor if you sign up and link at least $100,000 worth of assets. The free $799 offer ends on December 31, 2020.

5) More variety.

Unless you are super rich, you can’t own properties in Honolulu, San Francisco, Rio, Amsterdam and all the other great cities of the world at the same time. The best you can do is invest in diversified real estate funds and REITs, in which case, you’re investing like a stock investor.

With stocks, you can invest in different companies, sectors, and countries with ease. Your stock investment options are so much more vast. It can be overwhelming.

6) Invest in what you use.

One of the most fun aspects about the stock market is that you can invest in what you use. Let’s say you are a huge fan of Apple products, McDonald’s cheeseburgers, and Lululemon yoga pants. You can simply buy AAPL, MCD, and  LULU. If you did over the past 10 years, you’ve done phenomenal! And, you’ve gotten to enjoy the products as well.

You can also invest in companies that rejected you. Back in 2011 – 2012, when I was thinking of leaving the finance world, I sent resumes to many of the tech companies like Google, Facebook, and Apple. I didn’t hear back from any of them. As a result, I decided to buy shares in each company to benefit from their success.

It’s a great feeling to not only use the products you invest in, but make money off your investments.

7) Tax benefits.

Long term capital gains and dividend income are taxed at lower rates (15% and 20%) than the top four W2 income rates (32%, 35%, 37%. If you can build your financial nut large enough so that the majority of your income comes from dividends, you could lower your marginal tax rate by as much as 20%, depending on the current legislation.

To get to the 20% maximum marginal tax differential, you would need to replace your W2 income of between ~$200,001 – $425,800 with dividend income or long-term capital gains.

Capital gains tax rates when comparing stocks or real estate

8) Hedging is easier.

You can protect your real estate investments through insurance. However, if disaster strikes, it’s often a pain to get your insurance company to pay for damages because the burden is on you to prove your claim.

You can also put on a hedge by shorting real estate and real estate-related stocks. However, given real estate is local, it’s hard to precisely hedge you real estate exposure.

With stocks, you can easily and precisely short stocks or buy inverse ETFs to protect your portfolio from downside risk.

See: How To Make Lots Of Money During The Next Downturn

9) Less ongoing taxes and fees.

Holding property requires paying property taxes usually equal to 1-3% of the value of the property each year. Then there’s maintenance costs, insurance costs, and property management costs. You can build your own portfolio of individual stocks and bonds for just $5 a trade.

If you hold individual stocks, there are no ongoing fees. There are only the risks of bad management, competitive pressures, and more. ETF fees are marginal. It’s only when you invest in actively run portfolios do you start seeing management fees sometimes creep up to 1%. Of course, if you invest in a hedge fund, the fund might charge you up to a 2% management fee and 20% of profits.

Real Estate versus Stocks 20-year history - Real estate outperforming

Personal Characteristics Most Suitable For Real Estate And Stocks

Hopefully I’ve provided you a balanced perspective on real estate or stocks. You can clearly get rich off both assets. Now I want to touch upon what type of personality traits are most suitable for real estate or stock investors.

Real Estate Is More Suitable For The Following People

  • Believe wealth is made up of real assets not paper.
  • Know where you want to live for at least the next five years.
  • Do not do well in volatile environments.
  • Easily spooked by downturns. March 2020 most recently.
  • Tend to buy and sell too often. High transaction costs ironically keep you from trading too often and blowing yourself up.
  • Enjoy interacting with people.
  • Takes pride in ownership.
  • Likes to feel more in control, or at least enjoys the illusion of control.

Stocks Are More Suitable For The Following People

  • Happy to give up control to those who should know better.
  • Can better stomach volatility.
  • Have tremendous discipline not to chase rallies and sell when things are imploding.
  • Likes to trade.
  • Enjoys studying economics, politics, and researching stocks.
  • Don’t want to be tied down.
  • Have a limited amount of capital to invest.
Real estate or stocks - REIT Investment Performance Is Tops

Real Estate Or Stocks During A Pandemic

Given we’re still in a pandemic, it’s worth touching upon real estate or stocks during this most unusual time.

Both real estate and stocks have performed extraordinarily well so far. The U.S. national median home price for existing homes was $320,000, a 14.8% increase from September 2019. Meanwhile, the S&P 500 closed up 16% in 2020.

However, stocks gave us all a fright in March 2020 when the S&P 500 collapsed by ~32%. During this time, real estate continued to chug along and actually pick up steam as mortgage rates collapsed.

Therefore, my nod is for real estate as a better investment during a pandemic. Real estate has outperformed stocks in a less volatile way. Further, real estate provides security and comfort, which is most appreciated during times of death and uncertainty.

If you have children, I think the preference towards real estate is even stronger. Every day I wake up thankful I have a house that is providing shelter for my baby daughter and young son. Yet, I don’t think about stocks every day. But when I do, I tend to think what else could go wrong that will give stocks a beating.

No Bad Choice In The Long Run

The choice between investing in real estate or stocks is like choosing between eating a chocolate cake or a hot fudge sundae. Both are good provided that you don’t eat too much.

When you are younger, investing in stocks is easier since you have less money and are more mobile. If you have enough money to buy a rental property when you are younger, you’ll have more enthusiasm and energy to deal with the work required to own such an asset.

As you get older you probably want to set some roots. Therefore, owning at least your primary residence is beneficial. It feels great to settle down and enjoy an asset that will probably appreciate over time. An older you may also want to simplify life more due to lower energy and more family responsibilities.

With stocks, it’s terrific to see portfolios go up. The 100% passive nature of owning stocks and collecting dividends is much appreciated if you’re extremely busy.

But after a while, it becomes less satisfying to see more money accumulate in your brokerage account. Money needs to be spent on something, otherwise, what’s the point of saving and investing? The older and wealthier you get, the more you’ll find yourself asking this question.

Whatever you do, don’t own nothing. Inflation will rob you of your financial happiness when you are older and less willing or able to work. Own assets that rise with inflation such as stocks and real estate. Build your passive income portfolio. There is no reason why you can’t invest in both real estate and stocks.

Wealth Building Suggestions

Invest in real estate. If you don’t have the downpayment to buy a property or don’t want to tie up your liquidity in physical real estate, take a look at Fundrise, one of the largest real estate crowdsourcing companies today.

Real estate crowdsourcing also allows you to be more flexible in your real estate investments by investing beyond just where you live for the best returns possible. For example, cap rates are around 3% in San Francisco, but over 10% in the Midwest and South if you’re looking for strictly investing income returns.

Refinance your mortgage. Check out Credible, my favorite mortgage marketplace where prequalified lenders compete for your business. You can get competitive, real quotes in under three minutes for free. Mortgage rates are down to all-time lows. When banks compete, you win. 

Manage Your Finances In One Place. The best way to become financially independent and protect yourself is to get a handle on your finances by signing up with Personal Capital. They are a free online platform which aggregates all your financial accounts in one place so you can see where you can optimize.

Readers, which do you think is a better investment? Real estate or stocks? Which investment class do you prefer? Which investment class do you prefer going forward?

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Filed Under: Investments, Real Estate

Author Bio: Sam started Financial Samurai in 2009 to help people achieve financial freedom sooner, rather than later. Financial Samurai is now one of the largest independently run personal finance sites with 1 million visitors a month.

Sam spent 13 years working at two major finance companies. He also earned his BA from William & Mary and his MBA from UC Berkeley.

He retired in 2012 with the help of his retirement income that now generates roughly $250,000 passively. He enjoys being a stay-at-home dad to his two young children.

Here are his current recommendations:

1) Take advantage of record-low mortgage rates by refinancing with Credible. Credible is a top mortgage marketplace where qualified lenders compete for your business. Get free refinance or purchase quotes in minutes.

2) For more stable investment returns and potential outperformance of volatile stocks, take a look at Fundrise, a top real estate crowdfunding platform for non-accredited investors. It’s free to sign up and explore.

3) If you have dependents and/or debt, it’s good to get term life insurance to protect your loved ones. The pandemic has reminded us that tomorrow is not guaranteed. PolicyGenius is the easiest way to find free affordable life insurance in minutes. My wife was able to double her life insurance coverage for less with PolicyGenius in 2020.

4) Finally, stay on top of your wealth and sign up for Personal Capital’s free financial tools. With Personal Capital, you can track your cash flow, x-ray your investments for excessive fees, and make sure your retirement plans are on track.

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Comments

  1. Miche says

    December 6, 2020 at 4:49 pm

    Hi Sam,
    You asked for topics that interests us readers in your newsletter. So I’d like to suggest A few topics of interest. Look forward to a few articles on these topics. Thanks! :
    – ETF and real estate funds (types that balances risk and return, from DIA PGX, to GOF, SRET type of funds) for longer term investments
    – real estate is one of your topic of interest. So maybe stocks on health care real estate, offices, malls, etc. SbRA, BXP, BRA… On short term capital gain vs long term dividend return for passive income.
    Healthcare industry like those invented vaccine or not (GXK JNJ)… On short term capital gain vs long term dividend return
    – investing in bonds and ETF Witt margin or borrowed money?
    – hobby classes for kids (since you do talk about your kids)… financially to parents which make sense, m maybe link how they help kids future career soft skills (musical instruments, academic on math or reading, sports like gymnastics ball games ballet, group activities like drama)

    Reply
  2. Snazster says

    November 9, 2020 at 7:55 am

    Hi Sam,

    I had an overly long reply to your last column detailing all the reasons why stock beats real estate (for those of us that aren’t workaholics, at least), but finally canned the whole thing. You did a great job though, of describing almost all of my main points here.

    REITs are a lot like owning stock. I think we should also mention that, even assuming you are able to keep the place rented pretty constantly, unless you have a quite a few properties, a single bad renter can destroy your whole year and more. Especially with a pandemic eviction lock in place.

    In the case of stocks, I am heavily invested, but I don’t buy many stocks myself (less than 15% of our portfolio, usually), and I always buy them intending to hold them long enough for long term capital gains to replace income tax (short term capital gains).

    Instead, I invest in mutual fund managers. I find this to be far less labor intensive than trying to do all the market watching and research myself, which could easily be a full-time job. I pick only established managers that have been through at least one crash/recession/correction etc. so I can see how they did. Mu mutual funds (both in retirement and non-retirement accounts) have managed a 12.7% for me for the past ten years+ while my stock picks, strictly in non-retirement brokerage accounts, have averaged over 20% in the same period.

    You say owning real estate makes you like the CEO, but I would point out that managing my own investments is a similar sort of thing, and gives me a lot more control.

    People that put all their money in the hands of some nice investment “expert” with a nice smile, a firm hand shake, and a reassuring tone of voice, are doing the wrong thing unless they really are completely inept, and choose to remain that way at any cost.

    Ditto for people that get their taxes done by a temp working at a walk-in office in a strip mall, or even a clever software program. To really understand what is going on, and what you can do, going forward, to ease your tax load, you need to do them yourself and really learn what drives them.

    For bonus points, look at how President-elect Biden’s changes to income taxes, capital gains taxes, estate taxes, corporate taxes, and retirement plan contributions are going to affect you personally, and start revising all of your financial planning. This would be an extremely good subject for an article, Sam.

    Reply
  3. Dr Jeff Anzalone says

    November 8, 2020 at 7:20 am

    Hi Sam, you stated the #1 reason why stocks are better vs real estate to be:

    Stocks have historically returned 8-10% a year compared to 2-4% for real estate over the past 60 years.

    My personal experience of investing in passive syndications is a 14-16% annual return. Basically it’s allowed us to double our money every 5-6 years which I’ve NOT been able to get in the market.

    Note: We have mainly index funds (Vanguard) for our practice’s retirement accounts.

    P.S: I hope CA didn’t shut down tennis courts too and that you’ve been able to play this year.

    Reply
  4. Brent says

    November 7, 2020 at 10:05 pm

    Sam

    Am a long-time reader, first-time commenter

    I really enjoy, benefit and learn a lot from your content so thank you for sharing the lessons you’ve on your life journey, on many levels but especially financial lessons

    Can I ask you to explain your philosophy or positioning as it relates to the different real estate crowdfunding platforms please?

    CrowdStreet, Fundrise and RealtyMogul are all ones that you have written about and invest in, I think

    I am a 41 year old with no debt (outside of mortgage), just shy of $2 million invested in the stock market and would like to diversify into real estate

    I don’t think that I can create bandwidth or the time to manage a residential rental property so crowdfunding seems to be the clearest path to invest in real estate; I am certainly interested in the passive income possibilities that exist there

    So again, I am just trying to better understand the criteria and/or philosophy that you have used in utilizing the different options that exist

    Welcome your thoughts and thank you again for all of your help and words of wisdom

    Reply
    • Financial Samurai says

      November 8, 2020 at 7:53 am

      Hi Brent,

      I share everything I know about CrowdStreet, Fundrise, and RealtyMogul in my Real Estate Crowdfunding Learning Center and the links within the page. Please spend time reading all the articles in that page.

      In general, Fundrise is the easiest avenue because you invest in one of their diversified funds. The volatility is lower and you get broader access. It’s also available for non-accredited investors.

      If you are an accredited investors, which you seem to be, then CrowdStreet enables you to invest in individual investments. CrowdStreet is focused on opportunities in 18-hour cities, where valuations are lower, rental yields are higher, and beneficiaries of migration trends.

      I like to allocate ~10% of my net worth to alternative investments, which these are considered. But they can also be bucked as part of your real estate allocation too. I bucket REC into alternatives and commercial real estate.

      Regards,

      Sam

      Reply
  5. DD says

    November 7, 2020 at 6:17 am

    Great post Sam, love the analogy of cake vs. sundae, both good options. Given that the stock market has rallied and is sky high right now and housing prices are super high due to low rates, is this the time to enter these investments? I agree with your thesis, but the prices right now are near record highs so seems time to convert funny money (stocks) into real assets (cash, houses, etc.). With the Fed printing money, I expect inflation so these could both of course climb higher in coming years.

    Reply
    • Financial Samurai says

      November 7, 2020 at 6:59 am

      Valuations for stocks are no doubt expensive, which is why I’m hunting for rental properties in big cities which have seen a softening of rents in certain segments and areas. In fact, several of my extremely wealthy friends are buying up properties in SF and NYC now.

      The coronavirus positivity rates in the heartland are concerning. There could very well be a big boom back to big city living in 2021. I do believe this will happen and I’m buying another rental too.

      I’m still contributing the maximum to my Solo 401k and SEP IRA. I think there will be gridlock and another round of stimulus. Therefore, I think the S&P 500 will be up in 2021.

