저자: Kevin · 외국인
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부동산과 주식을 8가지 기준(매수 기회, 진입장벽, 성장률, 레버리지, 분산, 유동성, 세금, 감정 변동성)으로 비교. 부동산 연 상승률 3.4% vs S&P500 7.9%지만 레버리지·세금 혜택 고려 시 부동산 자산 수익 우위(약 11.8%)라 주장. 부동산 대출이 주식 마진론보다 안전하다고 설명. 영상 말미 강의 홍보 포함.
다듬은 글
Howdy everybody, it's Meet Kevin. Today we're going to talk about stocks versus real estate and my opinion, so don't sue me, bro, because it's just my opinion. See, a few days ago I made a bad parody about investing in Tesla stock and the emotion that goes along with seeing the stock plummet and well, I got a little bit of hate.
In fact, here's some of the hate comments. Now unfortunately, there seem to be two reasons why people got a little upset. Either one, they didn't actually watch the video beyond reading the title, or two, they don't understand the fundamental differences between investing in stocks and real estate. So I thought I'd make this video analyzing eight ways real estate is a different from investing in stocks and how you might be able to profit depending on which style of investing you prefer.
So let's put these aside and get into that. And if you don't yet know me, know that yes, I'm a real estate broker. I've made most of my money investing in real estate and helping people buy, sell, and invest in real estate in person. Yes, I do also sell courses on being an agent and an investor, but try to put that aside, go through these eight reasons, and if you find one you like, make sure to tap that like button because I think you're going to find some cool insight here.
Stocks versus real estate, point number one, wedge-ability. And what is wedge-ability or buying in the wedge? Well, the easiest way to picture this is let's just say you found an ad on Craigslist for a Ford F-150. You know, you're scrolling through, you're going, "Hmm, here's a F-150 listed for sale for $10,000, and it's a 2015 model.
That seems a little cheap. Let's do a little bit more research into this post." And you go in there and you realize that all of the pictures look like they were taken on an old T-Mobile flip phone Razer, except the owner had his thumb in front of the lens for half the pictures, and most of the detail on the ad is kind of missing.
So anyway, you're a little suspicious and you're like, "Hmm, this kind of seems like a good deal. I wonder if it's like already sold or what's going on, what the mileage is, what are the details?" So you call the owner and you set up an appointment to go see it. When you see it, you're like, "Wow, it has 20,000 miles and it's in great condition.
The owner just doesn't know how to sell a car." And so you quickly pull out your iPhone and you're like, "Well, what does kbb.com say?" And you're there, and you're like, "Wait a minute." KBB says this thing is worth 22 to 24,000 dollars, and he's selling it for 10,000 dollars, and he keeps dropping the price because nobody's bought it because his ad sucks.
So what do you do? You give him the 10 grand. You don't even haggle. You know, you're like, "You know what, Mr. Seller, 10 grand sounds great. Here's 10,000 dollars. Nice doing business with you. See you later." And you walk away, you're like, "Oh my gosh, I just got myself a wedge deal. The car is worth 22 to 24,000 dollars.
I got it for 10,000 dollars. And now yeah, there might be some selling costs for you to resell it, but even if you resold it for 20 grand, you just profited 10,000 dollars. There's a whole business around this called car flipping. There's also a business known as real estate flipping, which takes advantage of exactly the same principle, except there's a little bit more work that goes into that.
So much like the car, I make the argument that when you're in the under 10 units of real estate space, there are a lot of real estate opportunities that are poorly marketed, or you're mostly competing against what are known as mom and pop investors, basically people that don't really know what they're doing.
So your competition doesn't really know what they're doing. The sophisticated investors are buying really large apartment buildings or really expensive stuff, which basically leaves all the small stuff like the duplexes, triplexes, and fourplexes to real estate agents that don't know what they're doing.
Uh and uh you know, unsophisticated buyers. So you get this really inefficiently priced marketplace that allows you to buy real estate just like I described the car as. So really a lot of the reason you can get good deals in real estate is because you have this unsophisticated pool. You're not really competing against high frequency computer traders or algorithms or these hedge funds that have millions of dollars to research where the next good deal is in stocks.
