Real Estate vs Stocks Part 2

More stock vs. RE

In my previous post I explored a few of the many reasons why real estate makes for a better investment than stocks. Now we can explore a few more. Here are some additional points to ponder:

• In theory, mutual fund managers are experts at picking good stocks. After all, that is their primary job. However only a small percentage of them beat the indexes (groups of stocks within various categories i.e. Industrials). That means the average guy could buy an equal distribution of the stocks within that index and do just as well as the experts who try to hand-pick the best ones. Furthermore, whenever a fund manager has a particularly good year, word gets out and then there is so much new money thrown at him that he cannot usually maintain his success rates.

• Stocks come with plenty of taxes but very few tax breaks. On the other hand you can trade real estate and defer taxes forever.

• You cannot get tenants, partners or anybody else to buy stocks for you. However, you can buy rental real estate and get tenants or partners to pay it off over time,

• You have to pay cash for most stocks. It is true that financially strong investors can finance up to half of a stock portfolio, but that debt carries with it interest that the investor himself must pay. Unless there is some compelling reason to do this the interest on the debt and the taxes on any profits will offset the average profit made on stocks.However, real estate investors can finance 80% of their purchase (or more) and get somebody else to pay the debt (see previous paragraph). The point is real estate offers much better leverage.

• You cannot force the value of stocks to go up. However there are many ways to create value in your real estate investments. Currently, Fix and Flips are the rage. But real estate investors also use Rezoning, Subdividing, Remodeling, Assemblage, and other techniques.

• When people in the stock market have an inside tip to good deals, it is called “insider trading.” It is illegal and carries severe consequences.Just ask Martha Stewart But when a real estate broker goes to a sales meeting and learns that a client of another broker listed a property for $12,000 below market because they want a quick deal there is no ethical or legal issue with buying the property.

• Only a select few people make big money because of their stock portfolio but more people become millionaires as a result of investing in real estate than any other asset.

• Whenever you invest in the stock market you relinquish control of your money to people and companies you do not know? Have you heard of Bernie Madoff or Enron? On the other hand real estate investments offer many investors much more control of their investments.

Finally, did you know that you can buy a property, keep it for many years and make a profit if its value drops in half? Here’s why. Other people pay off debt for you. If you buy a townhome for $100,000 and pay 20% down you will have $80,000 in debt. Over time the rents will pay off your debt. So even if the property drops in value to $50,000 (half its original price) the investor still has a $30,000 profit. Stocks offer no similar opportunity to control risk, except the wacky and expensive world of options (see previous article).

Naturally, people have tried to persuade me that stocks offer solid investment possibilities, but considering the points in my previous article and the ones mentioned here, I think real estate is a much better investment than stocks.

Your counterpoints are invited