Why do people have investment properties over stocks?

[Anonymous]

Overall I think diversification is the correct answer to this question and there’s nothing wrong with that.

But, plenty of people get into RE because, in no particular order, they heard about it from a “rich” friend / think they are sophisticated investors / are afraid of things they don’t understand (the market/economy) / think “passive income” from their old house is their path to FIRE, etc etc.

[Anonymous]

Anonymous wrote:Overall I think diversification is the correct answer to this question and there’s nothing wrong with that.

But, plenty of people get into RE because, in no particular order, they heard about it from a “rich” friend / think they are sophisticated investors / are afraid of things they don’t understand (the market/economy) / think “passive income” from their old house is their path to FIRE, etc etc.

Passive income from my old house is exactly how I got to FIRE.

[Anonymous]

Anonymous wrote:1) Our rental properties aren't instead of stocks, they're in addition to stocks. Diversification.
2) Rentals can provide income without having to sell any assets;
3) Rental income is much less affected by economic downturns than stocks - this can vary by the type of rentals you have (commercial/high end/apartment) but we have units that are geared toward LMC families.

That said, it's much more hassle than just throwing a couple hundred K into stocks; you're right on that point. We have a good property management company now but it was ugly for a while there.

+1 Most of our assets are in stocks, but we diversified with a vacation rental property to offset stock market risks. Historically, this area rented well even during the 2008-2012 economic downturn.

[Anonymous]

Most people do it for diversification. The market is verbally a lot better than the townhouse real estate market. You also need to pay taxes on your income yearly and houses have big expenses that can wipe out a year or two of gains. You need to recapture the depreciation when you sell and you can’t write off the excess depreciation/expenses in excess of rental income.

[Anonymous]

Anonymous wrote:Op, I'm with you, but I can do better. I did 100% return in my two tax free accounts last year, and I'm at 35% this year already. Previously, I had just at on my investments like suggested.
I think I figured it out how to get the high return. It's not luck anymore. People also don't understand how the heck do I do it tax free. How is this even a question when there's Roth account.
For the life of me I cannot get through to people how I do it. Most people I know, who ventured into investing, abandoned it instead of sticking to it and learning. I also couldn't get through to my family how we 'lost money' with three properties if I look what the stock market did at the same time.The properties were not needed. We just didn't know investment options at that time.
People also don't consider what they can learn in the market every single day while watching it and buying and selling. I learned nothing from real estate but to stay away. Happily renting now.

Can you describe it here how you achieved the returns ?

[Anonymous]

As a landlord of 15+ years existence - it only works if you own multiple units that you developed yourself.
You have to spreadsheet before buying for development to ensure the rate of return is higher than SPY

[Anonymous]

Anonymous wrote:1) Our rental properties aren't instead of stocks, they're in addition to stocks. Diversification.
2) Rentals can provide income without having to sell any assets;
3) Rental income is much less affected by economic downturns than stocks - this can vary by the type of rentals you have (commercial/high end/apartment) but we have units that are geared toward LMC families.

That said, it's much more hassle than just throwing a couple hundred K into stocks; you're right on that point. We have a good property management company now but it was ugly for a while there.

This

Additional reasons
1 tax free income . we r high income family , w2 so our tax on long or short term capital gain s very high on top of w2. But our rentals bring in pretty much tax free income.
2 leverage. We only out down 25% the rest mortgage on rental properties.
You can do that with stocks too such as using margin for stocks and options. But…when the underlying value goes down the leverage ( mortgage) on properties don’t get marginal call. On the other hands, you get margin call and force liquidation on stocks and options, futures.



I have about 1.5 mil in RE. All are long term rental.
3.5 mil in stocks. I allocates about 200k to day trade futures and options. The rest of the 3.5 mil portfolio Is in long term buy and hold large caps and index funds, set and forget kind of thing.

[Anonymous]

Anonymous wrote:First, assuming a 10% SPY return is optimistic. Long run it’s more like 7.5%.

But to answer your question…leverage.

You can borrow 80% of the purchase price of a rental property, so your equity return is much higher from rent, plus the increase in purchase price.

Sure, you could buy stocks on margin…but that’s a risky thing to do and most won’t do it.

Also, RE provides a hedge against stock market volatility. If you owned the SPY in 1999, it went down and didn’t come back to even until 2011. In theory, an investment property would have earned a nice return of er that time period (assuming you didn’t lose it in theory financial crisis).

This is the correct answer.

Also think about it another way. If you buy SPY, so many people are taking a cut of the true profit along the way. The underlying stock has compliance, finance, and audit people to stay listed on the market and do reporting. Then the company running the market takes a cut, then the people running SPY take a cut, then your brokerage takes a cut. You don't see all these items directly (some are inherent in the price), but they all have a cost.

Compare that to your real estate "business". You are doing the work landlording like finding tenants, maintaining the property, or maybe paying a person to do that. But not many people taking a cut of the action along the way, between the rent and what ends up in your pocket.

