Real Estate Or Stock Market?

bob_cntrctr

I know a lot of you guys are also reno landlords like me. Find a handyman special, use your contractor skills to fix it up cheaper than a non-tradesman could, rent it out.

But now we've got the stock market in play. It's at, what these days, ~8000 after a high of ~12,000 a few months ago? So you get thinking - if I buy now, that's a 50% gain by the time it gets back up to 12k. Might take a few years, but you're lookin' at between 15% and 25% return if it comes back up between 2 and 3 years - not bad.

BUT - your rentals - I'll assume you're into multi-unit places 'cause single-families don't pay well. But with multi-units, you can have positive cash flow after mortgage and expenses. So you take, say $50k and put it down on a $200k fourplex that you've pre-evaluated and can get ~$500/mo net revenue. On the assumption the mortgage mess has more or less hit bottm, you count on a very normal increase in value of ~4% annual from here on in. And your rent pays the mortgage down ~$3k/year. So you're making a total of ~$15k on your $50k investment, or 30%. And with a lot less risk than playing the stock market. Not risk free- but on average less risky than stocks.

Who sees a flaw in this logic? I must be missing something 'cause all those high-flyin' investment gurus who study this stuff all day everyday seem to be obsessed with the stock market.

Jake Stevens

I dumped most of my stocks two year ago to buy more property at the lake. As far as know there not making more lake property and although I'm rented two cottages, and using one for myself, one has triple in value and the other two has double, that's a lot better than the stock market. I also bought some commerical property, not so good, it took me over a year to lease it out.

Mike Finley

Do both. Fortunes are not made when things are nice and steady or when everything is at it's peak. This is the time to make your fortune. But everything is also against you.

It's easy to find cheap property, but hard to finance it.

It's easy to find cheap stocks but you have to be careful that company doesn't go into bankruptcy protection and destroy your investment.

There is money to be made, but nothing has changed, you need to be smarter than all the other cats to keep your skin.

AustinReDevelop

for a few reasons. In general, you don't see drops of 30-50% in property. You almost never lose everything. (Think Enron). Also, real estate is an investment that you CAN AFFECT. You can't (unless you're unbelievably wealthy) do anything to affect the value of your GE stock. You can however do work on your real estate to improve its value. Plus, you can see real estate, touch it, and know it's there. Lastly, you get great leverage on real estate that you generally won't get on stocks.

Joe

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Austin Remodeling
Contractor, Realtor, Investor

bob_cntrctr

Excellent point I'd not read anywhere else.

joasis

Good post AustinReDevelop, and I see from your trade that you like infill lots...which is what I prefer to build on....cheaper to build on existing lots then in developments.

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Cdat

I see your point for real estate but if you can play the stock market, you can get a faster return and like everything else, it's gambling. Buy, buy, buy. Just think if you bought late last week, the killing you would of made already...

cleveman

you are absolutely right to be in property, but someone else is right to be inthe stock market, and someone else is right to just have t-bills or a savings account. If you have the skills to do A, do A. You obviously have the skills to do rental properties, as do I. Could we do the stock market? Probably yes. If we had enough capital, we could just put it in the bank and make a living. And it may come to that over time. In the meantime, stick to what you know.

K2

Real estate has high exposure to lawsuits, stocks do not.

Mike Finley

True we haven't seen 30-50% loss in value of real estate but we have seen 10-20%

How did you effect real estate during the last 18 months to prevent the loss in value?

As for leverage, stocks can be leveraged a million times more than you can with real estate.

I can touch the cash from profiting from stocks.

Keep in mind I'm bullish on both stocks and real estate, I like a double investment strategy for your future. So understand that I'm just setting the record straight even though it sounds like I'm negative on real estate.