      Reply
  6. Gretchen says

    November 6, 2020 at 7:05 pm

    Residential real estate ownership/leasing in California has become a misery since the implementation of knee-jerk reactionary and onerous “emergency” guidelines that prevent most evictions, all rent increases, and set up an environment in which tenants who can pay won’t pay, and those who currently can’t will likely never pay – and then, how on earth can I sell the property if I can’t show it due to tenant fears of COVID, and/or it’s occupied by non-paying tenants who cannot be evicted? I’m seriously rethinking this style of real estate ownership (in favor of purely REITs).

    Reply
  7. pat says

    November 6, 2020 at 1:23 pm

    I have been an avid reader of your blog & we have been in REI for over 50 years. It has been a very profitable experience that has allowed us to enjoy early retirement & being debt free early in life.
    My BIL has always touted equities but at 65 he still cannot afford to retire ???
    So I sent him my favorite real estate investment joke….

    Larry Branch is on his deathbed and knows the end is near.
    His nurse, his wife, his daughter and sons are with him…
    He asks for 2 witnesses to be present and a camcorder be in place to record his last wishes, and when all is ready he begins to speak:

    “My eldest son, I want you to take all the Mayfair houses.”
    “My daughter, I want you to take all the apartments over in the east end.”
    “My youngest son, I want you to take all the offices over in the City Center.”
    “To my dear wife, you get all the residential buildings on the banks of the river.”

    The nurse and witnesses are blown away as they did not realize his extensive holdings, and as Larry passed away, the nurse says, “Mrs. Branch, your husband must have been such a hard-working man to have accumulated all this property.”
    The wife replied, “Property?…the idiot had a paper route!”

    Reply
  8. Paper Tiger says

    November 6, 2020 at 7:11 am

    I believe in owning both. We have ~$1.4M of equity in our primary home and another ~$600K in REIT ETFs and Private Equity, both domestic and international. This is about 20% of our net worth. The rest is mostly invested in Mutual Funds and some other Alternative Investments. I’ve thought about dabbling in rentals but I don’t have much knowledge or experience in this area.

    Our daughter graduates from college this year and I have toyed with the idea of partnering and helping her purchase her first condo and then renting it out when she moves on. Maybe I just follow along with her career and do this a few times until she settles somewhere more permanently or gets married? I don’t know if I will actually do this but it is something I am considering.

    Reply
  9. Jonathan L. says

    November 6, 2020 at 6:38 am

    you can also sell your primary home for tax free profits up to $250,000 for singles and $500,000 for married couples if you live in the home for the last two of a five year period.

    ——

    I haven’t looked into how those numbers ($250K / $500K) have changed over the years. If we are planning to sell our home in 10-15 years, should I expect those to increase? That’s important to know if we are to compare the long-term performance of stocks vs. real estate.

    Reply
  10. Charles says

    November 5, 2020 at 9:39 pm

    I have a “fun” account. I can use this money for buying anything I want, within reason. No yachts. This account has 6 stocks. It took two years of reading before I settled on these six stocks. They are important to me. Through good and bad we have stayed together.
    I agree, money should be enjoyed. I spent money when I bought these stocks. These stocks make more money than my day job. These stocks have caused me pain and brought me joy.
    The point is owning these stocks is “fun.”
    I think spending money on stocks is a wise use of money. Owning the right stocks, in and of themselves, is a “fun” use of money. To me, owning Amazon is more fun than spending the money on something else.

    Reply
  11. Financial Freedom Countdown says

    November 5, 2020 at 9:24 pm

    Great post Sam. I keep oscillating between the two. As you know I am now bearish on real estate because I am not a fan of government interference. Plus as I wrote in my blog post the probability of outperformance is lowered.

    But as you said, can’t go wrong with either.

    Reply
  12. Untemplater says

    November 5, 2020 at 8:13 pm

    I’m a believer in both stocks and real estate. I love the tangibility of real estate and the set it and forget it optionality that ETFs can buy. What I don’t like is the ongoing maintenance of physical real estate and the unpredictable volatility of the stock market. So I invest in both!

    Reply
  13. Sam says

    November 5, 2020 at 5:24 pm

    Totally agree Sam. Took us many years to finally buy rental real estate. The income from real estate let’s us hit financial freedom in a few months, stocks would’ve taken 8 more years and we still would not have as much cashflow thru stocks as we receive from RE. It’s a huge difference! I’ve only invested $200k and make $36k from net rent; with 4% rule that would’ve only been $8k from stocks.

    Reply
  14. J says

    November 5, 2020 at 4:52 pm

    I don’t really see any tax benefits associated with buying a home… With rates being at the floor, the itemized deductions associated with $750K of debt is marginal for a married couple relative to the elevated standard deduction. Perhaps, I am missing something, but you are talking about a few thousand dollars tops. Also, I am not sure the government will always be on your side. In a world where they will be hungry for revenue, why not just keep raising prop taxes particularly in some of these blue states where you need revenue. Thanks for all of your help and insightful articles as always!

    Reply
  15. Bankeronwheels says

    November 5, 2020 at 1:13 pm

    Hi Sam –

    Very interesting comparison,
    I would also argue Equities are much easier to understand.

    The required knowledge can essentially be acquired in a few days (assuming you find the right sources and are not influenced by media / brokers and other market participants that have an incentive for you to trade frequently)
    Real Estate requires more homework especially if you go outside the Residential space
    Commercial Real Estate has a lot of advantages you listed but you need to get familiar with the market dynamics whereas Equities can be bought using a follower approach (Bogleheads philosophy through World ETFs)
    Cheers,
    BoW

    Reply
  16. Rich says

    November 5, 2020 at 10:15 am

    Sam great article as usual. Can you speak to using cost segregation to accelerate depreciation? This adds to the benefit of owning real estate

    Reply
  17. PH says

    November 5, 2020 at 9:28 am

    I think the real estate vs. stock question depends a lot on a person’s temperament and personality. I find it very stressful to owe tens or hundreds of thousands of dollars on a mortgage, and I know I would find it very stressful to be a landlord and to have to find good tenants, possibly deal with bad tenants, and be responsible for maintenance.

    But owning stocks doesn’t cause me stress. For example, when the market crashed earlier this year, it didn’t bother me at all. On the contrary, I was kind of excited at the buying opportunity. I rebalanced my retirement accounts and purchased a few stocks at a discount, with the confidence that I was getting a good buying opportunity, and that sooner or later stock prices would rise again.

    Reply
    • Financial Samurai says

      November 5, 2020 at 9:56 am

      Perhaps the amount of stocks you hold plays a part in not feeling comfortable with volatility? How much stocks do you own and do you own real estate?

      Reply
      • PH says

        November 5, 2020 at 10:47 am

        My wife and I own our own house, but we have never owned investment real estate (e.g., something to rent out to a tenant). For whatever reason, I don’t like owing money, and I don’t like the responsibility of owning real estate. (Even having to take care of maintenance on our house causes me a lot of stress.)

        As far as stocks, I mainly have mutual funds and ETFs in my retirement accounts, and the ups and downs of the market don’t cause me any stress. Maybe when I get closer to retirement that could change. But I’m a lot closer to retirement than I used to be, and it seems like volatility causes me less stress than it used to, rather than more.

        My retirement accounts are about 80% stocks and 20% bonds, with diversification across large cap vs. small cap, growth vs. value, US vs. international, and developed vs. emerging, and with some money in REITs.

        I kind of wish that I had the temperament for owning real estate, because I know it can be a great investment, but it’s just not the best fit for me.

        Reply
        • Financial Samurai says

          November 5, 2020 at 11:09 am

          That’s great that you are less stressed about volatility the richer you are. Perhaps this is a signal that it’s time to retire!

          Where my stress comes from is my taxable investment portfolio which I count on to provide passive income to pay for life. My taxable investment portfolio is much larger than my 401(k) and other tax advantageous accounts.

          I also don’t stress as much about my 401(k) because I know I won’t touch it for at least until I’m 60+.

          Reply
          • PH says

            November 5, 2020 at 1:26 pm

            I wish it was time to retire! But I need my retirement account balances to grow for 10 to 15 more years before I’ll have enough to retire. I can understand about stressing more if you are depending on your stock investments for living expenses now, rather than 10 or more years from now.

            Reply
  18. humayoun says

    October 20, 2020 at 2:22 am

    Liquidity means the ease of converting your asset or investment into hard cash. The sooner investors can liquidate their funds and investments, the better.

    In the case of real estate, you will encounter moderate liquidity because sometimes properties require some time to sell. So, if you are someone who may need urgent cash, real estate investment might not work for you.

    In the case of mutual funds, the liquidity is also moderate but it is relatively better than real estate. Mutual funds, however, allow you to liquidate your funds and sell them through an online market whenever they need funds.

    Reply
  19. Jack says

    July 13, 2020 at 1:20 am

    I am glad you got away from “it’s easier to get rich from real estate than stocks” that you wrote on a prior article at the beginning of the year. Both are good methods building wealth. But for the majority of people who only have retirement funds, real estate through a REIT or something similar is as close as they will get.

    Reply
  20. Dollartrak says

    July 10, 2020 at 4:37 pm

    The overall lack of liquidity of real estate make this an easy choice for me. I cannot stand an investment that I cannot quickly and easily sell when I’m ready.

    Reply
    • Peter Cooper says

      July 11, 2020 at 6:20 am

      That prevents you from selling low and generally you can’t buy what you want when prices are too high. Shares look most attractive when they are least good as investments. You also can’t get a mortgage to buy shares, so don’t invest enough to make the best return from day one, and that easily offsets the lower nominal cash return.

      Reply
  21. Franklin White says

    April 2, 2020 at 11:52 am

    I love how you are in control of your investment when you invest in real estate. I would hate to invest my money in something that I can’t fully control. With real estate, I’d be in charge and I’d be the one who makes the changes so that I can make money from my investment or not.

    Reply
    • ccjarider says

      November 5, 2020 at 2:51 pm

      I don’t know how you are “in control” of any investment. To the extent that the marketplace establishes value, not you as the owner (be it stock or RE), I cannot see how you are in control.

      Reply
  22. James Borst says

    December 26, 2019 at 6:17 pm

    It is interesting that you can sell your home for up-to $500,000 profit tax-free as a couple. My wife and I are considering keeping our home and renting it out instead of selling it when we buy a new home. We may consider also looking for investment properties and staying in our current home for a little while.

    Reply
  23. Matthew Paul says

    December 20, 2019 at 5:35 am

    Real Estate is the nest big thing when it comes to investment. I prefer this over stock market as it is advantageous for tax exemption. Also, I have better control over my money. Thanks for sharing this useful article.

    Reply
  24. Skylar Williams says

    December 2, 2019 at 1:52 pm

    I like that you said that one benefit of investing in real estate is that you have more control over things like tenants and rent. My brother and I recently came into some money and we are trying to decide what to do with it. After reading this blog, I think our best choice will be to invest in real estate.

    Reply
  25. fredjohnson says

    November 5, 2019 at 4:50 pm

    This is an easy one for me. Stocks by far have been a big winner. My house is worth exactly what I paid for it 20 years ago in Minneapolis. It hasn’t gone up in value a nickel. But, I’ve invested in stocks for 40 years and my portfolio is worth $8.2 million now. Add in the value of the stock in a small business I own and we are at $13.2 million. And I’m not even retired yet. Still saving money in the portfolios every year.

    Reply
    • Nate says

      December 6, 2019 at 1:05 pm

      Nice! About how much were you putting away a month to achieve these amazing results Fred?

      Reply
    • Peter Cooper says

      July 11, 2020 at 6:22 am

      Top of the market sentiments!

      Reply
  26. Om Vora says

    August 20, 2019 at 5:59 am

    I genuinely feel that real estate is the better investment because it’ll give the majority of the chances a great return and ya it is some risky depending on the place where you invest.

    Reply
  27. Sebastian says

    August 4, 2019 at 1:56 am

    I heard stocks is much better that real estate (you don’t need a lot of money when you begin, you can take off your money when you want, etc.)

    I don’t know why, but I prefer investing in real estate :)

    Reply
  28. mike says

    July 16, 2019 at 6:50 am

    Hi Sam

    I love hearing your comments about not wanting to keep the rentals. I have 5 rentals in Hamilton, ON and I have the same views on my market as you do regarding the San Francisco market. It’s very similar here but with many rent controls and landlord risk. I sold one last year and I think that’s the best/worst decision I’ve ever made.

    I could sell them all and live passively on a 3-4% SWR. I generally hate the business and don’t think I’ll even get market rents anytime soon as my tenants will never leave.

    I also am not in a position to yank out any equity from them and am not using much leverage anymore.

    I don’t have any children to leave money to. Just me and the wife in our mid 30s.

    My plan is to sell one each year and I hope I don’t get sucked back in and want to keep them.

    Reply
  29. Dan says

    March 5, 2019 at 2:25 pm

    Here is a big picture view of the returns:
    stocks about 6-8%/yr (long term)
    real estate: if paid all cash, appreciation is about 3.5%/yr long term.
    then you income stream is about 2.5 to 3%/yr
    so the total is about 6% to 6.5%.

    if the property is leveraged, appreciation increases substantially, but of course your net income is lower since your mortgage is higher.

    my own calculations for leveraged property (20% down) show 22% combined return the first year, gradually declining to about 15% by year ten. returns continue to decline each year slowly.
    still, that’s a fantastic return and far superior to stocks.

    i’m including all costs (repairs, vacancy, insurance, taxes, etc.)

    ———————-
    the only thing about real estate is, unless you want to hire a manager, you have to deal with maintenance and vacancies yourself. if you don’t like doing that or are not good with people do not get into rentals. for me it is not an issue i’ve been doing it so long it is automatic, and i am very good with people.

    also, rentals is a cash intensive business. you MUST have savings on hand for repairs (expected and unexpected), vacancies, etc.

    important: i happen to live in an area with high rental demand, and consistent real estate appreciation (long term). i do not know what it would be like to do rentals in a different area of lesser demand. i heard in the last crash, it was very difficult to rent out units in Reno, Nevada. the guy i knew who had a building there could not make enough income to pay his mortgage and the lender foreclosed (and he went into depression). so, location is certainly a big factor that you must consider.

    Reply
    • Justin says

      March 24, 2019 at 8:49 pm

      Your view of real estate compared to stocks is highly off. Try listening to a few podcasts from get rich education.

      I’ve been in real estate since 2015 and will retire in 5 years. Love the field vs stocks.

