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Comments and Questions:

  Real Estate VS. Stocks

"Real estate is not just as good as other investments, not just a little better, and not even just a lot better than other investments, but tens or even hundreds of times better than other investments." Dolf de Roos

Let's assume that you have $50,000 cash to invest in either stocks or real estate. Which would you choose?

How many dollars' worth of stock can you buy with $50,000 cash?


How many dollars' worth of real estate can you buy with $50,000 cash?

Nearly all stock investors must put up the entire purchase price in cash. However, you could put 10 percent down on a $500,000 property with a 90 percent mortgage. You would then have an asset worth $500,000 that could generate rental income for you. If you buy it right, then the rental income could cover all your expenses and more.

The point is that when you buy stock, you have to put up the entire purchase price. However, when you buy real estate you can leverage your investment by using a mortgage. If both stocks and real estate went up by, say, 10 percent, then your stocks would be worth $55,000. A $5,000 profit. But your real estate would be worth $550,000 A $50,000 profit. That's a 100 percent return on investment.

The instant you buy $50,000 worth of stock, how much is it worth?


The instant you buy $50,000 worth of real estate, how much is it worth?

The moment you buy $50,000 worth of stock, it is worth exactly $50,000. Is it possible that your $500,000 of real estate is worth less than $500,000? Well, it is possible, but not likely since you were smart enough to have an appraisal done on the property.

But, is it possible that your $500,000 property that you bought for $50,000 cash and a $450,000 mortgage is worth far more than $500,000? Of course it is! It happens all the time. Many properties are sold below market value every day of the week.

What can you do to increase the value of your $50,000 worth of stock?


What can you do to increase the value of your $500,000 property?

Obviously, there is absolutely nothing you can do to increase the value of your stock. However, there may be many things you can do to increase the value of property. Many people have become wealthy by purchasing homes that need a little cosmetic work, fixing them up, and then selling them for a hefty profit. There are hundreds of things you can do to increase property value without spending a lot of money.

You bought $50,000 worth of stock that over a period of time is now worth $100,000. What must you do to enjoy some of your equity?


You used $50,000 cash to buy a $500,000 that over a period of time is now worth $1 million. What must you do to enjoy some of your equity?

To tap some of your stock equity you must sell it. Of course, that will create a capital gains tax liability and also reduce the amount that is left to earn future profits for you. Ouch!

Selling your property would be dumb. Why sell it when you're enjoying the depreciation. The value is going up, plus it's generating income for you. What's more, if you did sell it, you would have to pay capital gains tax on the profit.

If you want to tap some of your equity you could refinance the property. The money you withdrew would not be taxable and you could even use the money to purchase another property.

Imagine you go back to your bank and ask for an 80 percent loan-to-value mortgage of $800,000. After paying off the original $450,000 loan, you would still have $350,000. You could then use that $350,000 to purchase $3.5 million worth of property, which, combined with you the $1 million you already own, makes your total portfolio worth $4.5 million.

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