Real Estate or Stocks: Which is the better investment?

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There have been several recent articles discussing whether real estate or stocks is the better investment. The subject came up in a round about way at Get Rich Slowly, which you can read here. The comments are interesting, so make sure to check them out. Real Estate Mega Book addressed the topic more directly, which you can read here. So what say you? Is real estate or stocks a better investment? After you read the article at Real Estate Mega Book, read my response below (which won’t make ANY sense at all unless you’ve read Real Estate Mega Book’s article):

The Dough Roller slowly rolled up the parchment as he pondered the great riches and fame that surely would follow–as the night the day–a link on the Real Estate Mega Book blog. He reached down and with mighty determination lifted the heavy gauntlet that had been cast down by Jon Morrow, the Ruler of Real Estate. A hush fell over the crowd and all eyes settled with fear and trembling on the Dough Roller, as the great wisdom of The Ruler was known far and wide. With a nervous voice the humble Dough Roller began to speak:

“It is with honor that I accept The Ruler’s challenge,” The Dough Roller began.

But before he could continue, a voice cried out from the crowd, “Sire, don’t you yourself own property across this great land? Surely you cannot argue that the stock market is a better investment than real estate!”

“It is true, as you say,” replied the Dough Roller, “I do own real estate investments, as well as stock mutual funds. Would you not agree, though, that by owning both, I am well suited to respond to The Ruler’s challenge, if any response can be deemed worthy?”

A murmur of agreement arose from the crowd and then silence descended again as the Dough Roller collected his thoughts. “Ladies and gentleman,” he began, but was interrupted again.

“Hey, Dough Roller, you own the home I live in, and the roof is leaking. I told you a week ago about this problem, and it’s still not fixed!”

“Oh, is that you Mr. Franklin. I, I have two estimates for the cost of the repairs. $3,500 is a lot of money, as I’m sure you’ll agree. I’m getting a third tomorrow. I traveled to the home two days ago to meet with one contractor, and he never showed up. Funny how contractors and prospective tenants alike never seem to call when they blow off an appointment. But mark my word, kind sir; we’ll have it taken care of soon.”

Frazzled but determined, the Dough Roller continued, “Stocks are better investments than real estate because,” and there came yet another interruption.

“Yea, I live in one of your homes, too. My roof is fine, but the air conditioner is broken and we have a leak somewhere in the house because water is all over the new carpet you installed.”

“Hi, Ms. Rosa, it certainly is good to see you, again. I, I haven’t forgotten about you. In fact, a plumber will be at your house today to repair the leak. It’s a lot of work, what with having to break open the slab foundation and all to get to the leaking pipe. I sure wish the home had a basement,” the Dough Roller said with a nervous laugh. “And the HVAC repairman will be there tomorrow. Please be patient.”

Now visibly shaken, the Dough Roller tried to regain his composure and with a resolve and perseverance that can come only from years of real estate ownership, began again: “Stocks are better investments than real estate because,” and a final interruption thundered from the now angry crowd. “Mr. Dough Roller, you’re late on two mortgage payments to my bank. We’ve been looking for you for some time and would still not have found you had you not been so silly as to pick up The Ruler’s gauntlet.”

“Oh, Mr. Burns, it’s always a pleasure to see you,” the Dough Roller stammered to the keeper of Other People’s Money. “I’ve been meaning to stop by to explain. You see, some tenants haven’t been paying their rent. But not to worry, proper lawsuits have been filed, and rest assured, the judges in landlord/tenant court are diligently considering my case. I’m sure I’ll have the current tenants evicted and new tenants installed in no time.”

But it was too late. The crowd’s anger at the Dough Roller’s foolish effort to challenge The Ruler was quickly getting out of control. Sensing imminent danger, the Dough Roller turned and sprinted in fear to his nearby office, which he reached with the crowd on his heals. Locked in his office, an angry mob banging on his door, he slumped into the chair behind his desk with head in hand.

In near tears and with all hope abandoned, his eyes gazed upon the mutual fund statement on his desk. A mutual fund that never missed an appointment; never called; never needed a new roof or air conditioner; never leaked; never needed evicting–just quietly returned a fair profit. Oh, the joy. The Dough Roller hugged that mutual fund statement with glee. “Yes, the stock market is a better investment,” he exclaimed.

And then a parchment on the edge of his desk caught his attention–4 bd, 2b, fp, fbsmt, fncd, good sch. Need to sell. Only $124,900. No money down! Now that’s a good deal, he said as he dropped the mutual fund statement and picked up the ad. I need to see this place, if only I could get through that angry mob.

Published or Updated: March 22, 2012
About Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

Comments

  1. Both real estate and stocks have a place in a diversified, balanced portfolio. I own a home plus an investement property, as well as a stock portfolio. I agree with the gist of your post – I’ve had a bad investment property in the past where tenants were bad (damaging the property and vacating without notice when behind in the rent). However, you could just as easily rewrite the post substituting a couple of individual stock picks that experience problems (Enron, GM, etc) for the ‘no worries’ mutual funds, and substitute a REIT for the individual rental properties. In that case you’d get the opposite impression as to which is best.

    You can pick the wrong house/stock or invest in index funds and REITs. You can invest only in the domestic stock and property market, or diversify overseas. You can buy for cash only, use modest gearging, or gear to the hilt and hope for the best. The problems experienced with both stock or property investments are more often due to the investor rather than the asset class.

    In the final analysis, the main reason I’d give a slight edge to stock investing over property is because the long term average ROI is slightly higher for stocks than property. Although they are both provide substatially superior returns in the long term compared to bonds and fixed interest investments. The other good feature of stock investing is that low cost index funds are more available than low cost real estate funds.

    Regards
    http://enoughwealth.com

  2. I own an apartment bldg, and stocks. I am very comfortable owning both – it has worked out very well for me.

    BTW, I tried to subscribe to your feed via My Yahoo, and I’m getting an error. Not sure if that’s on my end or your end, but I wanted to make you aware of it, just in case.

    Would you care to trade bloglinks? You can email me at onemilliontomyname at gmail dot com.

    Thanks, great site!

  3. Jon Morrow says:

    Excellent response, and thanks for the link! You’re the only one that’s responded so far, so you may win the contest by default :-)

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