You have a total international community of competitors. Whereas in real estate, you're really only competing against the people in your local marketplace, and most of them have no freaking clue what it costs to fix up a place or what to do when they actually get into a fixer-upper. Now some people are going to argue, "Well, what about Warren Buffett and his cigar butt stocks?
You know, the ones Benjamin Graham always talked about and the ones Charlie Munger and Warren Buffett got rich on as Warren Buffett talked about in his biography, The Snowball." Well, those were great like 50 years ago before there was a lot of competition. But real estate is still one of those leftover territories where you can still take advantage of getting cigar butt real estate or wedge real estate, good deals in real estate, where when you buy a place today, you're actually buying it cheaper than what it's actually worth.
That's kind of like saying, "Hey, Google stock is 1,100 dollars. That's cool. I just bought it for 800 dollars." And a lot of people like to counter and say, "Oh, well, Kevin, tell us about a wedge deal that you've recently bought." I go, "Sure. I just bought two wedge deals. I bought one for 650,000 dollars that with 20,000 dollars worth of work was worth 770,000 dollars, and I bought another house for 450,000 dollars that once we put 50,000 dollars into it, will be worth between 580 to 600,000 dollars.
So it's absolutely possible, and yes, this is somewhat wut you can learn a lot here on this channel. You don't necessarily have to go buy the course to learn that. In fact, if you surround yourself with a good realtor, my hope is that you'll be able to identify the same deals that I look for and invest in all the time.
And so that's where I think it's really important to make that distinction. In stocks, if you're paying 1,100 dollars for a Google stock today, yes, it might go up or down in the future at another time, but that's speculating, right? You might buy some value stock because you think it's going to go up in the future, or you think something is going to be a good deal because the market falls and you buy in at a different time.
But timing and what's going to happen in the future has nothing to do with being a wedge deal. That's called timing and speculation. A wedge deal or a cigar butt deal is a deal where the day you close, you know it's worth more. The day I bought the 450,000 dollar place, I knew it was worth six with 50,000 dollars into it.
The day you buy Google at 1,100 dollars, it's still worth 1,100 dollars. And so for this point, real estate takes hands down the lead for being a better deal. Now let's talk about barriers to entry. I think it's pretty obvious. It's pretty dang easy to start trading stocks. You can open up a Robinhood or TD Ameritrade account, and you can pretty much direct deposit some money over from your bank account and start trading pretty dang fast.
Maybe give it a day or two for you to get set up, but realistically, you can get an account going pretty dang fast. Real estate on the other hand is a lot more complicated. You need three main things. Rather than just money to invest, you need money, credit, and income. Now while there are tricks to get around this like qualifying with your parents' income or getting down payment assistance loans or getting FHA loans or other loans that allow you to get into real estate with like a 620 or 640 credit score, real estate definitely has a bit more of a barrier to entry than stocks.
First of all, it seems a lot more intimidating. There's a lot more to know than simply executing a trade. What do I need to know in terms of inspection and pre-approval letters, and you got to work with realtors. It's intimidating to start with, and that's exactly why I try to educate you all as much as possible on this channel.
And just as a thank you to me and telling me that you want more videos like this, make sure to hit that little like button before I go on to the next point. This is a good one. Point number three is the consistent growth point. Fortunately, most asset classes tend to grow as an economy grows. Now asset classes, it's just a fancy way of saying stuff like stocks or real estate or something that holds value.
And over time as economies get bigger and stronger and more money changes hands, you tend to be able to make money investing in these things. Now historically over the last 30 years, according to the Case-Shiller index, real estate has only appreciated or gone up in value by 3.4%. On the other hand, stocks have gone up in value by 7.9%, at least the S&P 500 has gone up by 7.9%.
Now all things being equal, I'm not considering dividends here for a moment, just like I'm not considering cash flow in real estate. I'm solely just considering the increase in value, not cash flow. Let's make that very, very clear. Yes, that would boost returns on both sides, but let's just keep things simple.
And I mean, on the note of keeping things simple, if returns are higher on stocks, did I just expose that real estate is worse? Well, no. At a glance, yeah, I would agree with you, but real estate is indeed a bit more complicated. I'm going to give you an example here where you can see that while real estate might seem like it doesn't grow as much as stocks do, there are some additional benefits that actually sometimes help catapult you to get a higher rate of return than stocks get.