      Reply
  30. Mark Podolsky says

    October 28, 2018 at 6:53 pm

    I found this article very interesting. You’ve shared a lot of good information and knowledge about this article. I believe that investing in real estate is a good investment and before you start investing make sure that you have a knowledge about that. For me is it’s better to invest in real estate.

    Reply
  31. John Boyle says

    October 20, 2018 at 12:22 pm

    stocks over real estate anytime!..me personally, ive never viewed real estate as anything more than owning the place you live in and thats it!..real estate is a BILL!..every month..taxes, insurance, something breaks gotta fix it, oops you need a new (A/C, water heater, furnace..etc etc)..meanwhile, you see stocks like Amazon, Facebook, SIRI, etc etc doing 40-90 percent a year! the stocks rates shown in this article are based on the S&P 500…who says you cant invest in BETTER stocks?..i can pick a 3-6 stock portfolio that will smash the 500 practically every year!..bottom line: i can name several BILLIONAIRES who got their fortunes through STOCK MARKET…how many did so through REAL ESTATE??

    Reply
    • Anonymous says

      July 5, 2019 at 6:16 pm

      I invest strictly in real estate and im certain my networth is higher than yours, wanna bet?

      Reply
      • Angelo says

        December 22, 2019 at 5:32 pm

        Is that really a productive question?

        Wanna bet Sounds pretty childish to me. Dors it really matter who has more money?

        The real questions you should be asking yourself are,

        Am I happy in my life? How can I become a better person? Do I have integrity? What kind of legacy am I leaving my loved ones?

        Life isn’t all about money or who is better than another person

        Reply
  32. Jesse says

    December 24, 2017 at 2:01 pm

    I’ve invested $0 since 1999 in real estate and now own 5 million in single family rental homes. 2 million positive equity. I have never invested a dime of my passive monthly income (currently 12k/mo). I only reinvest when I sell a property (exchanges) which is not often. I’ve never had a job for more than 6 months. I never inherited money. I started with 15k in student loan debt. I don’t invest any of my income in stocks nor real estate and may never. This would not be possible if I had started investing my 15k of “debt” in the stock market. I’ve never lost a dime of income, and only gotten “richer” during the crash. I do work 15-20 weeks every year. I live in a poor Midwest area with little to no inflation. Real estate is not an investment choice. It’s free money. The stock market is the only gamble you should even have to think about before entering. My advise is to gamble in the stock market with any money you don’t need, get into real estate for free. You can even borrow from you Ira or 401k or your own home. If you pay cash for a rental, you can get that back too by financing that. Then buy another. Repeat till you can quit your job. Try that in the stock market. Won’t happen. When you’re done buying, then you can take the last loan amount and go gamble (risk) with it in the stock market. … I’m just going to buy another house… And another… And another… And spend all the passive income.

    Reply
  33. Moiz A Kapadia says

    September 17, 2017 at 12:04 pm

    Sam, love your blog! However, I find your chart comparing REITS to S&P a bit misleading. Your readers are more financially savvy (thanks to you!) to know that you should be comparing returns to a diversified portfolio of ETS across multiple asset classes. Do you have a chart that compares a diversified portfolio over time versus REITs in your data library somewhere :) ?

    Furthermore, what’s the NET ROI (after closing fees, annual maintenance over 30 years, etc) on housing versus investing (management fees, taxes). Would be great to have your analysis on this!

    Thanks so much!

    Reply
    • Financial Samurai says

      September 17, 2017 at 8:41 pm

      Sounds great Moiz. What is the diversified portfolio of ETS across multiple asset classes I should use instead? Happy to include it in the post.

      Are you trying to make a decision to buy or justify your decision to rent? If you still rent, what are your reasons for doing so? I just sold my rental house in the Marina, SF after 13 years of ownership b/c I wanted to simplify life. Someone was willing to buy 30X annual gross rent for the price, so I figure why not. I need as much time w/ my son as possible.

      Related: The RE Investing Rule To Follow: Buy Utility, Rent Luxury

      Sam

      Reply
  34. pat says

    July 23, 2017 at 4:29 am

    After 35 years of RE investing (& buying heavily during the 18% mtg era) we have accumulated a significant portfolio of free & clear properties. (As an Mech.Eng I was able to do a lot of the rehab work myself). I retired at 49 when my W2 was eclipsed by my passive income & getting up @ 5am to endure the tedium of a JOB (politics etc) was just not worth it anymore. Our kids all graduated college without loans & all owned their own homes before they were 25. In fact our oldest daughter at 19 debated the cost of dorming vs buying a home. She rented rooms out in the home she bought (with our help…’estate planning’) to pay down her mtg.
    Purely for the ‘tax deduction’ we each have significant 401(k) Solo portfolios of dividend producing equities.
    When I recently interviewed for a maintenance manager for our commercial buildings I was amazed how many guys in their 50’s have nothing but an old vehicle, debt & little if any retirement savings.

    Reply
  35. TShaw says

    July 19, 2017 at 10:44 am

    I think Mike’s comments sum things up quite well, it really depends upon each individual investor and what their goals are. No one financial plan fits all, and no one investment vehicle does either.

    My Dad did well investing in paper assets, but got demolished in his real estate holdings. His RE strategy was an appreciation play (like the stock market) and unfortunately, did not work out for him.

    My wife and I have some paper assets as part of our general retirement savings, but use RE for cashflow. We are not counting on appreciation to make the investments profitable, but rather use RE for tax reduction, equity, ability to use leverage, and if we get appreciation that’s the cherry on top.

    I would take issue with the author’s assertion that real estate returns are 2-4% and easily beat by stocks. Appreciation may run 2-4%, but it is not difficult to find real estate (both residential and commercial) that provides 8% annualized returns. When you add in tax benefits, leverage and debt pay down, cash on cash returns are easily double digit.

    Several people have commented that they are not interested in the 3 T’s of real estate- tenants, toilets, and trash. This is where property management is a no brainer on the residential side, or where commercial real estate and crowdfunding becomes attractive. Investing in real estate doesn’t mean becoming a landlord.

    Reply
    • Financial Samurai says

      July 19, 2017 at 11:17 am

      Speaking of real estate crowdfunding, I wholeheartedly agree! I just invested $500,000 through RealtyShares to take advantage of higher yields and no maintenance in the heartland of America. I hope to earn a 10% annual return, even though all the deals are shooting for 14% – 18% IRRs.

      I think you’ll enjoy this last post: A Real Estate Investing Rule To Follow: Buy Utility, Rent Luxury

      Reply
      • TShaw says

        July 20, 2017 at 5:11 am

        My investor group has about 5M in RE Crowdfunding currently, both on the debt and equity sides. Im watching closely to see which platforms end up performing the best.

        Are you able to take depreciation benefits on RealtyShares equity plays?

        Reply
  36. Mr. Hammocker says

    June 19, 2017 at 8:54 pm

    For those frequently moving around with their job, stocks are way better. However, if you plan on staying in the same city forever, real estate can be an excellent option. For me, I have 3 rental properties. I don’t plan on getting any more. I would rather focus my time on building my stock portfolio and let the Fortune 500 CEOs manage my investments. I would rather spend my time in a hammock on the weekends compared to fixing the leaky pipe.

    Reply
  37. Mike says

    May 16, 2017 at 11:15 am

    I believe it is all about what you personally want to do. I think the author explains the pros and cons very well. I will share my brief story on my 1st rental property and why I chose what to do.

    I was 29 years old when I finally settled into a career and started making “real” money where I could comfortably save 35K a year. I bought a duplex 100k down. I am netting 2k a month after taxes, insurance, HOI and mortgage. It was a brand new construction townhome in a rapidly appreciating area for 460K. The house is worth 625K+ in less than 1 year.

    I was extremely lucky, but my goal was to increase my monthly income so that I could save up more money the following year and buy another property. I now increased my savings/liquidity by 24k a year. If I had put that money in the stock market with a return of 7% I would have increased my income by 7k. Nothing to sneeze at, but it is also wrapped up in a stock, which can be easily cashed out, but then I lose out on that money earning 7% the next year.

    Even if I compared my same situation and invested in Amazon which had 38% annual growth, I would have 38k in investment earnings in 1 Year, which is amazing. Compared to the rental income of 24k and the 145k increase in net worth in the home, it still isnt close. I am not even counting the tax advantages of writing off the taxes, mortgage interest and rental depreciation.

    I believe that investing in a rental property is the best way for younger people to build wealth who dont have a lot of funds to begin with. Anyone who has 5 million dollars can just invest in a Vanguard fund and get 300k a year in investment earnings and never have to work again. For the “average” Joe who can save 20k a year…it would take forever for that person to build wealth through stocks unless they hit it big with a Microsoft or Netflix buy.

    My plan however is to switch my strategy to stocks when I am 50 because I believe I will be better versed in understanding the economy and probably tired from 20 years of managing several rental properties and would like to just put my money away and not look at it for the remainder of my life and hope 200 years of US stock returns of 6+% continues.

    I will put a disclaimer that my first rental property was a great first investment and I was lucky, but I believe they are easier to find then the next Amazon, Netflix, etc…General rule I try to stick to are 17% cash on cash returns and 8% cap rate. Understanding the rental market and area are critical as well.

    Reply
    • Peter Cooper says

      July 11, 2020 at 6:35 am

      Great timing and clever asset picking will boost returns on stocks or real estate enormously. Only you can choose which suits your character best, and the investor themselves is the biggest wild card in this game… right now I think cash and gold are king as a nasty, deep recession has already started. Coronovirus has destroyed the economy. It’s not going away for years.

      Reply
      • Financial Samurai says

        July 11, 2020 at 8:31 am

        It’s weird though. We’ve made so much money in tech stocks in 2020 (+22%) so far and real estate around the median price is doing well and also reaching record highs. My Tesla is up 200% in 2020 alone! Have you not participated in the rebound?

        See: Real Estate Buying Strategies During The Coronavirus Pandemic

        Reply
  38. John says

    March 30, 2017 at 7:23 am

    Folks, Arguments of situational investing are worthless. So lets put on our creative and positive thinking caps. Lets focus on the principle of getting your money to work. Don’t “put it all on black”, be patient, run the numbers to make sure the return is there, Don’t take undue risk, be willing to learn more before you invest. Looking back you don’t have 20/20 we tend to forget the majority of the emotional factors and the lack of knowledge we had that prevented us from getting in on the deal. The list goes on. Best wishes to all of us seeking to grow our net worth. There is a lot of good to be done in the world, lets get to work.

    Reply
  39. mark nogueira says

    March 10, 2017 at 5:54 pm

    I enjoy your blog and find it informative. Started looking into Realty Shares. Just would like to know other than your personal investment is there a financial relationship between Financial Samurai and Realty Shares?

    Reply
    • Financial Samurai says

      March 10, 2017 at 8:27 pm

      Hi Mark,

      Absolutely. In February 2017, I invested $250,000 with RealtyShares via their fund. I also decided they were the best real estate crowdfunding platform after meeting up with the CEO, VP of Finance, and multiple people from the firm as part of my due diligence. My goal is to find the best platforms and products in each field, use them/invest in them, and also build a business partnership. There are dozens of real estate crowdfunding platforms, but I think RealtyShares and Fundrise will be the two winners.

      Sam

      Reply
  40. Tom Rogers says

    March 3, 2017 at 11:30 am

    I often read that real estate does not beat stocks and I don’t understand this. I asked my broker, “where do you recommend I put $400k that will give me $3k a month return.” He chuckled and said there was no place to put it in the stock market for that return. Well, I can buy a condo for that amount and make a $3k month return immediately. What am I missing?

    Reply
    • Financial Samurai says

      March 3, 2017 at 11:39 am

      Perhaps the fact your broker has never experienced owning physical real estate, and therefore has no perspective? I’ve owned both for a long time now, hence my comparison article here.

      I’d also check out investing in real estate crowdfunding through RealtyShares or Fundrise. There are many deals with 8% – 12% annual returns where you can invest just $5,000 – $10,000.

      I’ve currently got $260,000 with RealtyShares, hoping to make a 8% – 10% realistic annual return. I may invest $50,000 – $100,000 in the Heartland eREIT with Fundrise too.

      Reply
      • B.B. says

        March 3, 2017 at 3:08 pm

        How safe is investing in real estate crowd funding? Is your principle subject to losses? I recently took some money out of stocks to lock in gains and I am looking for a safer alternative which also has a decent return.

        Reply
        • Financial Samurai says

          March 3, 2017 at 7:41 pm

          Sure, you can definitely lose principal if the operator can’t sell for at least cost or they can’t get enough tenants.

          You may want to consider CDs or bonds if you are more risk averse. I’ve invested $260,000 so far with RealtyShares, and plan to top out at $500,000 by 2020 to try and generate $40,000 – $60,000 a year in passive income.

          Related: The Case For Buying Bonds Now

          Reply
      • B.B. says

        March 7, 2017 at 1:55 pm

        The interest rates are very tempting. Why are people using realty shares instead of the much lower rate conventional mortgages? Do they not qualify? Also, are the borrowers rated for ability to pay? Probably better to spread your money among many borrowers to mitigate the risk. I think I am older than you, about to turn 58 and we are already retired. I was almost all in the stock market but recently pulled out a big chunk due to the old bull and the prevelance of corporate buy backs as opposed to true increases in production. Still have money in it, as well as a paid up house and a rental. If the market takes a “dump” (as my Dad would say), I might return. I will look at your article on bonds. Thank you for your time and energy!

        Reply
    • Justin says

      June 8, 2017 at 3:11 pm

      Maybe find a new broker? Lots of stocks will give that rate of return or better but neither real estate or stocks has guaranteed returns long term.

      Reply
  41. Andrey Sokure says

    November 28, 2016 at 9:32 pm

    All depend on your knowledge and experience. Because both provid good returns. If you have knowledge and experience of stock market, no real estate could have beat the returns you earned if you invested in a big companies like Microsoft, Wal-mart and Dell.

    Same with real estate market, If you have knowledge and experience you can earn more money on your rental properties and they also allow you to retire much earlier than the stock market.

    Rest all matters your knowledge and experience

    Reply
    • John says

      March 3, 2017 at 5:54 pm

      If you would have bought one share of Walmart in 1999 when it was at $69 it would be worth $70 now. And if you fator inflation in the $8 to buy the stock and $8 to sell it, and 3% inflation/yr, you actually lost money. The amazing thing is that Walmart’s annual revenue went from $156 billion in 1999, to $485 billion in 2016! But that didn’t make the stock price go up.

      Reply
      • Jester says

        April 19, 2017 at 8:19 pm

        You’re not counting dividends, which is the main reason people buy WMT.

