Investing in stock market vs. Real Estate
I've been investing in the market for 3 years now and although the return seems good (>100%) it's still not a huge amount of money simply because the initial capital invested itself wasn't huge -- I used my savings from job to invest. Looking at the housing market, seems like it would have been a good investment to instead buy a house and see it appreciate and even if the house appreciates by 10-15% in 2-3 years, it's generating much more wealth overall simply because the capital invested is much more (although you have to take a loan). So here is my question - should you buy house as soon as you are able to put down a down-payment? So far I tried to focus on growing my wealth as much as possible by aggressively investing in stock market and then think about buying a house later on when I have enough funds and don't have to worry about mortgage as much. But I feel like I'm falling behind in terms of growing my wealth by investing in stocks. What are your thoughts? #personalfinance #investments #housing
Diversify on both. Buy rental real estate properties for building wealth as soon as you can afford down payment..
What do you mean by rental real estate property? Like buy a condo for example and put it on rent?
Yes. Buy a 2 bedroom condo and put it on rent. Read some real estate books to guide you through the process. Rinse repeat+ keep adding more rental Properties. You would be surprised how good a passive income this would be. Buying a house for yourself is not a investment IMO.
But to be serious, to evaluate it, take expected appreciation, subtract mortgage interest, subtract inflation, and (people seem to forget this) subtract maintenance. In general, real estate doesn't do much more than beat inflation. Buying and holding a diverse stock portfolio is the better investment in terms of net worth.
I disagree.. do the math and ROI on real estate is 20% CAGR with meager 6% appreciate per year and rental appreciation of 3% a year. This is a stable return in comparisons with stock. If any stock portfolio can give you 20+% CAGR over the period of 10 years then you are investing in high risky ones prone to more volatility. So better to diversify between stock and real estate.
I am certain that if you come to the conclusion that passive real estate investments are anywhere near as good as stocks historically, you've made a mistake.
In the past year real estate was amazing. Let’s say you bought a house for $500k last year. You put 10% down, so $50k cash. Many of the market went up 20/30%. That means your house is now at least $600k. That’s $100k which is 2x your initial cash investment. Again last year was an anomaly. You can’t assume a 10% return every year.
Yeah, OP the main problem with your argument is that although the capital invested is much greater and that means the absolute growth is greater...that doesn't come for free. You obviously have to take out that mortgage, on which you'll be paying interest on that same large amount of money.
Yes and if the interest and property tax is less than what you would pay to rent, it seems like a very very good deal to me. Consider 4% interest on 800k mortgage with 200k down-payment. You pay 32k interest + property tax as overhead money that goes down the drain which you would have wasted on renting anyway but instead you now get to build equity worth 1M which even if grows at a rate of 5% (inflation adjusted), seems like a great deal to me.
...yes, taking a mortgage and buying a house to live in can be a great investment. This is widely known and agreed upon. I was mostly just pointing out the significant hole in your original logic. It's also worth mentioning, as others have, you are still going to spend money over time on maintenance.
Real estate because 5:1 leverage.
Diversify on both is the right answer, but there are few things to consider. 1. If you look at the ROI only, the stock market’s return has been higher historically in general (please don’t compare a special area like Bay Area or special stock like TSLA) 2. Although stock market’s return is higher, things become more interesting if it’s your 1st house. When you buy a house, yes, you have to take a mortgage and pay interest on it, however, the interest here gets cancelled out with the rent you would have paid. 3. Also, for the real estate investing, you can take a huge yet stable leverage and invest (80% or 4X of your seed money). Doing this in stock market is like committing financial suicide. For the real estate, the bank does not come and sell your house just because the house price depreciated for a particular year. As long as you’re paying your mortgage, you can still “invest” in your real estate market for a long term. 4. The return on real estate could be little lower than the stock market, but you can not beat the “leverage” effect. Even Peter Lynch, one of the most successful fund manager in history, suggested that “investing” in your 1st home would be a good idea.
Great points. I need to analyze whether it makes sense to rent anymore in Seattle market. It just seems too hot right now to enter. I looked at wage growth and home price growth indicators and found that housing price growth outpaces wage growth significantly. So I'm not sure if it's a bubble or not.
yes do the "proper" math and you'll see the benefit. For me, I bought my house about 10 years ago. the house price more than doubled and I've so far built up about 6X down payment equity. The mortgage (principal + interest) and the property tax I pay is still lower than what I would pay for the rent for this house now. One more thing, there is tax benefit for the property tax & the mortgage interest. And there is tax exemption (up to 500K i believe) on the house price appreciation. You don't get the tax benefit unless you do it in 401k or IRA.
Buy a house. Leverage using mgge is going to give you much larger returns
What is mgge?
Your primary residence is not an investment. You're way better off with digital assets
if the primary residence is not an investment, then what is it??
Buy a house. It is a leveraged investment, and prices are bound to go up
10% per year, lol. Sweet summer child
In June 2021, home prices across the U.S. surged 24.8% year-over-year — to a median sale price of $386,888 — according to Redfin. https://www.yahoo.com/now/housing-market-forecast-rest-2021-130003291.html
Yeah, that's the past. Do you have a crystal ball to tell us what it will be in the future?