[Anonymous]

Spare me the “diversification” bullshit. For most people, the single most expensive asset is their primary residence. Being a homeowner in the DMV is sufficient diversification into real estate.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Overall I think diversification is the correct answer to this question and there’s nothing wrong with that.

But, plenty of people get into RE because, in no particular order, they heard about it from a “rich” friend / think they are sophisticated investors / are afraid of things they don’t understand (the market/economy) / think “passive income” from their old house is their path to FIRE, etc etc.

Passive income from my old house is exactly how I got to FIRE.

Care to share the #s?

[Anonymous]

Nobody knows the average stock market return for the next twenty years.

[Anonymous]

I asked ChatGPT to calculate the s&p return for each 20 year period since 1950, and this is what it gave me. I didn’t check this though.

| Period | Annualized Return (%) |
| --------- | --------------------- |
| 1980–1999 | 17.89 |
| 1981–2000 | 17.01 |
| 1982–2001 | 16.45 |
| 1983–2002 | 15.98 |
| 1984–2003 | 15.52 |
| 1985–2004 | 15.07 |
| 1986–2005 | 14.63 |
| 1987–2006 | 14.20 |
| 1988–2007 | 13.78 |
| 1989–2008 | 13.37 |
| 1990–2009 | 12.97 |
| 1991–2010 | 12.58 |
| 1992–2011 | 12.20 |
| 1993–2012 | 11.83 |
| 1994–2013 | 11.47 |
| 1995–2014 | 11.12 |
| 1996–2015 | 10.78 |
| 1997–2016 | 10.45 |
| 1998–2017 | 10.13 |
| 1999–2018 | 9.82 |
| 2000–2019 | 9.52 |
| 2001–2020 | 9.23 |
| 2002–2021 | 8.95 |
| 2003–2022 | 8.68 |
| 2004–2023 | 8.41 |
| 2005–2024 | 8.15 |
| 1950–1969 | 7.90 |
| 1951–1970 | 7.65 |
| 1952–1971 | 7.41 |
| 1953–1972 | 7.17 |
| 1954–1973 | 6.94 |
| 1955–1974 | 6.71 |
| 1956–1975 | 6.49 |
| 1957–1976 | 6.27 |
| 1958–1977 | 6.06 |
| 1959–1978 | 5.85 |
| 1960–1979 | 5.65 |
| 1961–1980 | 5.45 |
| 1962–1981 | 5.26 |
| 1963–1982 | 5.07 |
| 1964–1983 | 4.89 |
| 1965–1984 | 4.71 |
| 1966–1985 | 4.54 |
| 1967–1986 | 4.37 |
| 1968–1987 | 4.20 |
| 1969–1988 | 4. |

[Anonymous]

Anonymous wrote:I asked ChatGPT to calculate the s&p return for each 20 year period since 1950, and this is what it gave me. I didn’t check this though.

| Period | Annualized Return (%) |
| --------- | --------------------- |
| 1980–1999 | 17.89 |
| 1981–2000 | 17.01 |
| 1982–2001 | 16.45 |
| 1983–2002 | 15.98 |
| 1984–2003 | 15.52 |
| 1985–2004 | 15.07 |
| 1986–2005 | 14.63 |
| 1987–2006 | 14.20 |
| 1988–2007 | 13.78 |
| 1989–2008 | 13.37 |
| 1990–2009 | 12.97 |
| 1991–2010 | 12.58 |
| 1992–2011 | 12.20 |
| 1993–2012 | 11.83 |
| 1994–2013 | 11.47 |
| 1995–2014 | 11.12 |
| 1996–2015 | 10.78 |
| 1997–2016 | 10.45 |
| 1998–2017 | 10.13 |
| 1999–2018 | 9.82 |
| 2000–2019 | 9.52 |
| 2001–2020 | 9.23 |
| 2002–2021 | 8.95 |
| 2003–2022 | 8.68 |
| 2004–2023 | 8.41 |
| 2005–2024 | 8.15 |
| 1950–1969 | 7.90 |
| 1951–1970 | 7.65 |
| 1952–1971 | 7.41 |
| 1953–1972 | 7.17 |
| 1954–1973 | 6.94 |
| 1955–1974 | 6.71 |
| 1956–1975 | 6.49 |
| 1957–1976 | 6.27 |
| 1958–1977 | 6.06 |
| 1959–1978 | 5.85 |
| 1960–1979 | 5.65 |
| 1961–1980 | 5.45 |
| 1962–1981 | 5.26 |
| 1963–1982 | 5.07 |
| 1964–1983 | 4.89 |
| 1965–1984 | 4.71 |
| 1966–1985 | 4.54 |
| 1967–1986 | 4.37 |
| 1968–1987 | 4.20 |
| 1969–1988 | 4. |

Chatgpt? Haha

US valuations are extremely high and the US (Australia too) has been an outlier. The US has been very lucky by avoiding major catastrophe, unlike other countries that were decimated by world wars.I wouldn't bet the farm on US stocks.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I asked ChatGPT to calculate the s&p return for each 20 year period since 1950, and this is what it gave me. I didn’t check this though.

