Debunking the Myth That the Stock Market Beats Real Estate Investing

I get daily Google alerts about real estate investing. Every day a couple emails hit my inbox with the top new pages related to real estate.

A lot of it is pretty useful, but almost every day I see an article that incorrectly argues that the stocks outperform real estate, but a huge margin.

The reality is, articles like this one are plain wrong. It is not just a little wrong, it is dangerously wrong. Most of the people authoring this stuff have never really spent any time actually learning about real estate or real estate investments.

The stock market vs real estate investing is not an old topic to me. I argued before that stocks can't compete against real estate...but from time to time I need to revisit it with new information.

Quick Sidetrack

Back in college I developed an appreciation for numbers. I studied mostly statistics and regressions, but then when I started my PhD I really solidified my understanding of other areas of math (Hey, don't forget I left the program to get into real estate).

I realized, basic math never lies. Sure, anyone can fudge a regression with faulty data or a lack of fundamental knowledge about statistics (which is the primary cause of errors in most studies you read), but equations and their answers are accurate every time.

back on track

The article I linked to said real estate returned an average of only 4.8% in the US since 1975. 

So I want to talk about capitalization rates. The capitalization rate is the return which an income producing property provides you, assuming you pay all cash and have no mortgage. A property that costs $100k and returns $10k after expenses would have a cap rate of 10%, also called a "10 cap."

Right now, cap rates are under 6 in major metros, and a little higher in secondary cities.

Guess where cap rates were right before the recession...

Continue Reading...

I Have a Radical Idea - I want to "retire" and travel the world. I'll make the first move by December 2017.

I'm going to accomplish this through aggressive saving, smart investing, and lifestyle adjustment.

Should you jump on the Crowdfunding Train?

Should you jump on the Crowdfunding Train?


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