        Reply
      • Dividend Digest says

        April 23, 2017 at 7:05 pm

        This is completely inaccurate. If you put $10,000 into Walmart in April of 1999 you would have returned 4% annualized return.
        With dividends reinvested Today that $10,000 would be worth $20,823.20. The advantage stocks have over real estate is dividend growth and reinvestment of dividends.

        The key with investing in stocks is not to put all your eggs into 1 basket.

        Here’s a fun one that shows the power of dividend growth and reinvestment. $10,000
        Invested in Altria the tobacco company in 1970 with dividends reinvested would be worth $57,926,731.24 today.

        I’m a big fan of real estate an stocks. There are advantages and disadvantages to both. If your looking for straight returns then stocks will be your best bet, but if your looking for tax advantages and to use leverage real estate is your friend.

        I personally own 7 figures in real estate free and clear. I’m now working on building my equity portfolio.

        Reply
  42. Paulie says

    November 13, 2016 at 3:38 am

    Thanks for this article. Real estate v investing is one tough discussion for me. I bought real estate at the peak of the market just before the credit crunch and today am still sitting with virtually no equity. Stocks on the other hand have, for the most part, rewarded me handsomely every year (bar some *stupid* penny stock investments I made when getting started)!
    Part of me fears that there are still bubble’s in the real estate markets all over the world, and it will take many more years to work them out of the system!

    Reply
  43. backtobenjamin says

    November 3, 2016 at 11:31 am

    All great advice; definitely appreciate that there isn’t a one size fits all approach. Your risk tolerance and life goals should play into your decision.

    But, pure numbers wise, it’s better to own stocks and it’s not even close. I did an analysis for a super hot, hip, gentrifying neighborhood in city that’s almost doubled over the past five years.

    An all cash payment would’ve netted you nearly 6% gains, but that’s nothing compared to the 15.5% you’d get from a passive S&P 500 strategy.

    Reply
    • Financial Samurai says

      November 3, 2016 at 8:38 pm

      I didn’t realize people were paying cash for their first time homes nowadays? Usually first time homebuyers and even second and third time home buyers are only putting 20% down. So if you put down 20% and your property increases by 6%, the gross gain is really 30%.

      But if people are paying cash, that makes me feel good that more and more people have stronger balance sheets now. You can cherry pick returns which ever way you want to argue your preference. Most people who cannot afford will be biased against housing. It’s just the way it is. My biggest regret was not buying a 1,300 sqft, 2/2 condo with a view of the Chrysler building in 2000 for $800,000. It’s worth well over $2M today.

      Why not do both?

      Related:

      The Inflation and Interest Rate Paradox: Why You Must Continuously Invest

      Buy Real Estate As Young As You Possible Can

      Reply
      • John says

        March 3, 2017 at 5:35 pm

        So if you had bought that $800,000 office building in 2000 that is worth over 2 million now, your investment would have gone up 2.5 times in 17 years from appreciation (plus rent income, minus expenses).

        But if you invested in an SP 500 index fund at $63/share in 2009, your investment would have gone up 3.5 times in 8 yrs since it’s at $220/share now. No rental income but also no maintanance expenses, or worries about the heat pump dying in winter so that the building’s pipe’s freeze and burst flooding and ruining the interior so it always has a funky smell after that or so it causes toxic mold to form and your tenants sue you bc the moldy air made them sick. Or maybe someone clogs the toilet and it overflows, or a sewer line breaks causing poo water to go everywhere. Also no worries about tenants trashing the place.

        Reply
        • Financial Samurai says

          March 3, 2017 at 7:38 pm

          I think the place is worth more like $2.6M, so 3.25X.

          I’d happily turn my $160,000 downpayment with a $640,000 mortgage into $2.6M with probably zero mortgage by now (I paid off one mortgage on a SF condo I bought in 2003 in 2015).

          Let’s say the mortgage of $640,000 was 100% still there. $2.6M – 640K = $1.96M. That’s a 12.25X return on $160K. That’s not bad at all, especially since it owning would have been cheaper than renting for at least 14 of those 17 years.

          Do you own real estate? If so, when and what did you buy?

          I know so many people who could have bought and didn’t since 1999 and they are seriously regretting it.

          Real estate has been my best asset class so far, and I do have a multi-million dollar equities portfolio fyi.

          Related: A Long Road Home: Passive Income Update 2017

          Reply
          • boglemommy says

            May 2, 2017 at 12:18 pm

            Hello Financial Samurai,

            We too live in the SF bay area, and have had our primary investments in the RE market. May I ask about your equities portfolio? My husband and I have been discussing diversification prior to retirement, about what if anything to invest in index markets, etc or just to continue with RE investing. What would you recommend as to investments other than RE?

            Reply
  44. Other guy says

    August 3, 2016 at 5:05 am

    Ha ha mentor me… too funny

    Reply
  45. Bartek says

    April 26, 2016 at 6:28 am

    I love your blog. I would like you to mentor me if possible. Please contact via email.

    Reply
    • Guy says

      May 3, 2016 at 7:18 am

      Never ask for something if you have nothing to offer.

      Reply
  46. Mike says

    March 15, 2016 at 10:33 am

    I am tired of losing money in the stock market and have often considered purchasing another home or condo to rent out. I don’t have a lot of money in the market – 250k. I thought about cashing it out (my IRA) and possibly my other savings (Roth) to make this happen. What could I possibly do to get passive income more reliable at age 51?

    Thanks in advance

    Mike

    Reply
    • Financial Samurai says

      March 15, 2016 at 11:26 am

      You can lose money in real estate too, but the key difference is that you can do things to help improve your rental income. also, real estate tends to be a much longer term investment, therefore, you can ride the dips and ups better, stocks are much more volatile.

      Reply
      • Cindy says

        November 9, 2016 at 6:20 am

        Is this the case now? I am seriously considering buying a commercial building as described above. With the change in government is this a good decision?

        Reply
      • Leon says

        July 7, 2017 at 3:37 am

        The problem I have with investing in stocks is that it’s purpose is retirement! Although everybody’s hope is to live long enough to see retirement, or SEE THE MONEY of retirement. The fact is some of us will not live to see it! If this topic was about our kids then stocks would be great. We die it pass on. People want to see, touch, and be able to enjoy the money. After all, life is for the LIVING! So with all that said I feel renting is best! And not renting site built home that cost a fortune and have to hopefully see the day u can sell and live off its appreciation. I’m talkin mobile homes! Nobody is talkin cheap single wide mobile homes! In my region (louisiana ) u can get a mobile home used for 15k-20 move in ready with little to absolutely no repairs!! Rent for a site home is pretty much the same as rent for a 3 bed mobile home! Get u 5 used mobile homes, rent them at a minimum of $600 a month. That’s 3k a month!!! No stock portfolio will cash out dividends of that magnitude unless u speND years building it up to 1M in shares! Which will take some people a lifetime. We can go back and forward about appreciation depreciation compound interest blah blah blah talk all day. The bottom line is money in your hand right now!! Not on paper that says u have a portfolio worth $500,000 BUT I can’t touch it because I’m not old enough lol cmon. Get u a portfolio, put a Lil money in it and forget about it is my say. Prioritize more towards fulfilling a life where u can retire or semi retire EARLY with passive cash flow from mobile homes!

        Reply
        • Ryan says

          July 7, 2017 at 6:02 am

          Shoot guys, we have had it all wrong. All the real money is in the trailer parks!

          Reply
          • Tim says

            October 28, 2018 at 8:40 pm

            Leon- I am selling my primary home plus my 4 rentals homes and gonna buy 40 total double-wide trailers. I wonder if I can find 40 trailer trash tenants to make the monthly payments on time? 600 x 40= 24,000.00 usd a month. Then I can buy a single-wide trailer for myself to live in. lol

            Reply
  47. Jackie says

    January 28, 2016 at 2:54 pm

    I have 450k sitting in a savings account what’s the smartest thing to do with it?

    Reply
    • Denis says

      February 13, 2016 at 4:49 pm

      Commercial real estate is the best way to go. With $450K down you could buy, for example, a small-medium office building, with $200K NOI. Management is in place, so you would not have to worry about managing the building; after all expenses and mortgage payments, you would still earn $70K/year; your asset would be worth ~$2M (compare to your $450K in the bank); You would gain trough equity build-up, appreciation, rental income, tax benefits. Start looking for commercial real estate broker for assistance.

      Reply
    • david says

      April 23, 2016 at 12:25 am

      Start a hedge fund

      Reply
    • amyalsop says

      June 5, 2017 at 7:04 pm

      If you decide to invest in real estate, remember that everything you use when doing your real estate work, even driving out to talk to local owners to discuss buying, etc. can be written off come tax time!

      This means that you can write off your car expenses, insurance, even mobile phone that you use on these real estate calls.

      That doesn’t mean you should blow money on these things. Minimize costs whenever you can if you want to be successful in real estate. I always use Gas Buddy to find cheap gas. I use Insurance Panda for car insurance ($25/month), and I use Metro PCS for cell phone (only $20/month).

      Being frugal, and taking advantage of every single tax write-off is the best way to get ahead when you are first starting our in the real estate game, IMO!

      Good luck!

      Reply
  48. Sam says

    January 6, 2016 at 12:21 am

    I am looking at starting a Real Estate Management company with three friends and our projected cost of Operating in year 1 is just over $500k, with just over $300k earmarked as our combined salaries, so we can quit our jobs and focus on this 100%. One of our partners is willing to provide us each with personal loans of $100k at 8% interest with the first two years being io, and our forecasted revenue in year 1 is approx. $250k.

    The question comes in how to pay ourselves. Considering that these are personal loans that we will be paying interest on, does it make sense for us to invest the loans directly into the company and pay taxes on our salaries on top of our loan interest, or is it possible to hold on to the portion of the loans that we need for our personal upkeep and not take a salary from the business until such a time as the business can afford to fund our salaries?

    I hope the question makes sense. We are just trying to figure out what we are legally obligated to do in a scenario like this. Perhaps another way of thinking about this is as follows: if we were each using money from our personal savings to stay afloat until our business could support our salaries, would we have to report our savings as income and pay income tax on them?

    Reply
  49. Matt says

    December 31, 2015 at 11:14 am

    I have a unique question/dilemna. I’m 37, own a home which I still owe more than 50% on, own a business and land associated with business, I’m about $70k in debt(no credit cards) in the form of a second mortgage and a business loan. Unfortunately I received over 50k from my brothers life insurance policy a few years back. It is currently all invested in the stock market. There was some resentment from other family members that I did not share this money. At the time I was worried that they would blow the money. I bear tremendous guilt that I have this money as a result of my brother dying. I refuse to spend this money, especially on myself or to pay off my debt or current mortgages. I want to pay everything with the money I make on my own. However, I’d like to buy a condo on Lake Erie where me, my brother and all of our family vacationed since we were little kids. There are many, many memories in this area. I was thinking that I would allow family to stay there in the summer to help dissolve some resentment , use it a little personally and use it for weekly and weekend rental income as it is a very popular location. I want to use the 50k to put about 50% down and then hopefully the rental income will pay the remaining monthly $300 mortgage plus HOA’s. I’m very scared that I will lose the money in the market or be tempted to spend it. I’m aware that paying off my current debt and mortgages is the smartest thing to do, but if I can preserve this money in a tangible investment and make income to pay down debt(along with my income from my job), some of the guilt and family problems will be resolved and I will feel like I was responsible with this money. Any advise, thoughts?

    Reply
  50. Klee says

    November 26, 2015 at 10:39 am

    hi,
    thanks for the great article.
    I am in the process of possibly purchasing a 100year old 4plex in a very desirable location in seattle. 1.25Million at sale price the upfront cost of the obtaining loan is $300K and just had the inspection, the place is livable but needs a lot of work. It is beautiful old house otherwise.

    My draw is that this is a place I want to live and plan to live in the larger unit. the neighborhood is fantastic with home easily over 1-3million flanking the property. the rental market in Seattle of course is just crazy and I suspect will become like San Franscisco

    Although I love the potential of this house, it will be a lot of work and now I am wondering if it makes more sense to invest 300K in stock market/mutual fund.

    The added benefit in my mind was that i would move out of my single home that can be rented out and with low mortgage project positive cash flow and move into nicer neighborhood with a little more cost than what I am paying now to live in the house.

    I would love any thoughts.

    klee

    Reply
  51. niko says

    November 18, 2015 at 8:28 am

    Hi Guys, I’m 26 and a career newbie. My first big goal is to purchase property. To do this I am prepared to save for the down payment over some years.

    Do you recommend accumulating the $$$ for the down payment in ETFs or in a CD?

    Also, I’m torn between how much to allocate to my 401k and how much to allocate towards the big property purchase. Any good perspectives?

    Reply
    • Bobby says

      November 18, 2015 at 9:29 am

      Hi,

      ETF v/s CD will depend on the time frame in which you will be in a position to buy the property. It should certainly be a CD if the time frame is a year or so. It can be some bond ETF if the time frame is 3-4 years. Equity ETF if the time frame is 7+ years.

      401k allocation will depend on the following:
      1. If there is a company match, then it is a no brainer that you have to get the company match NO MATTER WHAT
      2. 401k offers tax advantages – you get tax deduction

      You did not talk about IRA but that is also a powerful retirement tool.

      Since you are just starting out, my guess is that you will benefit more from 401k/ IRA (or Roth IRA) contributions than saving up for property down payments.

      Bobby

      Reply
  52. cody waddoups says

    October 21, 2015 at 1:07 pm

    In general, stocks may have the advantage in more categories than real estate. However, real estate seems to be better when it comes to stability and tax advantages. A good compromise may be to own a REIT, which combines some of the benefits of stocks with some of the benefits of real estate. While each area has its own benefits and drawbacks, to decide which one would work well for you depends on your overall financial situation and level of comfort.

    Reply
  53. Lee says

    September 29, 2015 at 6:10 pm

    Ok this might be a dumb question but I am only 23 years old and started investing in both the stock market and in real estate and don’t know if I should solely focus on one to become more successful. I started a Roth IRA at 19 and have done maximum contributions since and it’s doing really well but I am not much of a gambler. I was thinking about withdrawing my from my IRA to get closer to paying off my house earlier and stay focused in real estate. In my mind, if I pay off my house earlier then I could invest in more properties much faster and make more money but not having a mortgage payment. Like I said, I am not a gambler and I know that I shouldn’t constantly be checking on my IRA every week but it stresses me out that I don’t fell in control of my money. Thanks!

