Investment Return, Real Estate vs. Stock Market
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One blog that I watch on a daily basis is Bawld Guy Talking and today I saw a post that he wrote that brings much needed insight to the investment debate.
Phil Town disagrees, and claims that the numbers in the stock market out perform Real Estate hands down.
Phil is an investment teacher in the discipline of Warren Buffett.
On CNBC's The Millionaire Inside he and
Real Estate Maven Barbara Corcoran practically go rounds on this topic. Barbara asserts that Real Estate investing doesn't involve hours and hours of homework, and that for the average joe it is much safer than the stock market.
Corcoran and BawldGuy agree on that point.
I always have to insert my usual disclaimer that comparing the stock market to the housing market is an apples and oranges comparison, and it will usually result in second guessing the housing market so much, that you'll miss the property that you should have bought. In short that comparison leads to regret later.
Phil Town disagrees, and claims that the numbers in the stock market out perform Real Estate hands down.
Phil is an investment teacher in the discipline of Warren Buffett.
On CNBC's The Millionaire Inside he and
Real Estate Maven Barbara Corcoran practically go rounds on this topic. Barbara asserts that Real Estate investing doesn't involve hours and hours of homework, and that for the average joe it is much safer than the stock market.
Corcoran and BawldGuy agree on that point.
I always have to insert my usual disclaimer that comparing the stock market to the housing market is an apples and oranges comparison, and it will usually result in second guessing the housing market so much, that you'll miss the property that you should have bought. In short that comparison leads to regret later.
Rory - First, thanks for the mention. I'm flattered you read me.
The stock market vs real estate question can indeed be viewed as comparing apples and oranges. That said, it's relatively easy to break them down into an after tax Financial Management Rate of Return (FMRR) which, by definition, makes them both apples or oranges.
When that's done, and I've done it often, real estate blows stocks outa da water. :) The regular guy who just wants to make his retirement a reality, can easily see (without all the sophisticated analysis) that if he puts even 25% down and appreciates 4-5% annually, he's experiencing annual capital growth of roughly 16-20%.
This of course goes down as his equity rises, an irony catching many amateur investors off gaurd. Executing a tax deferred exchange when the equity has reached the point where it's depressing the capital growth rate, will periodically turbo-charge that growth.
No matter what you do with stocks, if your capital isn't growing at the rate you'd like, all you can do is trade into new stocks and hope for better performance.
The old saw about stocks out-performing real estate is the biggest 'bar bet' in the investment world. Just add leverage, and that little gem wilts on the vine.
Thanks again for the mention, Rory.
Posted by
Jeff Brown |
11:59 PM
The debate over which form of equity, stock or real estate ownership, provides the best return is generally useless as both investments are made to generate a desired return for a given risk. In addition, investment decisions are generally made with vehicles that the investor is comfortable with.
That comment asside, I agree that Bawldguy made a great point about the value of leverage in making real estate investments.
-4MySales
Posted by
4MySales |
12:22 AM
This post has been removed by the author.
Posted by
Rory |
9:51 AM
I agree, then there is the element that owning real estate solves the problem of where to live. Anytime someone mentions using leverage it reminds me of how easy the concept is to learn.
Posted by
Rory |
9:58 AM
Real estate offers a great solution to the long-term investor, planning for retirement.
Jeff's analysis assumes leverage in a real estate investment and you can leverage equities, also. When leverage is applied to equities, the numbers can become more aligned.
The problem is that leverage in equities can dramatically work against you. If the securities drop below a certain "margin", you are required to "post more equity".
Finally, tax advantages of real estate compel an investor, planning for retirement, to consider this as an integral part of his/her portfolio.
Keep reading Jeff, Rory. he's about the sharpest investments guy in SoCal
Posted by
Brian Brady |
8:40 PM