Let's do this example. Remember that example of the house that we're buying for 450,000 dollars and we're putting 25% down on it? Well, that means we're coming out of pocket about 112,500 dollars. We're going to be spending 50,000 dollars to fix it up. So that means we're coming out of pocket 162,500 dollars to control a property that after we spend the money, it's going to be worth about 600,000 Now, even though I bought the place for 450, I'm actually going to be getting growth on the current market value of 600 grand.
Now, what we're going to do is grow that $600,000 by 3.4% a year, and after 10 years, it will be worth $846,359. But now the house is going to be 10 years older, and let's say I have to do some more fix-up and repainting, and the selling costs to sell it and all that good stuff. So, let's go ahead and say I'm going to spend $80,000 getting it ready to sell and paying all the fees and costs associated with selling the property.
Now, I'm left with that $846,359 minus the $80,000 to fix it up, and I took out a loan for $337,000 approximately. Now, over time, the tenant's been paying that off for me. So, let's go ahead and look at an amortization table and see that after 10 years, I would have paid this loan down to about $270,000.
Now, we can jump back over and say, "Okay, cool. I'm getting about $766,000. Pay off my loan of $270,000. Perfect. Great. What am I left with?" I'm left with just a little bit more than $496,000. And so, what did I basically do? Well, I turned $162,500 into $496,000 in 10 years. And so, now let's compare rates of return.
If I started with $162,500 and I made 3.4% because I bought a house cash, my money would now be worth $227,000. Eh, it's nice, it grew, but it's not like crazy super. Now, let's say I put it into stocks. If I put that same 162.5 into stocks and I made that 7.9%, I would have ended up with $347,000. However, I invested it into real estate getting that 3.4% appreciation on a higher number using leverage, and the fact that I got a wedge deal to even after paying selling costs, I ended up with $496,000, which is about an 11.8% return.
So, this is where you could see on paper, yeah, stocks make a lot more money as a regular rate of return. They're also a lot easier, sometimes it's even a lot more passive, but real estate can be pretty passive, too, once you get a good deal and you set it up and you just collect the rent check. Of course, you might want to surround yourself with good realtors, a good education, and a good property manager, but collecting that rent is usually not that hard.
Now, some of you might have picked up on the concept that I used a loan on that wedge deal example there. And there's something I want to speak to, and that's going to make up number four. I personally think real estate debt is much safer than stock debt. Think about it this way. When you take out stock debt, you take out what are known as margin loans.
Well, margin loans have what are known as call provisions, where basically, if the stock drops a certain percentage, the bank can just automatically sell your stock and and take the money and run to pay off the debt. Well, in real estate, it doesn't matter if the market falls. As long as the bank's still getting their money and you're not somehow violating the terms of the contract with the bank, the bank's not going to foreclose on you.
It doesn't matter how much the market goes up or down. And the additional beauty about real estate debt is if the market starts zooming, you could refinance and get some money out of the deal. If interest rates go up, you're locked into a 30-year fixed-rate mortgage. If interest rates go down, you could refinance to a new 30-year fixed-rate mortgage.
I just personally don't think investing in stocks with debt is a good idea, whereas I think investing in real estate with debt is a great idea, as long as you balance out the monthly payments and the cash flow. Now, let's talk point number five, diversifying your investments. And this, I have to hand it to stocks.
With real estate, I recommend you don't invest more than 30 minutes away from wherever you are. It's definitely something that you want to be close to, you don't want to have any excuse to not go visit it, to not know what's going on in the neighborhoods, the marketplace, what the government's doing, all that sort of stuff.
You want to know if your property manager is doing their job. Unfortunately, real estate doesn't give you much in the way of diversity because it's all generally in one location. So, if an earthquake comes, a tornado comes, a flood comes, a lot of your properties could be exposed at the same time. Whereas with stocks, it's really easy to buy totally different industries and to balance out yourself.
Now, while I certainly don't profess to be a stock expert, I do try to be as educated as possible in stocks. And so, if I put some money into speculative investments like Tesla, let's say, or tech stock like Apple or Amazon, I might try to balance that out with something like a PG&E or Starbucks or Target or something a little bit more of a simple concept that doesn't really rely on that tech speculation.
