Should you invest in the stock market or in real estate properties?
I was in a conversation the other day about a guy waxing poetic about how he is buying more properties to keep building his little rental empire.
I listened along because I do like listening to how people invest their money even if it isn’t the way I do my own investing….
Anyway, his main point ran along the lines of:
I could rent this place out and it would cover everything!
Everything meaning all the costs:
- Condo Fees
Utilities they would obviously cover, and maintenance would be his bag if they ruined the apartment.
I didn’t say anything but the only negatives that keep me from investing in real estate as an investing strategy (not as my primary home to live in) are pretty solid arguments:
Actual, proper return on your money
I have not done the math, but for it to actually make good money and not just cover costs (I mean a PROFIT), the equation that works for me is:
A property should be able to be rented for 1% of its price.
So a $300,000 property of what he is talking about, should be able to be rented for $3000 for it to be a GOOD DEAL. I’d be all over that ish.
$1500 on such a property per month may cover the mortgage, taxes and condo fees, but even if you own a property at the end of it all, you still want to actually MAKE MONEY on it while you’re renting it (hello? investing?), not just have your capital tied up in a physical asset and having someone pay for it in the end.
Where I am living, I would need to rent my place out for $6000 a month (STEADILY) for it to be worth “investing” in as a property…
Not that simple to liquidate…
Need the cash?
Can’t just sell some stocks at a loss and use the money.
You need to sell the whole apartment, and not only that, engage a real estate agent who will take a commission, make you keep the place in perfect showroom condition, and then run you through the mess of papers and so on.
Dependent on the moods and natures of renters
If you get steady renters, this is great. If you don’t, you’re on the hook for that mortgage and all of the fees.
If your renters are great people (like we were) and took care of the place like gold, you’re fine.
But if they trash it, like the renters down the hall from us? OMG.
Scratches on the door, it looks like they just continually rammed things into the door, I am sure the floors and walls are ruined from their epic fights over the past year…. (yeah, cops called on them and all that).
Not exactly a great treatment of your money or asset.
This is why I prefer my money in the stock market. Sure, I own my house free and clear (paid cash because I don’t like the mental baggage of debt), and I have some retirement stuff that is locked in until I am 65, but I won’t be a real estate mogul any time soon unless I fall upon a really, really good deal.