    Home- Owe 80K/ Valued 90K
    Roth IRA- 26K

    Reply
  54. Ryan says

    September 13, 2015 at 11:44 am

    I’m having a little trouble with the comparison here. How are you coming up with only a 2% – 4% return on real estate? It seems you are comparing borrowed money (real estate) with unborrowed money (stocks).

    Why must you have a mortgage on an investment property and pay interest? Remove the 4% interest and you have an 8% return on your money. Instead of $100k in a mutual fund, why not just buy a rental free and clear?

    I own 3 rentals, free and clear (about to add a 4th) and average around 8% return on my initial investment, even after all expenses, including times the units are unoccupied. When you factor in the 3% increase in the value of the property, it only gets better.

    Another thing about real estate is that your initial investment never changes, but rents go up. Rents will generally outpace taxes/maintenance/insurance fixed costs slightly as inflation brings up the value of the property. So after 5 – 10 years, instead of $1200/mo you may be at $1500 – $1600/mo, so an even better return as time goes on.

    You could be pulling 8% cash, plus another 3%/year increase in the value of the property. Meaning a 10% return on your investment isn’t out of the question. That is better than stocks.

    Another reason I like real estate, and you somewhat pointed this out, is even in a down market, rents are typically the same (even go up still). Which means I make my return no matter what, year after year. Since I hold for a long time, it’s only the equity in the property that takes a ride on the roller coaster like a stock, but the rental/cash return of 8% still continues. Generally, I don’t care if prices are up or down, as I’m still collecting my rent all the same.

    Reply
  55. CashFlowDiaries says

    May 28, 2015 at 2:25 pm

    This is a good read. Im glad youre on the same side as I am. Im pretty early in my real estate investing but so far I have been averaging 20% returns on my properties. I dont see any stocks doing that. Keep in mind my calculations are based purely on cash flow. Im not even including possible appreciation which is icing on the cake. I dont like to include appreciation in my calculations because its really just speculation.

    Reply
  56. Jackie says

    May 15, 2015 at 10:15 am

    Sam – you mentioned being in control by owning physical property and others have mention REITs. Have you worked with Real Estate Investors looking for funding for their properties, ie: private funding? Some of them, including myself, are willing to pay higher interest rates to purchase real estate. What are your thoughts on that? Thanks, Jackie

    Reply
    • Financial Samurai says

      September 13, 2015 at 9:32 pm

      I have not. I do not want to partner with people to invest in real estate as it will cause future headache. Things change over the years.

      Reply
  57. Nightvid Cole says

    January 20, 2015 at 2:31 pm

    A mortgage is essentially a negative bond holding – instead of receiving fixed payments at fixed times, you make fixed payments at fixed times.

    If you buy a rental with 25% down, your portfolio technically has an allocation of 400/-300 in real estate/fixed income.

    If 100% stock in a portfolio is too much, then surely 400% real estate is also too much?

    Reply
  58. Nightvid Cole says

    January 20, 2015 at 2:28 pm

    The problem with leverage is that you have effectively put more than 100% of your money into the asset class in question. Most advisors say not to own 100% equities in a mutual fund, because it is perceived as too risky. Yet when you buy a rental property with 25% down, you are effectively in 400% real estate. Seems a double standard here – how is 100% stock too much but 400% real estate isn’t?

    A mortgage is essentially a negative bond allocation, since a bond represents the right to fixed payments at fixed times while a mortgage is the reverse – a pledge by you to make fixed payments at fixed times.

    Thus a rental with 25% down is technically an allocation of 400/-300 real estate/fixed income.

    When put like that, it should be clear why I don’t see leverage as the huge wonderful thing you make it out to be.

    Reply
  59. neil small says

    January 3, 2015 at 2:13 pm

    This was the best article I found online regarding real estate vs stock. Thank you! I’m 35 and I’m a teacher and I don’t make much, but I have 50,000 in a Roth. I bought two rental properties this year and I’m trying to buy a third right now because it makes more sense then opening up a 40 K with my employer. I’m willing to invest completely into real estate, but I like the idea of the Roth IRA, even though I believe I can make a lot more money through single family rental properties. I feel like I’m still buying at the right time, I just wish I could be certain how long it’ll take for the housing market to recover where it was in Southern California in 2005. I’m willing to invest everything into real estate but hopefully that’s not my real estate agent talking as he’s very good at convincing me real estate is way better than stock because it’s easy to cash flow where I live. Thanks again. And yes tenants and maintenance is a hassle, but if you screen for decent tenants its not that hard to manage your properties.

    Reply
    • Financial Samurai says

      January 3, 2015 at 6:57 pm

      I’m glad you found it and enjoyed it!

      I would still diversify your investments into stocks and bonds as well. You just never know when the party will end, and it’s good to have some offense and defensive when the time comes.

      Reply
    • MARY says

      September 8, 2015 at 9:58 am

      Hi; I am glad I read this article. I am in my early 40’s and trying to determine whether I should retain my real estate property built in 2009. The property appreciated about $100K in 5 years. However, my job is currently about 96 miles away from my home, so I am staying with my parents home for the time being. Will it be a reasonable step to sell the property in 5 years and just save the mortgage monthly payments for investing into portfolios with high return (ex. 7%)?

      Reply
      • Financial Samurai says

        September 8, 2015 at 2:04 pm

        $100K is what % increase?

        There’s something to be said with simplifying life and taking the TAX FREE gains of up to $250K per single person.

        Reply
  60. Torsten says

    August 26, 2014 at 12:15 pm

    Given the situation we were in a couple of years ago – may I say – cash would have been best.

    Reply
    • Financial Samurai says

      August 26, 2014 at 12:41 pm

      Not sure I follow as the real estate and stock market have been heading higher through 2014.

      Reply
    • David says

      November 6, 2015 at 4:26 pm

      Sadly, cash would of lost 2% per year to inflation. That’s a lot over 30 or 40 years. Make 4% a year average after that inflation is calculated, 6%, and that’s a lot more. Stocks its easy to make 6% return a year average over 30 or 40 years.

      Reply
  61. DrGoldin says

    June 3, 2014 at 4:07 am

    At the end of the day, the stock market and the real estate market have to provide comparable returns because they compete with each other for investors’ dollars. As a stock investor, I am very glad that (some) people make tons of money in real estate, because that keeps stock prices competitive and allows me to find good values. (The price of a stock is primarily determined by its anticipated return, and if those returns fall short of what you could get in real estate, the share price is inevitably going to fall.)

    Also, it’s misleading to speak of “stocks” and “real estate” as though they were homogenous globs. There are many different ways to invest in either one. In stocks, you could be an essentially passive investor living on (or compounding) dividends from slow-growing blue chips. You could be a more active investor looking for anticipated capital gains. You could even be a day trader. (Serious investors LOVE volatility because they can take advantage of what they regard as mispriced stocks.) You can pick your own stocks; you can invest in baskets of stocks called ETF’s; or you can hire a money manager to invest on your behalf. In real estate, there is comparable variety. You could invest in single-family houses and condos scattered across different zip codes for rental income. You could invest in multi-family properties, which represent a more substantial investment in a single zip code. You could have a management company handle the details for you, or you could drive around collecting everybody’s rent yourself. And of course there’s commercial real estate–everything ranging from a corner bodega to an office building. You could be a sole owner; you could be part of an ownership group.

    What you need to do is find the investment style that suits your temperament, your tolerance of risk, and of course your available capital. It doesn’t really matter whether it’s stocks or real estate (or bonds or alternate assets–although I really can’t recommend bonds right now …). If it works for you, it’s great.

    Reply
  62. Sammy says

    May 1, 2014 at 10:19 am

    Real estate investing is vital to any investment portfolio I agree. However, actually owning physical real estate is too much of a hassle. I am 31 years old, own my own business, have 2 little kids and dont have much time to deal with the baggage that comes with being a land lord.

    I have found REITs are more suited for my lifestyle and investment mentality.

    Dealing with tenants is a hassle at best and a nightmare at worst. Owning even a few rental properties is a second job in and of itself. No such problems with a REIT. Finding tenants, collecting rent, and making repairs are all handled by a professional management team. All you have to do is count the dividend cheques as they roll in.

    Sam you mentioned control.Most real estate investors will point out that the biggest benefit of owning your own properties is control. And this is definitely true. However, I feel like the liquidity of REITs outweighs the benefits of having full control. While leaving the control in the hands of industry experts does not always end well, in general it is a good idea.

    Leverage is often touted as a benefit of owning real estate as you’ve done in this article Sam. Bankers will sometimes allow you to borrow up to 75%, 80%, maybe 100% of the property’s value. But REITs win once again here. Many trusts have leveraged their balance sheet 2:1 or more to enhance returns. Risk-hungry investors looking for more aggressive bets can always finance their purchase with margin

    I am curious about your position on REITs Sam

    Reply
    • Financial Samurai says

      May 1, 2014 at 10:30 am

      You make some good points, and as I get older, I want to deal LESS with hassle.

      It depends on which REIT, just like it depends on which property.

      I have an extreme bias towards investing in something that is tangible or consumable. Everything else seems like paper wealth that means little.

      Reply
      • Ryan says

        September 13, 2015 at 11:53 am

        The problem with an REIT is that it still takes the stock roller coaster up and down. It doesn’t seem to behave differently than any other stock or mutual fund. Look at REIT’s right now. Took a hit with the stock market, while actual real estate is UP….. make sense of that.

        As an owner of several properties myself, I find the comments about the “hassle” kind of silly. You need 4 things to make being a land lord easy. A real estate agent, an A/C company, and appliance repair company, and a little bit of cash to replace appliances and pay the professionals when you need to.

        Tenant calls about broken dishwasher, I go online and schedule appliance repair and email the details to tenant. I’ll get a call the next day and pay the bill. Big deal. How difficult is it to deal with a call or issue every couple of months that takes an hour of your time. Tenant moving out? I call my agent who works with the tenant on showings, gets new tenant, does lease, background check, credit check, etc.

        Reply
    • John says

      January 31, 2016 at 7:51 am

      I also agree with Sammy.

      Leverage is nice when your asset goes up in value. Not so much when it goes down. I would likely need to personally guarantee a loan, so my downside isn’t protected.

      Being local isn’t necessarily good either. I live in a college town in the midwest. Recently, a 6 bedroom, 1500 square foot house near campus has rented for $4200. In the past five years, about 10 apartment towers have gone up creating thousands of extra bedrooms. These $4200/month rent princes will have extreme downward pressure due to the extra supply. Landlords who bought these houses recently will be hosed. Of course, if you happen to live in a hot city like San Francisco, where mortgages don’t need to be guaranteed, taking on debt is probably a great idea.

      I believe real estate is very good for getting rich, due to the leverage. But now that I am rich, I don’t want leverage or hassle. I’d rather spend my effort on my main business and put my savings into truly hassle-free investments like stocks, reits, online savings accounts, etc.

      Reply
  63. Surge says

    April 1, 2014 at 10:04 pm

    I have a condo which I lived in for 8 years. Simply got tired of living in the same place, so rented it out.
    Now, we are just enjoying moving to different areas (within the same city of course) every year or so (downtown, beach areas). We are renting where we live and renting out our own real estate.
    Tax-wise -> not the wisest decision, but who wants to be pigeonholed into the same place for the rest of his/her life.

    Are we real estate neutral? There is a strong lifestyle component associated with it.

    Reply
    • Thomas Fonseca says

      July 16, 2015 at 1:47 pm

      Assume that you have $25k to invest. You might want to know which would be a better investment, buying a condo and renting it out or simply investing in an ETF.
      Scenario #1. Buy a Condo and rent it out:
      15 year fixed 3.92% APR
      $125k borrowed $25k down
      $736 Monthly Payment
      $400 Home owners fees
      Monthly cost = $1,136 X 12 = $13,632 + $2,000 Misc. $15,632 (Annual Cost)
      Monthly rent = $1,500 X 10 = $15,000 (Annual Income if rented ten months of the year or %80)
      $1,368 Annual Income. Now consider your time finding a condo, securing financing, making the purchase and interviewing renters. Also consider the time and materials cost for replacing the carpet/paint between renters, property tax and any insurance costs. Lets be generous and call it -$3000 annually. In fifteen years that adds up to a cost of $45k But after 15 years you own it and lets assume it is now worth $150,000 so if you sell you make $105,000.
      Scenario #2 Investing in an ETF
      $25k invested in an ETF earning %7. Compounded annually it will equal $68, 975 after fifteen years (There may be some capital gains taxes depending on the fund but there will be capital gains taxes when you sell the condo too). But wait, Lets also assume that you invested that extra $3,000 annually that you spent on misc expenses for the condo back into the fund, now it comes up to $149,639.
      You can see that you actually make more with Scenario #2 the ETF. There are lots of variables here but this is not an unreasonable scenario especially in California.

      Reply
      • Greg says

        July 22, 2015 at 11:58 am

        I rent properties. I have always been 100% rented out, I’ve spent less then $1k a year on each property in maintenance (you’re adding 2k and 3k in costs), and you’re forgetting principle paid by renters and property increasing at 3% a year at least.

        I’ve made over 90% a year on my real estate rental units, you just gotta do it right.

        Reply
  64. MJ says

    March 10, 2014 at 4:12 pm

    (“Real estate is one of the three pillars for survival, the other two being food and shelter.” …the other two being food and clothing…)

    Reply
    • Financial Samurai says

      March 11, 2014 at 9:28 am

      I like that simple argument!

      Stocks aren’t needed for survival!

      Reply
  65. geoff boston says

    February 12, 2014 at 3:24 pm

    In this market today and a potential depression around the corner, tax free municipal bonds or real property. which one is better?

    Reply
    • Financial Samurai says

      February 12, 2014 at 4:42 pm

      Cash, if there really is a depression.

      Reply
  66. Flannel Guy ROI says

    January 17, 2014 at 2:44 pm

    Personally, the consolidated holdings of real-estate scare me. Of course there is insurance for natural disasters, etc., but real estate just leaves me feeling more exposed to a city bankruptcy, a general regional economic decline, and other unforeseen events such as terrorist attacks. These same unforeseen events can also impact stocks, but if you are index-investing, it seems that there is lower risk due to geographic and industry diversification.

    Of course, like you mention, there is a lot to be said for having the government on your side, tax advantages, and having more control over your owned assets. These things all appeal to me, but I don’t know if they are enough to incentivize me to own multiple properties (right now at least, as a soon-to-be first-time homeowner).

    Reply
  67. Frank says

    January 1, 2014 at 5:15 am

    I agree with your preferable allocation of 60/35/5. Personally I’d like to create more of a real estate portfolio over time due to the numerous tax advantages and leverage real estate investing offers.

