Why invest in real estate rather than the stock market?

Hello, genuinely curious - under what circumstances would it be more optimal to invest in real estate rather than the stock market? Does it make a difference whether you are living in the property vs. renting it out? Would be nice to know taking taxation, maintenance costs, etc. into account. Thanks.

Comments (27)

Mar 30, 2020 - 12:59pm
CRE, what's your opinion? Comment below:

Compare returns.

Commercial Real Estate Developer

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Mar 30, 2020 - 1:02pm
press107, what's your opinion? Comment below:

This is more applicable to biggerpockets

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Mar 31, 2020 - 8:36pm
jchen281, what's your opinion? Comment below:

True, this is for the Biggerpockets amateurs, but since we all are home right now with nothing to do, let's just be nice lol

Apr 1, 2020 - 10:10am
press107, what's your opinion? Comment below:

good point. Kind of a dick move on my part. My bad OP!

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Mar 30, 2020 - 1:45pm
SBPref12, what's your opinion? Comment below:
mooyi:
Does it make a difference whether you are living in the property vs. renting it out?

Um....Yes

Mar 30, 2020 - 1:50pm
BrickandMorty, what's your opinion? Comment below:

Often times, pre-tax stock/bond returns will look more attractive than pre-tax real estate returns, but tax implications make real estate more attractive, taxes considered.

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Mar 31, 2020 - 8:49am
mike47946, what's your opinion? Comment below:

Hi, With stock markets crashing currently due to COVID-19, it is better to invest in real estate as the prices for investing is also low in some counties.

Most Helpful
Mar 31, 2020 - 6:23pm
Disjoint, what's your opinion? Comment below:

I'll be nice to the fella and break it down easily: - Leverage, while you can take leverage with margin accounts it's easier and faster to lose it all. In real estate you can easily put 20% down and your returns on equity are already x5 when going up. In stocks you usually put 100% down so your returns are not multiplied. - Taxes, depending on which country etc.. But generally there are tax advantages especially if it's your main home. You won't have to pay capital gains tax or up to the first $250k of profit for single in the US. You can deduct interest on your mortgage from your taxes so fantastic - You can put some sweat equity in the investment, on this one I argue a lot with people. But you don't work 24 hours a day at your job, and will always have some time to dedicate to your investment in real estate. So instead of being paid nothing to watch TV, you get paid nothing to take care of your real estate - something you can't do with stocks - Now what are you in it for? I always invested for yield. I never bought if I had below a 6% gross yield. As I was doing a lot of my management myself my NET was only mainly affected by taxes. If you buy a low yielding product and outsource the whole management and end up paying to hold the asset, that's not a good investment. Unless of course you are lucky and markets rally and you catch the capital appreciation upside.

Stocks are completely different - I can start talking about them, but it's comparing apples to oranges. The initial question is such an open ended question that it pisses me off to have even answered it partially. Pointless to compare the two. I have stocks and I have real estate. If I was young and just starting out I would focus on buying a home for the tax breaks and not having to pay rent. Rates are stupidly low so you are just repaying your capital instead of paying rent. Then for my second investment once the house is in the pocket it depends.

Mar 31, 2020 - 11:47am
Big CoC, what's your opinion? Comment below:

Obv depending on your strategy, but the points mentioned above summarize it:

  • Leverage -- you can buy a lot more with a lot less. Thus your returns increase exponentially on paper. However, the minimum investments are usually quite high.

  • Diversification -- perhaps investing in industrial or medical offices at this time might be beneficial nowadays. However, I'd imagine it being more risky to invest instead of stocks (investing in a building that has 5 doctors offices vs. investing in J&J).

  • Tax Benefits -- the writeoffs are great, but really only work at their full scope if you're a Real Estate Professional (need to commit 750 hours a year to just real estate, physically impossible to do if you have a full time job). But even without this status, the reduction in taxable income and other tax incentives beats stocks.

Mar 31, 2020 - 1:14pm
tthhdd, what's your opinion? Comment below:

Look at richest 10 or even 20 billionaires, their net worth isn't in real estate....

If Warren Buffett was investing real estate his whole life, I doubt he would be as rich as he is

Mar 31, 2020 - 2:58pm
b3h3lit, what's your opinion? Comment below:

While that is true, of the top 10 or even top 20 how many made their money from stocks investing? Buffett is the only one I know of. The rest either inherited and grew corporate empires (Waltons, Koch, etc) or founded tech-mega corps which gave them huge ownership percentage of companies that are now worth hundreds of billions or even a trillion (Gates, Zuckerberg, Musk, Ellison, Brin, Ma)

If you are simply looking at things from the angle of how you can best become a top 10 forbes billionaire, you would be fool not to study computer science in this day and age IMO. Chances are finance won't get you there regardless of investment vehicle you choose to work in.

I don't think people here are trying to become billionaires, and I don't think you need to be one to be independently wealthy. Even having 100M+ net worth sets you up for life and that is do-able in real estate.

Not saying you can't become a billionaire from finance ofc, but I believe once Buffett passes away we will not see another self-made finance top 10 forbes billionaire for decades, maybe ever again. (fin-tech is excluded from this)

Mar 31, 2020 - 3:03pm
SBPref12, what's your opinion? Comment below:

The top 10-20 billionaires got there either by started their own business or inheritance, not because they invested their savings in the stock market. However, I'm willing to bet that a majority of people with net worth over $10mm currently invest in real estate.

Mar 31, 2020 - 3:28pm
Ozymandia, what's your opinion? Comment below:
tthhdd:
Look at richest 10 or even 20 billionaires, their net worth isn't in real estate....

If Warren Buffett was investing real estate his whole life, I doubt he would be as rich as he is

That is true for the one, singular case of Warren Buffett. Most day traders don't make billions. Most people on Wall Street don't make billions. Working for someone else doesn't make you a billionaire, full stop, with some extremely rare exceptions. And that's the difference between investing in real estate and investing in the stock market. If you start early, you can build a real estate business by aggregating a portfolio. You can't do that in the stock market without starting out with huge amounts of money. If I gave you ten million a year to invest in the stock market, you'd never aggregate a position such that you could be a real activist investor except in tiny market cap companies. You could establish an incredibly strong position in a secondary or tertiary real estate market with that kind of funding guaranteed, though.

Moreover, Warren Buffett isn't "buying stocks" so much as he's buying companies. There is a difference.

Mar 31, 2020 - 2:02pm
VanillaGorilla, what's your opinion? Comment below:

I think the short answer is to determine if your real estate strategy will return an IRR or leveraged IRR better than what you expect the stock market to return over the target investment period. Lots of other variables to consider but I would start there.

Array

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Jan 21, 2021 - 2:01am
tharzog, what's your opinion? Comment below:

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