But it’s not as easy as it sounds. Sure, lots of self-named Real Estate Gurus would tell you differently, and none of them will get a plug on this site. And it’s not as easy as they’d make it out to be. But if you want to grow wealth, faster than you can in just about any other investment vehicle, then let’s talk real estate.
I’m a beginning investor, picking up my first property – a townhouse – with steady appreciation and good rental rates. I’ll hold it for a while, in the meantime looking for more opportunities with different investment goals … and eventually sell it (using a Tax-Free Exchange, of course). When I read this post by BawldGuy on how real estate beats stocks investing I was blown away – it explained it all much better than I could, so all credit has to go to him for the examples.
The gist of the post is this – a $100000 investment in both real estate and stocks would net an investor a profit of $358000 in real estate vs. $159400 in stocks over a 10-year period. Significant yes, but he goes further by providing three additional benefits associated with real estate investing:
- "Any income derived over that period generated by the real estate would not be taxable because of depreciation."
- "All excess depreciation would then be allotted to the ordinary income (salary from job) of the investor, resulting in thousands of dollars in taxes not paid."
- "On the other hand any dividends derived from stocks are taxable. With rare exceptions the only way the stock market investor gains any tax shelter is when he loses his money, which is far more likely in stocks than in real estate, especially over the long haul."
The secret? Leverage.
Full disclosure – Brian’s one of my favorite clients, despite his professed allegiance to Ohio State. He makes a good point in that the best route is a diversified portfolio, but I would bet the one factor not being taken into consideration here is that with real estate, you’re gaining the appreciation AND the positive equity of having a mortgage paid for you. Suddenly your growth rate grows a bit more, and your investment grows a lot more!
Brian – call me when you’re ready to invest!
Full disclosure – Brian’s one of my favorite clients, despite his professed allegiance to Ohio State. He makes a good point in that the best route is a diversified portfolio, but I would bet the one factor not being taken into consideration here is that with real estate, you’re gaining the appreciation AND the positive equity of having a mortgage paid for you. Suddenly your growth rate grows a bit more, and your investment grows a lot more!
Brian – call me when you’re ready to invest!
Money magazine had a good comparison on this – http://money.cnn.com/galleries/2007/real_estate/0704/gallery.stocks_v_realestate.moneymag/index.html . The conclusion there is stocks over the long run (25 years), which is the time period most people invest for, not 10 years. I think the blogger you linked was in San Diego – I’m guessing his view would be skewed by a hyper-growth market in CA (which also prohibits many people from owning affordable, quality housing). Ultimately there is no clear winner, other than having a diversified portfolio with some of each.
Money magazine had a good comparison on this – http://money.cnn.com/galleries/2007/real_estate/0704/gallery.stocks_v_realestate.moneymag/index.html . The conclusion there is stocks over the long run (25 years), which is the time period most people invest for, not 10 years. I think the blogger you linked was in San Diego – I’m guessing his view would be skewed by a hyper-growth market in CA (which also prohibits many people from owning affordable, quality housing). Ultimately there is no clear winner, other than having a diversified portfolio with some of each.
Thanks so much Jeremy – your kind words are much appreciated. Good luck on your investment.
Thanks so much Jeremy – your kind words are much appreciated. Good luck on your investment.