    I’ll keep investing in stocks via my 401k and etf’s but I think my focus will be on creating a larger real estate portfolio over time

    I think real estate is a little easier to wrap my head around at times and Stocks can get a little technical ..I also don’t like the fact that so many factors out of our control can dictate the price of a stock.

    Thanks for the great article Sam..I’ll make sure to share it

    Reply
    • Financial Samurai says

      January 1, 2014 at 6:44 am

      Frank, why are my articles 100% copied on your site?

      Reply
  68. Mark Ferguson says

    November 11, 2013 at 9:07 pm

    Real estate all the way for me. I’ve bought 7 long term rentals in the last three years and I plan to buy many more. Those rentals produce over $4,000 a month in cash flow and I love it. I used to invest in stocks but they drove me crazy. It always seemed like the market drove the price more than te actual company.

    The great thing about real estate is you can buy below market value and create equity right away.

    Reply
  69. Thomas says

    July 20, 2013 at 4:07 am

    I am not sure yet which is better as I have yet to get into real estate. For me its stocks as its all I know at this point. I am looking to get into real estate but cant really compare. Going from the comments it appears that more people prefer real estate. The goal however is to have them both.

    Reply
  70. Stephen144 says

    May 30, 2013 at 4:55 pm

    After selling my house in 2009 and investing in a mix of mutual funds, stocks and bonds I am considering buying a condo. Doing this however will use almost all my free cash and leave me with a 50% mix of my retirement accounts (401k & Roth) and the condo. My investments have done quite well in the last year, about 8%. But for some of the reasons you stated above I’m inclined to get back into the real estate market.

    The condo is not my first financial choice, HOA dues about $400 a month!… but I really like the location and condo itself…. Am I missing anything in my analysis that you would suggest I consider?

    Reply
    • Financial Samurai says

      May 30, 2013 at 5:03 pm

      A lot of factors.

      Why did u sell in 2009?

      Do you currently rent?

      How long do you plan to stay.

      I think it’s wise to own at least the place you live in. Inflation is a killer.

      Reply
  71. ST says

    May 29, 2013 at 12:46 pm

    FS,

    When considering rental properties to invest in, how much cash flow is considered a good ROI? For example, do you consider a $150 monthly cash flow on a $60K down payment to buy a 230K rental a good investment? If not, what are the parameters you use to decide if something is a worthwhile rental investment?

    Reply
    • Financial Samurai says

      May 29, 2013 at 2:57 pm

      Good question. My main parameter is the 10-year yield (risk free rate) + 2%. If I can get a 10Y yield + 2% as my annual rental yield, and hope for potential price appreciation over the next 5-10 years, I’m a buyer.

      Reply
  72. Another Sam says

    May 12, 2013 at 5:43 am

    You talk about real estate vs. stocks without talking about REITs. Obviously REITs don’t have the benefit of the leverage you can find in a physical property and it’s just another piece of paper. But it seems that if you want to get the counter-cyclical effect of real estate, all you need is a REIT. I personally keep my REITs in my retirement accounts so that I don’t pay a higher tax rate for them. After watching my father have bad tenants and vacancies, I’m more inclined to the hands off approach. How do you approach REITs?

    Reply
    • Financial Samurai says

      May 12, 2013 at 9:19 am

      I approach REITs closer to the same way I approach stocks, rather than physical real estate and rental properties.

      Reply
  73. Thomas says

    April 24, 2013 at 2:51 am

    I guess this is completely a choice of people based on their experience and their knowledge. We have seen how explicitly the advantages and disadvantages have been covered.

    Reply
  74. Dividend says

    April 10, 2013 at 6:07 am

    It is very difficult to tell that which one is better investment option between real estate and stocks. I would prefer investing in stocks because they not only increase profits every year but also increase the cash dividends. Stocks are often more liquid than real estate investments and borrowing against stocks is also much easier than real estate.

    Reply
  75. DesiMoney says

    April 5, 2013 at 10:07 am

    Hi Sam,

    I have recently started following your site and your posts. I was wondering if you have shared your portfolio details/net assets etc. I would love to know how I stand compared to you and that will give me motivation to invest more.

    I am 37 years old, working for a Pharma company in Philadelphia.

    Thanks

    Reply
  76. Eric Shun says

    April 4, 2013 at 2:59 pm

    After $150K paid in rent over the prior 14 years, I bought a nice short sale 2000 sf single family during Sep. 2011 at a rock bottom price, all cash. I had made two previous offers on this house over two years, but got no response. Then one day out of the blue the listing agent called and asked if I was still interested. I got the house at 30% less than my original offers! In early 2012, Bank of America appraised the place at twice what I paid for it!

    I’ve found that ownership of a 55-year old home requires a bit of work. I realize that I’m not interested in working on more than my primary residence after a 38-hour work week (max!). So, I remain heavily invested in balanced mutual funds, 3-year CDs, and investment grade corporate bonds. 30/30/30 + 10% real estate. And I sleep well.

    Reply
  77. Jersey John says

    April 4, 2013 at 10:02 am

    Excellent article, Sam.

    I have been trying to take some cash out of my equities and move some into a multi-family property. The problem is in northen NJ the market is so damn competitive. People are paying above asking price, and I keep getting priced out. Pretty frustrating to say the least.

    How do you, or other readers, go about crunching the numbers when it comes to a property? I’m curious because this will be my first foray into real estate, and would like to get some other perspectives.

    Reply
    • Financial Samurai says

      April 4, 2013 at 10:57 am

      Hi John, interesting to hear about a competitive market in northern NJ! When did things start heating up? I’ll have to write or look to see if I wrote a post on your question, or we can do a consult.

      Reply
    • Matt says

      April 4, 2013 at 1:51 pm

      Paying above asking price just seems crazy to me. How do you negotiate against yourself, logically? Do you also pay $20 for a Big Mac? Or $7.00 for a gallon of gas? (in the U.S.) That would never fly in the Midwest.

      Reply
      • Financial Samurai says

        April 4, 2013 at 2:33 pm

        The key word you said is “Midwest.” There’s a reason why demand is more robust in coastal cities. The law of demand!

        Reply
    • Jason says

      April 10, 2013 at 3:02 pm

      Around the Bay Area, RE did a huge uptick in the Spring of 2012. We were getting bidding wars just like the old days, only this time it was multiple all-cash offers instead of ninja loans, LOL.

      I did manage to get a rental at that time, but I had to really have my ear to the ground and happened to be in a city I don’t normally go to when I saw it.

      Best thing I can say is keep looking all the time and don’t ever pay so much that it doesn’t cashflow. You should also know your numbers/tolerences well enough that you can look at a property and say “yes” or “no” almost immediately. I find that the zillow android mortgage calculator is great for this.

      Reply
  78. The First Million is the Hardest says

    April 4, 2013 at 9:24 am

    I’ve never thought about which is “better” because IMO a serious investor should own both. I tend to prefer stocks at this point just due to the lower barriers of entry and low commitment level. Real estate requires a lot of work in order to maintain your investment. With stocks, you basically have to just keep up and make sure a company you own isn’t pumping oil into the ocean or a CEO isn’t selling technology to North Korea and you should be ok.

    Reply
    • Financial Samurai says

      April 4, 2013 at 10:12 am

      Is that all? Easy peasy Japanesey then!

      Reply
  79. Untemplater says

    April 4, 2013 at 8:37 am

    I find real estate much more interesting than stocks. But both are great investment opportunities and I think diversification is important. Real estate is a huge commitment though so I wouldn’t recommend someone buy property if they don’t have the means. The banks are much more strict now too so that helps people from some premature buying.

    Reply
  80. Tiffany says

    April 4, 2013 at 8:23 am

    Even though I prefer real estate, we are about 85% stocks and 15% real estate. Ideally, I’d like this to be about 50% RE, 40% stocks, 10% cash. So the question is, do we sell some stock to buy more real estate now (the town we live in was one of the worst hit in the country so now is a good time to buy) or do we save cash for a few years and buy then, but prices will be higher?

    Reply
    • Financial Samurai says

      April 4, 2013 at 8:43 am

      If you have the means to buy real estate, I would buy now as I do believe we are in at least a 3-5 year uptrend. But if you don’t, hopefully your stocks will do well too. The problem is what you want to buy will get that much more expensive vs the appreciation of what you own.

      Reply
  81. Jose says

    April 4, 2013 at 5:30 am

    I have to agree with you, I do prefer real estate over stocks. But, I have more than half of my net worth in stock, it was actually less in the past but the money that I have in stocks has rapidly outpaced my real estate in terms of growth. Once I get some of my personal financial obligations settled, I will be putting more of my available cash flow into real estate.

    Reply
    • Financial Samurai says

      April 4, 2013 at 8:47 am

      That’s not a bad problem to have! I would just be extra careful now that you are in job transition, just like I’m more conservative now that I’m unemployed. Protect your net worth’s value at all cost.

      Reply
  82. homicidal neighbor says

    April 3, 2013 at 9:15 pm

    Downsides of real estate: namely rental real estate… your forgot the hassle of dealing with renters. Also potential liability and the need for insurance, etc.

    Reply
    • Financial Samurai says

      April 4, 2013 at 8:48 am

      Didn’t forget. Just focused on the positives between the two. See point #4 for Stocks:

      4) Less work. Real estate takes constant managing due to maintenance, conflicts with neighbors, and tenant rotation. Stocks can literally be left alone forever and pay out dividends to investors. Without maintenance you’re able to focus your attention elsewhere such as spending time with family, your business, or traveling the world. You can easily pay a mutual fund manager 0.5% a year to pick stocks for you or hire a financial advisor at 1% a year.

      Reply
  83. Chris says

    April 3, 2013 at 7:45 pm

    I’m a big fan of Real Estate. Closing on house #3 in the next week. It’s a crazy, competitive market in NorCal right now. I got out bid twice and then found an abandoned home that didn’t have a for sale sign on it, researched it, and should close shortly. I like the tangible asset part of it and I’m fascinated with researching and understanding the real estate game. Passive income is my goal. If things work out, I should have 2-3 paid-off houses in the next 6 years.

    Reply
    • Financial Samurai says

      April 4, 2013 at 8:49 am

      It is crazy how things can turn on a dime. Where were all the buyers last year?

      Reply
  84. Rich In The Heart says

    April 3, 2013 at 7:36 pm

    My preference is stocks because of the liquidity. It is also easier to set limit orders for stocks both on the buy/sell sides of the house. While the market is more volatile than real estate typically, the use of limit (or even trailing limit) orders is a lot easier and as long as you buy enough shares, the transactions fees are WAY less.

    Reply
    • Financial Samurai says

      April 4, 2013 at 10:55 am

      If you’ve got the discipline to sell and buy with sliding limits, I think that’s great. The problem is.. folks tend to hold losers too long and sell winners too quick, including myself.

      One big reason why I don’t plan to sell my properties is b/c of transaction costs. With inventory down 55% in SF, I’m looking for the real estate industry to cry UNCLE and finally cut their ridiculous commission fees of 5%.

      Reply
      • Rich In The Heart says

        April 5, 2013 at 4:15 am

        I don’t try to time the market at all, and don’t care if I’ve sold one too quickly.
        As for buying, I usually set buy orders anywhere from 2%-8% less than whatever it may be trading at the time, and depending upon how volatile that particular stock is.
        Why would you care if you didn’t get the complete uptick? I have a tendency to set the sell order within 24 hours after the purchase was acquired, unless I managed to get the buy so low that I plan on holding onto the stock for a longer time because it pays dividends or the stock will appreciate back up towards it’s 52 week highs in relatively short period of time.
        Not being too greedy has been one of the biggest hurdles I overcame to improving my portfolio by more than 26% two years ago, and 22% last year. And of course the markets climbing the way they since the end of last year certainly hasn’t hurt much as far as this year has transpired so far.

        As far as the RE commission fees, I don’t particularly like them either. One of my siblings sold his own residence by FSBO (For Sale By Owner), some 6-7 years ago now for a tiny $495 cost and another $250 to a lawyer to finish up the paperwork. Since that house sold for over $200k – I can’t remember the final amount, they certainly made out on that deal. :-) With that being said, I don’t know how many FSBO properties are being sold in that way anymore.

        Reply
  85. Ross says

    April 3, 2013 at 7:08 pm

    An instant classic. After thinking about this issue for the past few years, I’ve come to some of the same conclusions. Everyone should be forced to read this post before they start investing in properties or stocks.

    Reply
    • Financial Samurai says

      April 4, 2013 at 10:54 am

      Thanks for helping spread the word!

      Reply
  86. Jon says

    April 3, 2013 at 6:12 pm

    In 2008 and 2009 I saw blood in the streets and scooped up as much real estate as my risk profile would tolerate. Now I’m at 50% own small biz, 35% real estate, 10% cash, 5% stocks. This is the lowest percentage stocks I’ve had in 20 years. I am selectively selling some properties to upgrade to higher quality, meaning easier to manage and better chance at appreciation. The caveat is that the higher quality properties have lower yields.

    Reply
    • Financial Samurai says

      April 4, 2013 at 10:53 am

      Nice. But at least higher quality properties have more capital appreciation upside and theoretically higher quality tenants.

      Reply
  87. Jason says

    April 3, 2013 at 4:55 pm

    Hi JT

    I think you’ll find that REI offers the same or even more “digging” and number crunching than stocks do. Not only do you have to know the housing market, but you’ve got to have an idea of rental rates as well as more boots-on-the-ground stuff like “how much money will it take to reno and put tile into this bathroom”, “which contractor should I go with?”and “would this tenant be a good fit ?”

    But, you are right about the skills transference – someone who’s well-versed in stocks needs to start at the beginning in order to be confident approaching REI.

    Reply
  88. Jason says

    April 3, 2013 at 4:47 pm

    I’m solidly in the REI camp since, in my mind, retirement and/or good living is all about a steady cash flow. If my portfolio goes up, that doesn’t put food on the table unless I sell something.

    Reply
    • Financial Samurai says

      April 4, 2013 at 10:53 am

      True. Although the case can be made by just buying dividend funds or dividend stocks.. But given the volatility in stocks, as a retiree, I’m less sanguine.

      Reply
      • Jason says

        April 4, 2013 at 11:12 am

        I guess it boils down to your phase of life. For retirees and soon-to-be-retirees, REI is probably more attractive because of the cash flow. But if you plan to keep working, stocks may be better.

        (I keep forgetting that your blog is not exclusively for the FIRE folks.)

        Reply
        • Financial Samurai says

          April 4, 2013 at 11:22 am

          FIRE = Financially Independent Retired Early? Never heard of that acronym, but may have to start using it.

