Do you make more money in the long run being a landlord or investing in the SP 500?

Dec 5, 2019 68 Comments

I’m trying to decide on a SWE job long term. Let’s assume I get the same TC in both DC (my hometown), SF and Seattle. Let’s say I bought a condo in DC area where the property prices are now rising due to coming of HQ2. I only buy in DC since DC has family that may help take care of the property in case my job takes me elsewhere. $130k downpayment and agent fees for a 2b2b $600k home, 30 year fixed, $3.5k a month including HOA, property tax, insurance.

Assuming an average case where I may not always find the perfect tenant, I rent out the property for market price ($3k), and that the prices of the property does not increase significantly, is it actually a better financial decision to keep the case in the Sp 500?

I will still have to rent in the SF/Seattle area since property price trend here is relatively stable and decreasing even over the next few years.

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TOP 68 Comments
  • Compass HWV39
    Latter.
    Dec 5, 2019 14
    • Compass HWV39
      Pretty basic question he asks.
      Dec 6, 2019
    • Lol. Okay, dude. If that makes you happy.
      Dec 6, 2019
  • Compass HWV39
    I guess Warren Buffett is a moron. You all seem to understand the investment world better than he.

    Get back to doing what you do best. Leetcoding.
    Dec 6, 2019 31
    • Airbnb / Eng timewarp
      Lol at the compass dude
      Dec 6, 2019
    • Confluent k7uEY5
      Fun fact: Warren Buffet bought a farm before he entered high school. Buffet buys value, wherever he sees it.
      8h
  • Airbnb / Eng timewarp
    If you take advantage of the tax incentives, then rental properties are vastly more profitable on a post-tax basis.
    Dec 5, 2019 6
    • Airbnb / Eng timewarp
      You go for real estate pro when you’re essentially retiring on your real estate income. I have an ex-coworker from a previous company who did this. He accumulated a bunch of rental properties, then retired on that income and works just enough as a real estate agent to claim pro. Irony is that he’s actually crushing it as an agent now.
      Dec 6, 2019
    • Airbnb / Eng timewarp
      Also OP, I didn’t read the details in your post before replying. What you’ve outlined is not a good real estate investment. You need to get a place that will be cash flow neutral or positive (strong preference for positive).
      Buy a place, fix it up, and refinance before you rent it out. Takes a ton of work but you can make it happen if you’re committed. And you walk away with positive cash flow and hopefully little or no money out of pocket when all is said and done. This was the formula my coworker mentioned above followed.
      Dec 6, 2019
  • U have to balance both. Start with house. Any money u pay on rent is 100% down the drain. With house u are building equity. Along with that slowly do incremental investment in mutual funds and ETF. Over 5 years u will have both liquidity and diverse portfolio. Owning a property is always a risk but a calculated one. So is stock market. Diversify risk by diversifying investment.
    Dec 5, 2019 1
    • Google / Eng 🍑☁️
      This isn't true everywhere. In some areas, properties are so expensive that the monthly cost savings from renting exceeds the monthly equity increase that you would see from buying.
      Dec 6, 2019
  • New
    ynub57

    New

    PRE
    Stax, Wolters Kluwer
    ynub57more
    I’m in finance. I am not your financial advisor.
    It is difficult to give advice without knowing your full financial picture. Here is how I’d analyze it:
    - the example you state of a condo in DC is a no go since you’re losing $ if you’re only getting $3k in rent vs $3.5k excluding maintenance & expenses (easily $400 per month).
    - if the property example was a multi-family, the #s would make more sense since you might be much closer to breaking even if not making a profit after all expenses.
    - A lot of first time/smaller real estate investors make the #s work because they live in the property so you’re able to get some decent tax deductions that help you realize profitably sooner (depends on on your city & state).
    - with the example you stated of condo vs SP 500 - the SP would make more sense esp. if you’re thinking 5 yr window or less. I’d advise you to dig deeper and look at index funds and a more diverse portfolio that’s more thoughtful based on what you want to do / your financial goals.
    DM me. I’d be happy to answer any specific questions.
    Dec 6, 2019 0
  • OpenTable rkkk
    Do not put all the eggs in one basket. Diversify. I would say try to do both rental property and sp500. Choose which ever you want to do first
    Dec 5, 2019 0
  • Google no_you
    Google "the rate of return on everything". Seems that equities are a little bit better recently but you might need to go into the assumptions
    Dec 5, 2019 1
    • Facebook public2
      Yep, but it excludes leverage. These days you 5x your real estate for less than 3.5%.
      Dec 5, 2019
  • LinkedIn U💰S💰D
    Leveraged REs are safer and much more lucrative than stock indexes. But the banks will stop lending to you at some point.
    Dec 5, 2019 2
    • Salesforce / Product potilo
      when? is it regulated?
      Dec 5, 2019
    • LinkedIn U💰S💰D
      No, you just go take out a mortgage to buy a rental property.
      Dec 5, 2019
  • New / Mktg
    numbers#

    New Mktg

    BIO
    Startup and consulting background
    numbers#more
    Real estate has more upside since it's easier to leverage your assets.
    Dec 5, 2019 1
    • Amazon Bc2vf
      OP
      What do you mean? Where should I read further?
      Dec 6, 2019
  • Amazon jhp
    It's a crap shoot.

    If you invest in a hot housing market, like people buying in the Bay area 15 years ago, the underlying value of your property can sky rocket and you can do much better.

    But otherwise, s&p500 usually wins.
    Dec 15, 2019 0

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