Real Estate vs. Stock Market

Many articles have been written comparing returns over time on real estate versus returns over time in the stock market. I won’t re-quote those here, but I would like to share my personal experience and beliefs.

Over the past 30 years, I have been in, as well as in and out, of the stock market. I did well during the tech boom; I felt the pain during the tech crash. Personally, I invested through my 401k. Most of my long term investing, however, was for my kids. I bought them stock for their first birthday and continued to add to their accounts every holiday for years. It was a very good plan.

If, however, I’d known what I know today about real estate, I could have done much better for them in much less time. Here’s how and why.

Let’s take one “successful” example with the market. I bought my son four shares of Exxon for his first birthday. At the time, they offered a dividend reinvestment plan, which we took advantage of. In that plan, all dividends (returns) on his investment were kept in his account and used to buy additional stock. The great thing at that time (I’ve been told it’s no longer available) was that the stocks purchased from his dividends were purchased at a discount – below trading value. Hooray!

Every birthday or Christmas, I would take money he received and send it to his Exxon account. Any extra money he earned would also be sent to his account. During the 16 years he owned the stock, it split three times meaning that, on the day it split, his number of shares doubled. It was a very painless way to save for his future and I recommended it to all my friends. At his high school graduation, he had $40,000 worth of stock.

Today, I feel quite certain that, with the same financial investment over the same period of time, at graduation I could have given him three $100,000 free and clear houses with at least $1000 cash flow per month from each. The education to be able to do this is minimal.

For me, the stock market is very much like gambling. I don’t know enough about the inside functioning of any of the companies I buy, and I am not involved, at all, in any of the corporate decisions. With real estate, all of the decisions are mine. I can make changes to the properties to increase values. I can raise rents. I decide who lives in them. I decided whether or not to sell, when to sell, and for how much. I can see and touch my investment. I know what it is, where it is, and I have control.

As a professional trader, you can make money over time in the stock market. As a professional real estate investor, you can make money over time in real estate. As a novice, with no experience in either arena, my advice is – buy real estate.