          The phase of your life depends a great deal. I would actually argue a little on the opposite side. When I’m over 50, the last thing I want to do is to manage my real estate. Although it doesn’t take that much effort, it still requires effort. I will hire someone to do everything for me and pay 1 month’s rent to do so, or whatever the going rate is.

          If only we weren’t bombarded with stock news every day, and if only stocks didn’t take huge dives, cut dividends, and get crushed due to corporate malfeasance, I would just buy and hold the “highest quality” dividend stocks forever.

          Reply
  89. Brent says

    April 3, 2013 at 2:01 pm

    It’s killing me that I can’t get in to U.S. real estate right now. I’m living offshore on a corporate expat assignment and don’t know when I’ll be coming back or to what city. I’m pretty much 80/10/10 equities/bonds/cash… the cash I am keeping around for a house down payment when I do get back. If I knew where/when that would be, I’d be buying right now instead of hoarding all that cash that’s doing nothing for me. Would probably buy 1-2 rental properties too if I knew I was going to stay in one place for 5 years, but no way I’m going to try and manage rental properties from another country. I just hope the govt keeps rates artficially low until I get back.

    Reply
    • Financial Samurai says

      April 4, 2013 at 10:52 am

      US real estate is SO CHEAP compared to foreign real estate. If I was from HK, London, Moscow, Paris, Singapore, Rio, Sao Paulo, Beijing, etc I would be buying hand over fist here as well.

      An expat assignment is nice though, so enjoy! Where are you currently?

      Reply
      • Brent says

        April 4, 2013 at 2:33 pm

        I’m in the Cayman Islands…not a bad place to live for a few years :)

        Reply
        • Financial Samurai says

          April 4, 2013 at 2:38 pm

          Oh wow! Nice work! I’d love to learn more about all the offshore accounts and tax evasion strategies and benefits there.

          I have an old client who made his fortune in SF and who is now chilling out there.

          Reply
  90. Lyle says

    April 3, 2013 at 1:40 pm

    I just discovered this website 2 weeks ago and have been reading pretty religiously ever since. I really like what I’ve been seeing. Maybe this is discussed in another post, but what is the samurai’s position on precious metals. I own all the asset classes discussed here except CDs. I much prefer precious metals. I treat it like a bond or CD — something that I figure over the long haul will do well (especially with the FED printing money)

    Reply
    • Financial Samurai says

      April 4, 2013 at 10:51 am

      Welcome to my site Lyle! Be prepared for a mix of curve balls, just be forewarned! Over time, you’ll get the various messages I have embedded in my more kooky posts.

      I actually just bought GDX and GLD. I can’t believe how slaughtered the miners have gotten. I’d like to think GLD outperforms in a market downturn I’m expecting this summer. We shall see. It’s just a trade.

      Reply
  91. krantcents says

    April 3, 2013 at 1:21 pm

    No question, real estate for all of your reasons. I always liked real estate because I had total control over my investment. I can raise rents and increase the value of my investment. The value of income property is based on how much revenue is generated.

    Regarding sale of your primary residence, you can only claim the tax advantage ($250/500K) if it is a primary resident for at least 2 out of the last 5 years.

    Reply
    • Financial Samurai says

      April 4, 2013 at 10:48 am

      Good addendum, and something I’ll add so there is no confusion.

      Reply
  92. Brick by Brick Investing says

    April 3, 2013 at 12:03 pm

    I have known for quite sometime you can build your wealth a lot faster with real estate than you can with stocks, given you take the same amount of risk. As of right now I like stocks better than real estate because I’m not educated enough in real estate to conduct the transactions you speak of. Of course that’s not to say I couldn’t learn it over the course of three months but my current situation is different than others. For example SFH in my area go for no less than 600k, town homes no less than 300k, apts around 150k. Needless to say you would need a hefty 20% deposit. Once we relocate to another area where the cost of living is signficantly lower I plan to lock myself into a room and educate myself on real estate deals to take advantage of.

    Reply
  93. retirebyforty says

    April 3, 2013 at 11:26 am

    I like stocks better. It’s so much easier. Rental properties can be a big PITA. Our 4 plex needs their fireplaces repair and it will probably cost over $2,000. This year isn’t going to be very good. On the other hand the 4 plex in that area is selling at +$50,000 the price I paid 18 months ago.

    Reply
  94. Jacob@CashCowCouple says

    April 3, 2013 at 10:26 am

    I’m not big on the DIY aspect of real estate and I don’t really want to spend that time messing with the repairs/headaches, etc. On the other hand, I think the market is overpriced so I’m not loving stocks. Eh, what to do, what to do…

    Reply
  95. John says

    April 3, 2013 at 10:19 am

    What do you think of REIT socks? I like the monthly dividend payers.

    Reply
  96. TB at BlueCollarWorkman says

    April 3, 2013 at 10:18 am

    Right on about real estate being a tangible asset. I always tell my wife that if the world implodes, we cant’ do anything with numbers on a screen, but we can still live in our home.

    Reply
  97. Financial Samurai says

    April 3, 2013 at 10:09 am

    Nice. I am/was as well. But, I’m getting tired of DIY as I get older so will happily hire others to handle the fixes.

    Screen your tenants like the CIA folks! It’s worth it in the long run.

    Reply
    • Rich In The Heart says

      April 3, 2013 at 7:31 pm

      My last landlord (over 13 years ago now), never ran a credit report on any of his tenants.
      Of course, when you only let people like me (who called 3 months before planning on moving to the area, and they are upfront about past credit dings that would be caught on a credit report, and work for a rather safe employer in the immediate area), I guess they never felt the need to.
      And the funny thing is that he and his wife could have raised rents by more than $100/month and I would’ve paid it because the rents were $150-$200 more in the surrounding area.

      Reply
    • JayCeezy says

      April 4, 2013 at 10:03 am

      @Mr. 1500, it has to be fascinating. I used to run credit reports for prospective clients, and the most amazing thing to me was that they all had an excuse! Nobody ever said “I did the wrong thing.” “I messed up.” “It was my fault, and I shouldn’t have…” Never. It was always someone else’s fault (I recall a poster on this site stating that her credit report was bad because her parents didn’t forward her mail. Speaks for itself, doesn’t she ever talk with her parents?). My favorite response, when I asked why a person didn’t pay the bill they knew was outstanding and rightfully owed, was, “Well, I have to have a cocktail, too!” Guess they revealed a little too much about their priorities.:-)

      Bad credit indicates character issues.

      Reply
  98. Financial Samurai says

    April 3, 2013 at 10:08 am

    The mortgage interest tax deduction is just a bonus and not the main reason why I invest in real estate. I’d much rather pay a lower mortgage interest rate than a higher one.

    Reply
  99. Financial Samurai says

    April 3, 2013 at 10:02 am

    Makes sense. Ontario sounds like Detroit a little?

    Reply
    • Financial Samurai says

      April 3, 2013 at 11:38 am

      May I naively ask what prevents folks who live in Windsor or Hamilton from leaving to a brighter city in Canada given how solid the social safety net is?

      Reply
  100. Financial Samurai says

    April 3, 2013 at 10:02 am

    Where is your area?

    If you plan to move within 5 years, or see a risk of losing your job, then yeah, stay away from physical RE. Wait until you know with 80%+ certainty you’ve found the place you want to be.

    Reply
  101. Financial Samurai says

    April 3, 2013 at 9:59 am

    Could be, but I’d need to research the underlying holdings to make an informed decision.

    What I talk real estate, I want to own the physical asset for all the reasons above. REITs can be part of a diversified portfolio, but give me a tangible asset instead.

    Reply
    • Jason says

      April 3, 2013 at 4:42 pm

      Just a quick opinion – REITs have much more in common with stocks than with real estate and IMHO should not be counted as RE when viewing your allocation breakdown.

      AFAIK, you don’t get any of the extra perks with REITs that you do with owning actual property (tax breaks, leverage, depreciation, the list is huge).

      Reply
      • JayCeezy says

        April 4, 2013 at 9:48 am

        Adding to Jason’s thought, the dividends have to be paid out of the REIT to shareholders every year. Taxes paid on those dividends every year. And when the Real Estate the REIT is holding craters in value, or the neighborhood declines or the business cycle declines so rents/occupancy decline in response, then blah, blah, blah.

        Reply
  102. Financial Samurai says

    April 3, 2013 at 9:57 am

    Once you learn about real estate and really get your hands dirty, it’s one of the most straight forward investments you can make that can be positively affected by effort. With stocks, no matter how much effort I put into stocks after purchase, nothing changes b/c the market and the operations are out of my control.

    Reply
  103. Steve H. says

    April 3, 2013 at 9:41 am

    Real estate, Hmmmmmmm. My income comes from a pension. I have investment accounts. My house is paid off. I am single with one claimable dependent. Because of all this, I found that my newly retired situation doesn’t leave much in the way of tax breaks. I have been contemplating real estate for the tax benefits as well as diversification. In Vegas, houses are being snapped up by cash investors so fast that young families cannot get their hands on one. A few months ago one could offer 20% under the appraised value and get the property. Not so today.

    I am weary for a couple of reasons. Is the Fed artificially inflating the housing bubble again through the purchase of 84 million dollars a month in mortgage backed securities? If it is so, I am afraid of losing out if todays real estate investment falls flat tomorrow. I ask myself if I should wait for this second anticipated real estate bubble to burst in order to take advantage – something that may never happen. Second, I don’t know if I could do the landlord thing. I may have to overcome these fears if I am to gain a tax advantage and diversify. Is there another way besides real estate?

    Reply
    • Financial Samurai says

      April 3, 2013 at 10:11 am

      A pension is even better!

      If you wait for the next bubble, you/we might not be around long enough to enjoy the spoils. Are biggest enemy is time.

      Reply
  104. Julie @ The Family CEO says

    April 3, 2013 at 9:33 am

    I prefer stocks because they don’t come with expenses (debt service, maintenance). While I like the idea of real estate in theory, I don’t like the work involved and the possibility of having stretches of time with no renters.

    Having said that, I like dividend paying stocks because they act like rental real estate (value of stock = value of the house; dividend payments = rental income). But I’m conservative. So far I’ve only ventured into the Dividend Aristocrats.

    Great post!

    Reply
    • Financial Samurai says

      April 3, 2013 at 10:12 am

      Good points. If you don’t want to do any work at all, RE is not for you.

      Reply
  105. Funancials says

    April 3, 2013 at 9:04 am

    I second this and the thought in #4. With fears of the world ending or a crash coming, I like owning things that are tangible. A rising # that you can view on the Internet doesn’t provide the most security.

    I would say that both are great investments right now, primarily because our government loves them both. The Fed loves rising home and stock values.

    Reply
    • Financial Samurai says

      April 3, 2013 at 10:10 am

      Long live the Fed!

      Reply
  106. John S @ Frugal Rules says

    April 3, 2013 at 8:03 am

    Good post & comparison Sam! I think both have their benefits and think it’s great when you can be in both to be further diversified. I generally prefer being in stocks because stocks I know, am comfortable with and can do from anywhere. While we would like to get into real estate at some point in the future, we just do not have the time right now.

    Reply
    • Financial Samurai says

      April 3, 2013 at 10:07 am

      Kind of like running an online business. Can operate from anywhere. At some point I will probably hire a property manager to deal with ALL issues related to property for me.

      There’s one income stream that’s even better than RE and cash, but I’ll wait until the Fall to talk about it :)

      Reply
  107. Matt from Saverocity says

    April 3, 2013 at 7:41 am

    What about Cash? You mentioned 65%, 30%, 5% for net worth allocations – shouldn’t you have a percentage in cash that is available to take advantage of opportunities that arise without having to sell stock positions or being trapped in CDs?

    Reply
    • Financial Samurai says

      April 3, 2013 at 10:06 am

      Good question. I hate cash. I try and have as close to $0 cash as possible due to the pathetic returns.

      At any given time, my 35% stock exposure has some cash to invest. I can always sell positions to buy new opportunities as well. I am cash flow positive every month, so whatever disposable income I have goes towards investments.

      Reply
  108. JayCeezy says

    April 3, 2013 at 7:29 am

    FS, another great post. I do like your emphasis on the fact that real estate and stocks are really the only ways to build wealth. You see things as they are, not the way you (and many others including myself) would like things to be. Bonds, CDs, commodities are all just ways to manage risk and tread water until another path becomes clear for investment.

    Also, enjoyed your point about the non-monetary benefit of making great experiences and memories with your vacation property. Not everything is measured in dollars. And also that is a great picture of a beautiful Victorian home; your pics are always a nice complement to the posts!

    Reply
    • Financial Samurai says

      April 3, 2013 at 10:04 am

      Yep, once you build a sizeable financial nut, it really is about risk control. I fear a correction in the markets this summer, which is another reason why I’m just waiting to deploy some money.

      The non-monetary benefits of RE really are the BEST benefits. Live to live. Money is just a tool.

      Reply
      • JayCeezy says

        April 4, 2013 at 9:55 am

        LOL~! Yes!! And that nut is to be protected like SPARTA!

        btw, I pulled the trigger. Still working on the details, but the biggest item for my consideration has been met in my favor; my separation is a ‘layoff’ in every definition. And your book, “How To Engineer Your Layoff” was amazingly helpful. Thank you so much for writing the book and sharing your experience, it was a great benefit to me. More to come…

        Reply
        • Financial Samurai says

          April 4, 2013 at 10:11 am

          Great news Jay! I wish you good luck in the next step of your life. Perhaps you will share another post to readers about your success story! If you ever come to SF I’ll have to buy you a drink to congratulate you!

          Reply
  109. nbsdmp says

    April 3, 2013 at 5:34 am

    I agree with you about 90% of the way on this one & my goal too is to have my asset allocation in similar amounts. Although it is not a popular choice, my opinion is if you buy rental property with cash you are a lot better off in the long run. I know there are a million people out there will disagree, but it is hard to lose a property to foreclosure when there is no mortgage. Yep, you lose out on the leverage aspect, but you’ll make better decisions about what you choose, who you allow to be a tennant when you happen to lose one, and you will sleep easier at night. A bear real estate market is actually what you wait and hope for, that is when you make your money. Everybody looks smart when times are good. Slow and steady wins the game everytime, leverage is what has caused empires to crumble.

    Reply
    • Financial Samurai says

      April 3, 2013 at 10:01 am

      A bear market or actually a super hot market bode well for cash buyers. I think you mentioned you bought your property with all cash? I think that’s great if you’ve got a lot more cash and cash flow behind.

      I just like taking full advantage of government subsidies up to a $1 million primary home mortgage while I’m in a high income tax bracket and invest the money elsewhere.