| Period | Annualized Return (%) |
| --------- | --------------------- |
| 1980–1999 | 17.89 |
| 1981–2000 | 17.01 |
| 1982–2001 | 16.45 |
| 1983–2002 | 15.98 |
| 1984–2003 | 15.52 |
| 1985–2004 | 15.07 |
| 1986–2005 | 14.63 |
| 1987–2006 | 14.20 |
| 1988–2007 | 13.78 |
| 1989–2008 | 13.37 |
| 1990–2009 | 12.97 |
| 1991–2010 | 12.58 |
| 1992–2011 | 12.20 |
| 1993–2012 | 11.83 |
| 1994–2013 | 11.47 |
| 1995–2014 | 11.12 |
| 1996–2015 | 10.78 |
| 1997–2016 | 10.45 |
| 1998–2017 | 10.13 |
| 1999–2018 | 9.82 |
| 2000–2019 | 9.52 |
| 2001–2020 | 9.23 |
| 2002–2021 | 8.95 |
| 2003–2022 | 8.68 |
| 2004–2023 | 8.41 |
| 2005–2024 | 8.15 |
| 1950–1969 | 7.90 |
| 1951–1970 | 7.65 |
| 1952–1971 | 7.41 |
| 1953–1972 | 7.17 |
| 1954–1973 | 6.94 |
| 1955–1974 | 6.71 |
| 1956–1975 | 6.49 |
| 1957–1976 | 6.27 |
| 1958–1977 | 6.06 |
| 1959–1978 | 5.85 |
| 1960–1979 | 5.65 |
| 1961–1980 | 5.45 |
| 1962–1981 | 5.26 |
| 1963–1982 | 5.07 |
| 1964–1983 | 4.89 |
| 1965–1984 | 4.71 |
| 1966–1985 | 4.54 |
| 1967–1986 | 4.37 |
| 1968–1987 | 4.20 |
| 1969–1988 | 4. |

Chatgpt? Haha

US valuations are extremely high and the US (Australia too) has been an outlier. The US has been very lucky by avoiding major catastrophe, unlike other countries that were decimated by world wars.I wouldn't bet the farm on US stocks.

US valuations are extremely high and the US (Australia too) has been an outlier. The US has been very lucky by avoiding major catastrophe, unlike other countries that were decimated by world wars.I wouldn't bet the farm on US housing.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I asked ChatGPT to calculate the s&p return for each 20 year period since 1950, and this is what it gave me. I didn’t check this though.

| Period | Annualized Return (%) |
| --------- | --------------------- |
| 1980–1999 | 17.89 |
| 1981–2000 | 17.01 |
| 1982–2001 | 16.45 |
| 1983–2002 | 15.98 |
| 1984–2003 | 15.52 |
| 1985–2004 | 15.07 |
| 1986–2005 | 14.63 |
| 1987–2006 | 14.20 |
| 1988–2007 | 13.78 |
| 1989–2008 | 13.37 |
| 1990–2009 | 12.97 |
| 1991–2010 | 12.58 |
| 1992–2011 | 12.20 |
| 1993–2012 | 11.83 |
| 1994–2013 | 11.47 |
| 1995–2014 | 11.12 |
| 1996–2015 | 10.78 |
| 1997–2016 | 10.45 |
| 1998–2017 | 10.13 |
| 1999–2018 | 9.82 |
| 2000–2019 | 9.52 |
| 2001–2020 | 9.23 |
| 2002–2021 | 8.95 |
| 2003–2022 | 8.68 |
| 2004–2023 | 8.41 |
| 2005–2024 | 8.15 |
| 1950–1969 | 7.90 |
| 1951–1970 | 7.65 |
| 1952–1971 | 7.41 |
| 1953–1972 | 7.17 |
| 1954–1973 | 6.94 |
| 1955–1974 | 6.71 |
| 1956–1975 | 6.49 |
| 1957–1976 | 6.27 |
| 1958–1977 | 6.06 |
| 1959–1978 | 5.85 |
| 1960–1979 | 5.65 |
| 1961–1980 | 5.45 |
| 1962–1981 | 5.26 |
| 1963–1982 | 5.07 |
| 1964–1983 | 4.89 |
| 1965–1984 | 4.71 |
| 1966–1985 | 4.54 |
| 1967–1986 | 4.37 |
| 1968–1987 | 4.20 |
| 1969–1988 | 4. |

Chatgpt? Haha

US valuations are extremely high and the US (Australia too) has been an outlier. The US has been very lucky by avoiding major catastrophe, unlike other countries that were decimated by world wars.I wouldn't bet the farm on US stocks.

US valuations are extremely high and the US (Australia too) has been an outlier. The US has been very lucky by avoiding major catastrophe, unlike other countries that were decimated by world wars.I wouldn't bet the farm on US housing.

That's why you invest in both. Diversification ya know.