How does Real Estate compare to Stocks in your Investment Portfolio?

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Knowledge in Real Estate Means Power in Real Estate

As my business partner always says, “I only use my power for good”.  Indeed, great benefits are bestowed upon you when you use your power for good, but do you have the power you need “to do good” with it.

Establishing value for investment property, and “how do I know if this real estate investment is better than stocks,” have been a repeated question lately. This tells us that you can benefit from the power of knowledge around investment s and knowing how to place value on them. So let’s look at this starting with the questions real estate or stocks?

Comparing Real Estate to Stocks

Riding the waves of highs and lows that investments are prone to may appear to be a challenge. It all boils down to controls. Think about it. What, within an investment do you have controls over? Needless to say, no one cares more about your investment than you do, so maintaining some controls over the outcome of your investment is paramount


·      You can control when you buy and when you sell.

·      Um. That is pretty much it, the rest is all in the mercy of how the stocks performs.

Real Estate

·      You Control When you buy and sell.

·      You control your Variable expenses, as you can shop for pricing on everything you spend other than taxes

·      You control how much renovations you may want to do to control the value of rents.

·      You control how you structure the purchase to increase cash flow and or tax deductions.

·      You control pretty much everything other than taxes.

Let’s compare the two investments scenarios 

Let’s look at twin brothers. Identical twins by looks, but two different personalities when it comes to investing.

Twin brother Dave invest $20,000 in the stock market, while Brother Jeff wishes to invest his $20,000 as a down payment on a $100,000 investment house which he will leverage by financing 80% of the value on a 15 year mortgage.

Fast forward 15 years let’s see how they compare 

Twin brother Dave: Google University will repeatedly tell you the average stock returns 7% per year. Using that as our example, Dave’s stock was considered an average stock then a 7% growth added each year would go from $20,000 to $56,986 or a gain of $36,986.

Twin brother Jeff’s Real Estate Investments:
In this same 15 year period Jeff’s investment which he leveraged with financing on a 15 year loan is now paid for in full. Assume property gained value based on the national average of 5.6% per year. (We will use 5% for easy math) 5% growth on $100,000 investment is now worth $211,388. A gain of $111,388 .on the purchase price. However Jeff himself only put in $20,000 for this investment and leveraged $80,000 of financed money. Because in Real Estate you can leverage your investment.  This was Jeff’s unfair advantage

While Dave's $20,000 turned into an investment worth $56,986 Jeff’s investment turned into an investment worth $211,388 in real estate.

But Wait there is more...

Oh, it is just getting good. Real estate offered Jeff an unfair advantage. While Dave and Jeff both enjoyed growing values to their investments Dave’s stock investment simply grew over time. Jeff’s real estate not only grew over time, it also offered him positive monthly cash flow which grew each of the 15 years as most his expenses were fixed. Plus real estate is one of the best tax shelters available, so Jeff was able to benefit from his numerous real estate tax deductions and depreciation schedule reducing the amount of taxes he paid each year.

Now that you were able to see how stocks compared to Real Estate., let’s look at the second question which is how to place value on real estate: IRV (Income, Rate, Value).

Larry Arth is a coach and writer for Contact for information regarding classes and bookings.


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