Stocks vs. Real Estate http://money.cnn.com/galleries/2007/real_estate/0704/gallery.stocks_v_realestate.moneymag/index.html
Owning rental property seems like the most obvious move for the next decade. Even if prices drop 20% in the short run the revenue it spins off over the long run will more than offset the falling prices assuming nothing goes majorly wrong with the house. The real question to ask if you are looking to start buying rental properties is should I pay cash or take out a mortgage to sort of leverage my cash so I can buy multiple properties? Don't be fooled by the mortgage interest write off because it doesn't really amount to a hill of beans over the course of years of interest payments. I never really understood why home prices go up anyway. How are they different from cars especially houses built after 1995. You pretty much have to replace everything after 15 years which in essence chews up much of whatever equity you had in in the 1st place. Why wouldn't everyone want to rent? Also if you are just starting out don't be a cheap ass, talk to a lawyer and use as accountant unless it is already your area of expertise. If you are interested in buying a minority stake in a semi private golf course in MD pm me lol!
I agree about the leverage. Good point. The thing with real estate is you don't get a margin call, your renters just keep paying your mortgage for you. Also, if the real estate market does stay shitty for YEARS that only means there will be PLENTY of renters. Does an increase in renters (supply) cause rents to drop? Now, if inflation does take off then you might be screwed with tenants not being able to pay rents as you might have to raise rents quite often.
Very interesting thread. I think Real Estate might be a good hedge strategy. It's steady income and you got hard assets. I think residential is safer than commercial, just because people have to live somewhere, even section eight. Isn't the Sears Tower 25% empty. I do think in commercial/office you can make much more money if the economy is strong. As we all know, that's iffy for some time to come. In short, do both. Real Estate doesn't have to take really any of your time. Just make a good purchase and have someone run your building. Real Estate just seems safer than buying a franchise; then again I don't really know the cash flow for a McD's or Carl Jr?
Well a real estate call is not being able to pay the mortgage, taxes, vacancies, and maintenance. But that is a valid point that renters pay a good portion of this, maybe 50% in the beginning, I guess the comparison would be the dividends received from the market.
Another thing, if you own enough properties, you can actually owe ZERO income tax and write off all of your spouses income tax . The depreciation deductible is a HUGE tax advantage, Example: Doug purchase a piece of rental property for $300,000. The tax assessor for the county assessed the value of the land to be $100,000 and the house to be $200,000. The recovery period for rental property is 27.5 years so Doug would divide the $200,000 by 27.5 resulting in $7272.73. Also you can use depreciation deductible on all appliances in the building.
And I would counter with, you would pay zero tax on the stocks until sold and the dividends received would only be taxed at 15%
Assuming I would invest in futures only using 4x leverage. With 250k x4 = 1 million to use to invest Say I buy the /ES now at 1286. 1 million dollars/ $64300 per contract = 15 contracts Maintenance margin overnight is $4000 per contract. 250k /15 contracts =$16666 so I would never get a margin call. 1 million x 8% average annually = $80,000 a year. Now if I used all of my money and invested it in real estate I know you can make 20-40% per year back on your initial capital depending on the situation and deal. This is after tax benefits and costs. Providing you have renters and using a figure of 5% annual growth of property value(avg over past 50yrs) So 250k X20% = $50,000 a year. or best case 250k x 40% =100k Both avenues seem fairly equal except one requires a lot less work. Is my math logic correct here?