The Real Estate Investor’s Review Of Relative Return
Posted @ 10:28 pm - Filed under Real Estate Investing, Purposeful Planning, Retirement, Retirement Income, 401(k)'s & IRA's, Market Correction, Investment Physics, Leverage
Had a great conversation with an active client today. The discussion wandered over to stocks vs real estate. He’s been in that game — as a player for both sides. This is when I asked him his stocks’ return compared to his real estate. A minor pause ensued, as we both knew the answer. So why would you keep putting hard earned cash into something performing at a fraction of the return as the alternative does in a mediocre year?
Simple — you wouldn’t. He’s moving the lion’s share from stocks, to cash, to real estate. Smart move.
Look, I’m not interested, nor am I gonna spend much time arguing with the Wall Streeters on this subject, ‘cuz it’s not fair to them, and it’s frankly a waste of my time. Am I saying you shouldn’t invest in stocks or mutual funds? Nope — it’s your money and you should do what you think best, and fits your personal comfort zone. Getting out the portfolio folder and checking your stocks’ historical performance might be an idea to consider.
If your stocks return 10% yearly, how would your real estate have to perform to beat that return?
If the real estate appreciated at 3% annual rate, and you put 20% down, your return, sans tax benefits and cash flow, is 15%. Do we really need to take this any further? Really?
This guy is a very smart dude. I mean scary smart. Once he stepped back and mentally reviewed his last several years experience, he realized that even with the three year old real estate correction, his stocks had been sorely, completely out performed. Imagine what the difference will be when the correction ends. (And it will end, right?)
That’s what he imagined during our discussion. His conclusion was obviously an easy one.
For those who’ve either been wondering about their own stock portfolio, or whether to invest in stocks or real estate — it’s like asking who is favored, the Christians or the lions?
Your retirement is in the balance. Wanna know the difference over a 20 year period in terms of dollars in and dollars out?
I’ve done those numbers so many times it’s become a part of my mind’s ‘muscle memory’.
A hundred grand in the stock market, especially mutual funds, invested for the LAST (not next) 20 years in America’s 401(k)’s has averaged less than 5% annual return. That’s less than $350,000 at the end of a pretty pathetic rainbow.
The same money put into real estate, never ever never appreciating at more than 5% a year, results in $1.5-3.5 Million depending upon the leverage factor.
Geez, I dunno, seems to me the Lions win this one too. Call me and find out how you can turn your capital from a one comma number to two commas and more zeroes. It takes time, the ability to follow the laws of Investment Physics, and patience. Getting rich slowly is the way to go. If it happens faster than Purposefully Planned? Well, nobody’s ever complained about that one, so I don’t have an answer for you.
Ever wonder how well you’d be able to retire if you were being helped by a pro?
This entry was posted on Tuesday, June 10th, 2008 at 10:28 pm and is filed under Real Estate Investing, Purposeful Planning, Retirement, Retirement Income, 401(k)'s & IRA's, Market Correction, Investment Physics, Leverage. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.