      Reply
      • nbsdmp says

        April 3, 2013 at 12:21 pm

        Yep I paid cash for an awesome home at the absolute bottom of the market that I was able to do because I was in a cash position. I hear you on taking advantage of the system the government has created, you cannot argue that the math is definitely on your side of the arguement…I guess I am just an old fashioned 42 year old that is o.k. with not being crazy weathly. If you pay cash it makes you think a little more about if it is a good decision, the ramifications are greater & the grass feels different on your toes when the property is paid for & I absolutely sleep easier at night vs. having a $1 million mortgage hanging over my head. Funny thing I actually talked my finacial advisor into paying off his home vs. carrying a mortgage…

        Reply
      • Rich In The Heart says

        April 3, 2013 at 7:22 pm

        If someone paid cash for a house, why would they need “a lot more cash and cash flow behind”?
        After all, it’s a LOT easier to get work (or simply offset) utilities and property taxes than it is to add in the mortgage in addition to the utilities and property taxes.
        Although if one has a large enough stash of cash, the perspective can be skewed I’d imagine.

        Reply
        • nbsdmp says

          April 4, 2013 at 5:43 am

          There in lies the issue…how much is enough? The goal of buying a “home” should be to actually own it. It enriches your life and is an expense, not a profit center…buy something you love and can afford. Your “cash” piles back up in a hurry when you are paying yourself instead of the bank. I see way to many people (my friends and family included) that put a minimum amount down & have the maximum home possible, over 50% of these people the dream has not quite worked out…they are upside down, house poor, and miss out on life experiences because the anchor that is weighing them down. But the “math” definitely says borrow as much as you can at 2.85% I get that and don’t knock anybody for doing it, hell young people who don’t have a ton of cash abosulety should jump in now…it is more about piece of mind for me knowing the next crash has no impact.

          Reply
          • Financial Samurai says

            April 4, 2013 at 7:52 am

            Here’s the thing though. Let’s say you have $1 million home that declines by 50%.

            Scenario 1: You pay $1 million cash, so your asset is worth $500,000.
            Scenario 2: You put $200,000 down and now have negative $300,000 equity, but you have $800,000 cash in the bank. Still end up with net $500,000, BUT you can walk away from your house, jockey for a bailout or whatever and still keep your $800,000 cash. Not saying people should or would, but having that $800,000 cash provides more optionality.

            Real estate has a strong “heads I win, tails you lose” component to it.

            Reply
        • Chris says

          April 4, 2013 at 8:18 am

          But again Sam,
          Reduction by 50%.
          Scenario 1: You pay $1M cash and your asset is worth $500,000. You still don’t have to move.
          Scenario 2: You have $800,000 cash, and because of the negative equity you decide it’s better to not sit still because the area is degrading quickly, so you now choose to move someplace else and rinse/repeat.

          Like you and nbsdmp both know, there’s a rub either way.
          In another 10-15 years I believe that rates will go up, but not to the point of doubling unless you have a 2%-2.5% rate. There is a cycle, although for mortgage rates, the cycle just happens to be measure in decades than in a single year.

          I consider a house a place to live so that when I retire some day, I don’t have any extra bills outside of utilities and property taxes, and still have $0.5M-$1M that I can easily live off of, thanks to people like yourself that cause some of us to “get a grip” on personal finance. :-)

          Reply
        • Financial Samurai says

          April 4, 2013 at 8:52 am

          Because once you tie up a big nut that you’ve become accustomed to being liquid, you start to fret about no longer having that liquidity position. But you’re right. Paying cash for the house should require less cash flow due to no mortgage payments.

          The psychology all depends on where one is in life. If you are in the later stages and don’t have the hunt to invest in new things nor do you plan to live for another 40 years, then liquidity isn’t as important.

          For someone in their 20-40s, I think it’s better to not have everything tied up in a house.

          Reply
        • nbsdmp says

          April 4, 2013 at 12:10 pm

          Great conversation guys! A couple of notes/comments that I would like to make. I paid cash for my home but it at no point represented more than 20% of my net worth. I would also not suggest having a HUGE chunck of your net worth tied up in a single asset being your home. I’m fortunate and have a nice income, savings, and paid for income producing assets that I let accumulate overtime prior to buying. (delayed gratification) I would say that 30% would be the maximum of your net worth I would suggest being tied up in a home if you were young…skewing lower as you get older. (geographic exceptions do occur I understand)

          Sam, I do not agree though on your calculation of putting $200k down, the market goes down 50% and you have an actual loss of $200K, but that other $800k you have you put that to work in other assets such as the market, well that goes down as well with the market so you are out $400k. That’s a total loss of $600k. People need to put on their big boy pants and fulfill the commitments they sign up to, yes you can walk out on your commitment that you made to the mortgage company. Another way to think about this is would you go take a loan for $800,000 at 3% to go put it in the stock market to try and get 8% return? And be willing to lose your $200k equity and have all the stress associated with it.

          Reply
  110. Mike says

    April 3, 2013 at 5:19 am

    There’s a pretty good case to be made that the market is in a bubble where its strength has been derived from government activity instead of business fundamentals. Real estate prices are still artificially high, but probably not as artificially high as the market.

    When market wealth evaporates, people will still need a place to live. If I had a lot of cash laying around right now, I’d be buying properties. That’s my vote!

    Reply
    • Financial Samurai says

      April 3, 2013 at 9:59 am

      You mean like the Washington DC area and the sequestration that is now in effect?

      I don’t see real estate as artificially high when rental yields are much higher than borrowing costs.

      The stock market is what could turn on a DIME.

      Reply
      • Mike says

        April 3, 2013 at 11:09 am

        I think we’re agreeing then, unless I’ve misread.

        Reply
        • Financial Samurai says

          April 3, 2013 at 11:37 am

          Yep, we agree.

          Reply
  111. Mrs. Pop @ Planting Our Pennies says

    April 3, 2013 at 5:19 am

    We like whatever’s the most mis-priced in our favor at the time. A few years ago, that was real estate in our area, so we scooped up as much as we could at the time. Now real estate isn’t mis-priced, so we’re focusing on paying that off and making sure we’re maxing out all of our free money via tax preferred and employee matching on stock market accounts. We’re not really picky over the long haul.

    Reply
    • Financial Samurai says

      April 3, 2013 at 9:58 am

      Good investor mindset! I wonder if the folks who sold to you guys are kicking themselves now.

      Reply
      • Mrs. Pop @ Planting Our Pennies says

        April 3, 2013 at 6:12 pm

        I’m not sure if banks can kick themselves. All of our properties were bought out of foreclosure as banks needed to get RE assets off their books at the time to satisfy regulators.

        Reply
        • Financial Samurai says

          April 4, 2013 at 8:53 am

          Gotcha. Good call buying foreclosures!

          Reply
    • Jon says

      April 3, 2013 at 6:01 pm

      That makes a lot of sense. What do you think is most mis-priced now?

      Reply
      • Mrs. Pop @ Planting Our Pennies says

        April 3, 2013 at 6:17 pm

        I don’t know. We’ve been playing with some numbers on different types of RE in our area – we looked at the numbers for a commercial building (restaurant) that’s in foreclosure, and condos in a higher end area but nothing’s screaming “buy”. As for stocks, I am definitely not an expert and don’t devote time to value investing the way I’d like to eventually, so we’re just going the way of index funds in long term tax preferred accounts with employer matching. That and paying off the RE to deleverage that.

        What do you think is mis-priced at the moment?

        Reply
        • Jon says

          April 4, 2013 at 2:57 pm

          How about Apple? PE in the single digits, and it you strip out their cash, it’s PE is below 7?

          Reply
    • Mark says

      March 2, 2018 at 6:40 am

      Time will tell what is mispriced. It’s a meaningless statement because this can only be assessed in retrospect.

      Reply
  112. Greg@ClubThrifty says

    April 3, 2013 at 4:33 am

    Personally, I prefer real estate to stocks – mainly because it is a tangible asset and I understand it better. However, like you, I think that they are both great investments. I think the best investment for somebody to make is one that they can both understand and make them bucket loads of money.

    Reply
    • Financial Samurai says

      April 3, 2013 at 9:56 am

      There’s something alluring about making money off an asset which you can enjoy using during the ownership period. It’s like a piece of fine art hanging on your living room wall. Imagine it increasing in value by 100% over a 10 year time period all the while getting to enjoy it’s beauty. Can’t do that with stocks.

      Reply
      • Greg@ClubThrifty says

        April 3, 2013 at 10:15 am

        That is a great analogy, and I couldn’t agree more.

        Reply
      • retirebyforty says

        April 3, 2013 at 11:33 am

        It would be nice if the art is protected. The sun, cats, crazy little kid, made that impossible for us. We just have to hide the fine art in the closet…

        Reply
        • Financial Samurai says

          April 4, 2013 at 10:48 am

          As my art dealer tells me, “Put the Monet away.”

          Reply
      • PG says

        January 18, 2018 at 7:32 am

        “Increasing in value 100% over a 10 year period”??? Good heavens man, where in the world do you live? Obviously in an overheated real estate market (hello, 2008-2009!) Around most parts, real estate appreciates at essentially the rate of inflation, and sometimes less.

        Take our house as a example. It was built by the first owner in 1992 for $219K. They later added a 2-story addition with a sun room on top and a storage room on the ground floor. Fast forward to 2011 when we bought the house… for all of $246K. That’s an annual return of 0.6% (and probably a loss if you factor in the 2-story addition). Meanwhile, stocks over the same period returned an annual average of 6% – a 10X greater return on your investment! A $219K investment in the S&P 500 over the same period would have resulted in an ending value of $662K!

        On average, real estate returns lag far behind stock returns (3%-4% vs. 7%-8% real returns over long holding periods). Plus real estate is damned expensive to maintain. I don’t have to insure my stock portfolio, or spend $$$ to maintain it (other than the very small expense ratio), or spend $$$ on repairs, or worry about it falling “out of code” or “out of style” as the years go by, or worry about the neighborhood going to pot, etc. etc.

        I know plenty of people who tried their hand at rental real estate, and every single one of them eventually abandoned the endeavor. One friend of mine bought a house at a bargain price then spent all his free time over the next year fixing it up (doing most of the work himself and with his wife). When I saw him again after he sold it, I asked him how he did. “We barely broke even” he said with chagrin. Imagine how much he could have made if he’d gotten a paying side gig instead and invested that money in a well-diversified stock portfolio.

        So thanks but no thanks — I’ll happily stick with my stock portfolio, thank you very much!

        Reply
        • Financial Samurai says

          January 18, 2018 at 9:21 am

          San Francisco. I put $300,000 down in 2005 and walked away with $1,788,000 in mid-2017 when I sold. Got to love using other people’s money for cheap to build wealth!

          See: https://www.financialsamurai.com/why-i-sold-my-rental-home/

          Plenty of major cities have done well in this time framework eg NYC, Seattle, LA, San Diego.

          Where do you live?

          My stock portfolio has done well as well, just like everybody else who has invested.

          Reply
        • Ryan says

          January 18, 2018 at 9:27 am

          3% – 4%? Yes, maybe in equity alone. As the article points out, you can also crowd fund real estate. My returns, depending on the deal are in the 7.5% – 14% range. I’m selling a few of my properties as well for returns in the 20% – 40% just on equity alone, not counting the money I’ve made over the last few years on rents which was around 5% – 6% yearly. We also don’t have a strong rental market here. There are places where 10%+ is realistic just on rental income alone.

          Pointing out one single cheap property where you live that didn’t do well in the market is supposed to be the gold standard of real estate deals or something?!

          Pay attention to the articles here and you will learn how to actually make money in real estate (and stocks).

          Reply
          • Mark says

            March 2, 2018 at 6:43 am

            Pointing out one single cheap property that didn’t do well is probably as useful as pointing out one single person claiming to do “deals” in the 7.5-14% range (that being you, Ryan).

            Reply
        • BRIGITTE WHITE says

          November 2, 2018 at 4:47 pm

          PG,
          I totally agree with you.

          Reply
      • Quade says

        November 8, 2018 at 12:01 pm

        Honestly there are several reasons I have a strong preference for real estate Sam, the biggest is its ability to lower one’s overhead and add passive income. Rent slavery will sap and destroy most of the wealth you could generate, as well as the money that one could spend. There is a reason businesses spend millions trying to lower their waste and overhead.

        Consider a 700 dollar a month rent, you get no equity whatsoever, and loose 700 a month. When you pay a mortgage, especially if you can pay it off fast with every penny you make, you will eventually save 700 dollars a month, and a penny saved is a penny earned.

        The second reason is that real estate is really something for a value investor, people need land, and even if labor gets automated by robots, wars happen, and inflation skyrockets people still need to have land to operate a home or business. “A gold block does nothing but look shiny, why own gold when I could own stocks and land”(Warren Buffet)

        Even if robots could dig up gold, and build things for almost no cost, one thing I can never do is program or instruct a robot to make more land. Land is a limited commodity, and therefore as the population rises, and land is used up, will appreciate in value. Land can be said to be somewhat future-proof.

        Lastly land has a low correlation to stocks and bonds, meaning they can be essential in my eyes as a way to diversify my stocks investment. My financial planner has most of my money in stocks and index funds, despite my low risk tolerance…..why few bonds?? Because my savings account and credit is almost entirely committed to home ownership and land-lording. When my investments in land are taken into account, investments which I bought on value, rather than market price, my portfolio is almost more than 75% real estate……..this means tossing spare money into diversified stocks is more than balanced out by my real estate investments.

        In short if you are young get one piece of real estate as soon as possible: a home, then maybe duplex it or acquire another cheaper house to rent out for passive income. All spare money placed into stocks(and maybe a small portion of bonds) has high chance to grow, while still being diversified in your total portfolio.

        There is a reason the Talmud suggests placing your money into business and land, and a third in cash at hand(which could be used to exploit price drops), the reason is land is a solid asset that can be an insulated asset that provides a reduction in day to day living costs as well as stable passive income.

        I would not accumulate too many properties because managing each one takes time, insurance, and effort.

        Reply
      • Michael Kohlberger says

        January 15, 2019 at 1:09 pm

        That’s not true. Owning a stock means owning part of an enterprise. If you enjoy reading the news and being 100% with the (emotional) ups and downs a stock can be just as enticing as a piece of art.

        Reply
      • Michael Sharp says

        April 5, 2019 at 7:34 pm

        I been looking at retiring on dividends from REIT’s. Which no one talks about BUT it is the best of both these. Plus ALOT less headaches.

        Reply

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