Another thing that comes up a lot is what's more liquid, stocks or real estate? And it should be pretty obvious that with stocks, you could just press the little sell button on your Robinhood or TD Ameritrade and have your money to go buy something else pretty dang fast. You pay your fee or you don't pay a fee, it doesn't matter, you get your money sometimes within minutes.
In real estate, it's a lot harder to get your money out of the deal. If you're going to sell, you might be sitting around for 45 to 60 days before you get your money. If you're going to get a hard money loan even, probably the fastest you could get the paperwork written up and get a loan is somewhere between 3 days to a week.
It just depends on what kind of lender you have. So, yeah, sometimes to get out of real estate or to at least pull money from real estate by getting a loan, it's definitely going to be a somewhat more illiquid. You're not going to have it as fast. And so, that's where you always want to balance your needs.
Do you think you're going to need money really fast for some reason? See, for me, I think stocks are really nice safety net to where if I put some money into stocks and some money into real estate, and I need some emergency funding for something crazy that comes up, I could sell stocks really fast, take the money, and use it for whatever I need.
So, having a mix of both is probably the best way to do it. But, yeah, stocks are going to win here on liquidity, even though I like rental lines of credit, home equity lines of credit, and hard money financing again equity that you have in a house. Number seven is tax treatment, and on this one, we might be a little tied.
See, with real estate, you're able to write off things like taxes, interest, maintenance, management, utilities, reserves, the insurance on the property. You can depreciate the property. You can do a lot of things to shelter the rental income you're getting, which lets you pay off the property. Now, you don't have to remember what all this stuff is, but you basically get a lot of tax write-offs.
And that's great. And even if you decide you want to sell an investment property, you could just do an exchange to prevent paying taxes at the time of your sale. Now, while stocks don't have the benefit of a 1031 exchange, they do have the benefit of having easy access for retirement accounts. So, if you want to invest in like a Roth IRA or 401k or whatever, you could do that a lot easier than you can with real estate.
Buying real estate through a Roth or an IRA is a lot harder, mostly because it's kind of hard to get good financing when you're investing with a retirement account. Now, the last thing to consider, emotion and volatility. Real estate can be very stressful, especially when you're buying something. But usually, once you've bought something, it tends to be pretty dang chill, especially when you do your proper inspections, you know what you're getting into, and you surround yourself with good professionals, you'll generally be okay in real estate.
When it comes to stocks, stocks tend to be a lot more volatile, and a lot of studies have been done to show that people's moods are highly affected by what the Dow Jones Industrial Average is doing that day. So, it's like, "Oh, it's a red day, everybody's in a bad mood. Oh, it's a green day, everybody's in a better mood." It's kind of a weird phenomenon, and I think it's mostly because every time we open up a stock account, it's like, "Oh, I'm up this much.
Oh, I'm down this much." It kind of wears on you. Where real estate is a little bit slower moving, and it's not as in your face. So, there might be a little bit more of a long-term downside in terms of your emotions, and because it's easier to sell stocks, you might be inclined to sell on a bad day, which you shouldn't do, and you might be more inclined to trade emotionally, which tends to be a bad thing to do, than with real estate.
Because with real estate, it takes time, which is kind of a twist on the whole liquidity argument. Because if you think about it, if you're less inclined to make a rash decision on real estate, and because we're all human and have emotions, maybe that's actually a benefit. In other words, I wonder how many less people would lose money on stocks if you had to wait 45 days before you can execute a trade.
That would kind of suck for day traders. And so, there you have the eight main differences between stocks and real estate. While I think they're both great, and I personally invest in both, I think it's ultimately up to you to decide which one is better for you. If you want some more of my insights, make sure to follow me on Instagram.
You can also check out the links below, and what you'll find there is a real estate investing course, a real estate course for real estate agents. On both of these, you could use coupon code spring2019 for 18% off. And you'll also find a list of tour destinations for where I will be over the next 13 months.
I'll be in places like Austin, Texas, New York, Washington, D.C., you name it. Check out the list below. Super excited to travel to these areas, and we'll be talking about your investments, real estate, and helping you get to the next level in whatever it is you're doing. Should be fun, small group, not trying to upsell you on anything.
Just want to help you, give advice to you in person with whatever it is that you're working on. So, bring your questions, bring your ideas. Can't wait to see you in the courses. Join us ]
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