The Real Estate vs. Stock Debate is OVER (It’s Not Even Close)

The real estate vs. stock market debate is OVER. That’s right, after a conclusive study conducted by our own VP of Data and Analytics, Dave Meyer, we’ve found the real difference in returns between the stock market and real estate investing. And at first, you might think that these two types of investments end up being pretty close in terms of profit. For the most part, stock investors don’t care to venture into the active world of real estate, and vice versa. But what if we told you the difference was HUGE? We’re talking DOUBLE the returns in one over the other.

You might say, “Hey, isn’t this a real estate investing channel? We know your answer!” Think again. We’ve got the raw data pitting rental properties against the S&P 500, everyone’s favorite index fund, to see whether investing in the S&P, a rental property, or a primary residence comes out on top. Adding all the factors together, the winner could have you changing your investment strategy quite quickly.

Which investment would you choose? Are passive stocks more your thing, or are physical properties worth the active investment? Let us know in the comments below!

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00:00 Real Estate vs. Stocks
00:32 Surprising New Calculations
06:23 Make 2x The Return!
10:12 2023 Update
10:58 The Big Winner

[Raygetto]

This does not include any maintenance on the properties, assumes zero vacancy rate, doesn’t seem to include property taxes, transaction fees (agent commissions, transfer taxes, etc.) and omits tax differences between 30 years of rent vs. 30 years of dividends. And as others have pointed out, assumes 1:4 leverage for real estate and 100% cash purchased stocks. Not apples to apples. Not to mention the value of your time if you have another (particularly if it’s high income) job.

[tigerrx]

If you can, get a mix of both real estate and stocks, it’s not OR, it’s AND.

[alex]

Maintenance, closing costs, taxes, interest on a loan, insurance. And most importantly time spent! Other than having or needing a primary residence, how could anyone say Real Estate is better?

[cibo]

This guy literally knows nothing about math and economics 😂😂😂. Once again quality of YouTube content creator has been confirmed.

[jickumathew]

Over a long holding period real estate will require large maintenence expenses such as new roof for example, will be good to see a followup analysis assuming this factor

[lukestevenson]

This all depends. I am a builder/contractor. I can buy houses that are run down, fix them up then sell them or keep and rent them.
Way way way better of a return than any mutual funds.
However, I do invest in the stock market just not nearly as much as property.

[eaglefan]

At 25% down payment this is effectively stock return vs 4x leverage as the loan allows for higher CoC return. Think the takeaway here is more “using debt to fund real estate investments is more profitable than using only cash in the stock market”

100k in stock market = 100k of stocks
100k at 25% down payment = 400k of real estate

Thanks for the video! Highlights the benefits of leverage

[Kornheiser]

Ummmm, 10% annual return for 30 years is NOT 300%...that's linear thinking, you need to apply the compounding calculations of 10/7, meaning your money doubles every 7 years at 10% or every 10 years at 7%. So it goe 1 to 2 to 4 to 8, not 1 to 2 to 3 to 4.

[Corkfish]

I'll mention that to a friend of mine who bought his house in 2005 for a little over a million dollars and sold it 14 years later for $835, 000.

[JoseFernandez-slek]

Great analysis, but the stock market is 100% passive where as Real Estate investing (land lording) is a full time job. So, another analysis should be done where some average salary/hourly rate is paid at some average pay scale ($25/hr. or $52K/yr). That pay should be subtracted from the FCF (YOY) where the opportunity cost (that money going into the stock market or HYSA) is also factored in. This may give a more realistic number.

[ansfida]

I'm a little confused on the growth estimate of S&P 500. Your analysis mentioned that the expected growth over 30 yrs at an avg 10%/yr return would be 300%. But if I plug in number to a compounded growth formula i.e. 1.1^30 it comes out to 17.4x or 1744%. What am I missing here?

[HazyJay]

REITs have people whose full-time job is managing the properties and growing the NAV, why would I ever try to manage property on my own for a similar (likely lower) return when I could invest in a REIT who pays out 90% of their net income as a dividend and is more diversified? Wouldn't an ideal portfolio be Index ETFs and a REIT ETF, that portfolio would likely have an unbeatable alpha with a high return. Not to mention all of the hassle saved which I could focus toward a high-income job.

[falsificationism]

I love this analysis. I only wish I could see it a bit more clearly. Any way you can increase the sharpness for next time?

[adamsjourney]

Stock market is definitely better. Great dive into analysis but this is bias-skewed, and the numbers after true calculations would clearly tell you that stocks are the winner.

[Brandon_g]

Something is off here... The SP500 has a inflation adjusted return of 6-7% (6.33% since 1970) and this is showing (3+1)^(1/30)-1 ~ 4.7% return. At 6.5% annual return you should be showing about 500-600% (1.065^30-1) total return for stocks. Nevertheless, I appreciate the analysis.

[texassecession]

My friend's father purchased a house in DC suburban area for $250 K in 1978 which he sold for $2.5 million in 2016. 10 times gain sounds like a nice gain. Had he invested in S&P 500, it would have been close to $6 million. With dividend reinvestment, it would have been $16.5 million.

[AraP]

90 percent of millionaires were invested through real estate. No analysis needed.

[prophetseven]

I own both. Did you Calculate in Property Tax? Permits? Fees? Cost of Mantaining the property? Renters not paying? Empty months? Are you going to Manage the property yourself or out source that. Take away 10% for that fee. There is checks and balances. Found out I can not, Not get more trash can service on my property that I rent. I pay Utilities. All these years Ive only needed and had 6 Trash cans. Now I found out Ive been paying for 12. I have no room on the property for 12 and Utility Company will not, not charge me for a service I not using. If I do not pay for those unused extra 6 trash cans they will turn off my Electricity. Those 6 Trash cans come out to be $1, 460 a year for nothing. Im just saying little things like that add up on property. Do they on Stocks?

[chadcappadona]

Real estate rentals to big of a hassle. Index funds set it and forget it

[gisellmorales]

Thank you!!! Super useful and super clear concept. I have 80% RE and 20% stocks, love both!