Why Investing In Real Estate Might Be Better Than The Stock Market

Dated: March 2 2020

Views: 645

Investing in Real Estate vs The Stock Market

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With the stock market sending shock waves through the U.S. this week, I thought it would be a great time to explain why majority of the wealthiest people in the United States put a good chunk of their investments into real estate vs the stock market when it comes to long term growth.

Don’t get me wrong, both the stock market and the real estate market have seen their shares of ups and downs. None of the ‘downs’ have ever been permanent of course, and over the long run, many people will make money and build wealth in real estate and/or the stock market.

But have you ever compared the wealth you can build in the real estate market vs the stock market? With stocks currently feeling volatile, people will naturally be looking for other places to invest their money. Real estate is a natural choice, as the returns on the right real estate investment can build wealth just as fast, but with bigger returns, than the stock market. (And yes, I’m a Realtor, so this could certainly sound biased, but I also have a degree in Finance, so let’s look at the numbers to understand what I’m talking about)

For example, if you bought a home in Pinellas County, Florida in January 2013, the average sale price for a single family home was around $167,200 (this data comes directly from the Pinellas County Board of Realtors). If you had put down 20% to get that home, you’d have invested $33,440 as a down payment. Now, how much would that home be worth in today’s market? Based on the latest stats in Pinellas County, the average home price as of January 2020 is now $340,000. So if that home you bought in 2013 is now worth $340k, that $33,440 investment would have grown into $172,800 (the difference in the purchase price of your home at $167,200 and today’s value of $340,000). Plus, that mortgage has been getting paid down, so you likely have a smaller balance on your original loan as well. (Bonus- Real estate investments also provide you with housing, unlike stocks!)

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Now let’s compare with that same investment in the stock market. If you had put $33,440 into a good index fund (a group of stocks that represents the stock market as a whole and often performs with similar or slightly better returns) in January 2013 when the Dow Jones was at 13,860, it would be worth approximately $61,195 in today’s stock market, with the Dow Jones at 25,409 at the time of this article. Not a shabby return, but also NOT as good as the $172,800 you could have made with the same investment dollars in the above real estate scenario.  Sure, there are stocks that have gone above and beyond the numbers above (think Amazon, Facebook, Google, etc) but you have to have the foresight to find them and hope you pick a winner to get an extraordinary return in most cases. There are also plenty of stocks you could have purchased at that time that were from companies who have shuttered their doors and are now worth nothing.


Tips For Successful Real Estate Investing:

  • Buy in an area that’s surrounded by or close to limited resources that people will want (i.e. near the beach, walkable to something people want, etc)

  • Target homes that will need less maintenance over time than others (think block homes vs wood frame homes or new construction vs old construction, etc)

  • Buy in areas where sustainable job growth and low unemployment rates exist (Pinellas County currently has an unemployment rate of around 2.9% and medical services are a BIG industry here and likely not going away). In the last housing crash, the biggest losers were buying properties that had no value when it came to the need for housing in those areas, walk-ability, proximity to jobs, beaches, etc. Not every market has the same kind of growth over time.

  • Find homes that you can easily hold over time, even if you decide not to live in it as your primary residence (think rental properties in areas with housing shortages or near limited resources like the beach, so someone else pays off that mortgage for you while your investment grows)

  • Remember that even though the real estate market can fluctuate, your real estate investments will likely always be worth something because you own the land (single family homes) and the structure.  You can also get insurance that protects you from a total loss of that asset.

  • Be purposeful and cautious when you buy. Make sure your first rental property is ready to go and rented out to cover costs BEFORE you buy another property. Build on your successes, not speculation. Again, in the last housing crash, people were buying multiple properties at once without ever making sure the 1st one was a profitable or manageable investment. Pace yourself and build a lasting business plan to protect your money.

  • Get your money right. Speak with a lender to find out what you can realistically afford. Calculate an average payment at a higher and lower interest rate to make sure your investments are still manageable even if rates go up before you close on a property. Talk to a 1031 exchange specialist if you're thinking of selling an investment property to buy another. 

With mortgage interest rates at historical lows, your purchasing power may have grown more than you think. There are also plenty of loan programs out there that don’t require a full 20% down, so you also have the option of investing less money up front to get that property you’ve had your eye on. So it's best to talk to an experienced Realtor and a Lender before you start making firm decisions.

For more information on real estate investing or building a profitable real estate portfolio, message us or give us a call at (727) 400-3315 to talk to one of our agents about what might be the right fit for you. We have all the resources you need to make a responsible decision when it comes to your real estate investing goals!

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Andrea Hartmann

Andrea is the Managing Partner of The Sandy Hartmann Group and runs the team alongside Sandy Hartmann. She would love to talk to you about real estate! Andrea was born and raised in the Tampa Bay a....

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