Real Estate vs Stock Market

Are you a real estate investor? Read more to see if the stock market is better for you!

What are the advantages of Real Estate?

Real estate investments are attractive because they are often perceived as safer than most other investments due to the low volatility in prices, their intrinsic value as tangible assets, and their versatility to investors (buy/rent/sell/occupy).

In addition, housing markets in the long term continue to hold value and grow because of how essential home ownership. The asset class is also less prone to trends/competition and an evergrowing population will always leave it in high demand. This has led to Real Estate averaging a 10.3% a year for the last 25 years, which furthers the evidence of how stable this asset class is.

What are the drawbacks of Real Estate?

A major drawback to investing in real estate is the high barrier to entry created by the minimum investment required (down payment, closing cost, real estate fees, etc). Currently, the median home price in the US is currently just under $430,000, the highest in history, closing the door to several potential investors.

Mortgages have also become increasingly difficult to attain and require many conditions to be met that vary both at a federal, state and lender level. Financing investment properties are also unfeasible during periods of high interest rates. Currently, the average mortage rate is in the 7% range, making mortgage payments more expensive than the rental income recieved, before any unforseen hiccups.

bankrate.com from Jan 14th 2025

Cash buyers have to forfeit a large amount of up-front money to purchase a property as well as ongoing management, administration and maintenance costs which erode the returns, taking them well below the 10.3% average.

In the event that you can source a lower priced home, it will not only produce lower returns, but they can also be in distressed neighborhoods, where collecting rent from tenants can be unpredictable, typically resulting in higher maintenance costs.

DRAWBACKS OFREAL ESTATE INVESTMENTS

• Real Estate agents needed to source, negotiate, buy and sell

• Tenant background checks

• Property managers unless you want to work

• Property maintenance

• Property damage

• Tenant disputes

• Liabilities

• HOA fees

• Risk of not getting rent due to federal laws, bankrupt tenants (e.g. Rent during Covid not necessary)

• Lengthy Eviction Process leading to disrupted income

• Paperwork, Hassle, Time Consuming

  
  

Real Estate doesn't always appreciate. This is The Ameriprise Financial Center that sold for a 97% discount.

How Does the Stock Market Compare?

The stock market is a green field of opportunity and convenience that any investor, regardless of experience, capital or expertise can participate in. A brokerage account can be opened for free and one can begin trading or investing for less than $100 with countless securities available to invest in, from every industry imaginable.

Brokers also provide leverage through various tools such as margin trading, derivatives and leveraged ETF's that can be used to increase exposure and generate cash flow. No bank meetings, big downpayments into escrow or any complex paperwork required. Just pure returns.

The stock market is also highly liquid and versatile - positions can be bought or sold within seconds and hedges are easily placed, giving equities superior risk control. Real estate cannot be profitable in high interest rate periods, during bear markets or tenant issues, nor can it easily be hedged. If real estate prices start falling, offloading the investment will lead to losses and will be time consuming.

According to NCREIF, the S&P 500 has produced a 9.6% annualized return over the last 25 years. It is important to note that the data doesn’t take into accountinvestments in individual stocks or other ETFs that have over performed the last decade. The data also doesn’t take in account dividends, active trading of positions nor the income generated from selling derivatives. This increases the actual realized rate of return on equity investments significantly.

Real Estate Vs. Stock Market Real Life Example

Real Estate: A $100,000 investment in 2008 would get you a 1500 sqft 3- bedroom townhome built by DR Horton, in Sanford, FL. As of 2023, the same townhome is worth $300,000. Not accounting for rental income averaging 7% a year, the investment appreciated by 300%.

Stock Market: A $100,000 investment in the homebuilders stock, DR Horton, in 2008 at $10 would have bought 10,000 shares. As of 2023, DR Horton stock is worth $108. That is a $980,000 or 980% gain, not accounting for dividends or premiums collected for owning the shares at an average return of 10% a year during that time.

Another point to note is when purchasing real estate, most investors are constrained to one asset when purchasing a property, with one paying tenant usually in a local market (for ease of oversight). Urban Bear Capital can invest in over 5000 different assets in the equity markets, with thousands of derivatives to choose from. If the $100,000 was put in a stock, Nvidia as an example, the gain today would be worth over $7 million. This shows that diversifying in the stock market can lead to exponential gains in comparison to owning property.

Through our proprietary investment strategy, we are able to deliver consistent, risk-managed growth to our investors in a purely passive manner. We handle all the work and investors just enjoy the returns.

No hefty paperwork - No Technical Jargon - No Hidden Fees

Reach out to meet with your advisor at Urban Bear Capital!

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