The Superior Wealth-Building Tool: Equities Over Real Estate - A Deep Deep Dive
- Miqdad Mawji
- Jan 27
- 15 min read
Updated: Feb 20
Urban Bear Capital asserts that equity investments, when executed by seasoned experts, are far superior to real estate investments in terms of the potential return, liquidity, accessibility, leverage opportunities, risk management, and scalability. While real estate has traditionally been considered a stable asset class, its operational complexities and hidden costs render it less attractive in comparison. This paper explores these differences with in-depth analysis, data, and visual comparisons to support the case for equities.
BENEFITS OF INVESTING IN REAL ESTATE
Investing in real estate is appealing due to its perception as a safer option compared to many other asset classes, largely because of its low price volatility. Although boom and bust cycles still occur, they happen at a much slower pace compared to other investments. This stability has contributed to an average annual return of 10.3% over the last 25 years.
Properties also possess intrinsic value as tangible assets, which is attractive to investors. You can see, touch, and experience your property; you can buy, sell, rent, renovate, or even rezone it for business use. The long-term housing market typically retains value and appreciates, as home ownership is a fundamental need, not just a desire. With an ever- growing population, demand remains high.
Real Estate also provides tax benefits through various deductions and programs such as the 1031 exchange. Equities don't have much room for this, and only $3000 in losses can be written off every trading year. One also can't report too many expenses as you would with a piece of property such as the cost to replace a fence.
WHAT ARE THE DRAWBACKS?
However, real estate investments aren't without its challenges. The high entry costs act as a natural barrier for many investors. Building or acquiring a property requires significant time, resources, and effort, making it costlier to enter the market. While you can invest $1,000 in Apple stock, acquiring a property is not feasible for that amount, even with leverage.
In 2024, the US median home price reached $420,000, close to all-time highs. Securing just one property requires substantial cash, excluding many investors with limited liquidity. This figure does not account for real estate agent commissions, closing costs, or other acquisition expenses. If an investor finds a lower-priced home, it may yield lower returns and could be situated in distressed neighborhoods, leading to unreliable rental income and higher maintenance costs due to potential property damage. Then you have ommercial real estate, which is in another league.
Once a property is acquired and leased, the real challenges start to emerge. Landlords encounter various responsibilities, including contracts, background checks, administrative costs, homeowners associations (HOA), insurance, maintenance concerns, damages, and possibly troublesome tenants or squatters. For instance, the need for a new air conditioning unit or the initiation of an eviction process can disrupt an entire year and significantly reduce rental income.
MORE DRAWBACKS
In a world that prioritizes convenience and where ‘passive investments’ are highly sought after, managing these challenges can lead to stress and requires significant effort. For those seeking truly passive returns, hiring a property management company is an option; however, these firms typically charge around 10% of rental income, further impacting profits.
If you do end up getting a property manager, not only is the investor paying them from their profits, but a property manager is only able to control so much. They still can’t avoid:
Tenant-Related Issues: Non-paying tenants, evictions, property damages. There are countless cases of a new excited investor buying a house only for the tenant to skip 3 months of payments, spend another 3-5 months in court evicting them and then having to pay out of pocket for the damage done by the disgruntled tenant. Many have lost an entire year or more of rental income coming in.
Maintenance Costs: Tenants may be great and pay on time, but what if the AC breaks or they need a new roof? What if both in the same year? Again, not only is this tedious work but it eats at your bottom line. Annual costs for maintenance is $12,000 for a $400,000 property.
Show me the Data: Annual costs for maintenance is $12,000 for a $400,000 property. The average cost of an eviction is $3500 per case. (Source: American Housing Survey, 2023)
Appreciation isn't Guaranteed
Liquidity in real estate also differs significantly from that in equities. If a market downturn occurs, causing property values to drop rapidly, selling a property can take from days to years, delaying access to the principal investment while prices continue to fall. Even NNN leases in CRE can lose value. There are countless examples of commercial property losing more than half their value:
Furthermore, landlords will incur substantial real estate agent fees, property management costs, and closing expenses to exit the investment, potentially exacerbating losses. While real estate is often viewed as a secure, reliable, and profitable long-term investment, especially for the average investor, it certainly presents its own set of challenges, particularly at scale.
HOW DOES THE STOCK MARKET COMPARE?
The stock market offers a realm of opportunity and convenience, allowing any investor—regardless of experience, capital, or expertise—to participate. As previously mentioned, the stock market has fewer barriers to entry compared to real estate. You can open a brokerage account for free and start investing with less than a $100, unlike the substantial down payments required for real estate. With modern technology, platforms like Robinhood and Thinkorswim enable even teenagers to trade easily giving them access to: acquiring low-cost options contracts or fractional shares.
This ease of access ties into the liquidity advantage. Just as one can invest with a click of a button for $100, they can also exit all positions quickly during a downturn or go short, avoiding the need to contact banks or agents while navigating several variables. In contrast, real estate transactions are cumbersome and costly:
Time: On Average, a piece of real estate takes 22 days to sell and 30-60 days to close, compared to seconds for equities. (National Association of Realtors, 2023)
Costs: Realtor commissions (5-6%), closing fees and damages to name a few
Drawdown Vulnerability: Properties can sit unsold during downturns, tying up capital for extended periods and it is uncommon to be able to hedge your real estate investment. Unlike equities which have inverse ETF’s and several other short securities, there is no way to purchase a property that performs when the market falls
One common concern among investors is the fear of the stock market due to the psychology surrounding intangible assets. While you can physically interact with property, shares cannot be touched. Yet, each share in a publicly listed company should be considered an asset.
A $100,000 property is comparable to $100,000 in Microsoft shares. Microsoft boasts a $3 trillion market cap and holds a dominant position among global corporations, making it a superior asset compared to a single property, in the hands of a single tenant. Oxygen is the key to our survival yet you can’t see it...
Another misconception is that the stock market is solely about buying and holding or trading while monitoring charts. Many securities, derivatives, and strategies can be employed not only to hedge positions but also to generate cash flow, similar to how rental income provides cash flow for real estate. Industry experts like Urban Bear Capital excel in these areas, which will be explored further in this paper.
According to NCREIF, the S&P 500 has delivered a 9.6% annualized return over the last 25 years, just one percent lower than real estate. It is essential to note that this data doesn't account for dividends, active trading, or income from selling derivatives, nor does it factor in the costs of real estate acquisition and management, the effort required, or the risks associated with difficult tenants. When all variables are accounted for, the actual realized rate of return on equity investments significantly surpasses that of real estate.
HEAD TO HEAD: EQUITIES VS REAL ESTATE
Let’s look at a real-life example to illustrate how our capital would have performed:
Real Estate: A $100,000 investment in 2008 would have purchased a 1,500 sqft, 3-bedroom townhome in Central Florida. As of 2024, that same townhome is valued at $300,000. Not accounting for rental income (averaging 7% per year), maintenance or other costs, the investment appreciated by 300%.
Stock Market: A $100,000 investment in homebuilder stock DR Horton in 2008 at $10 would have bought you 10,000 shares. As of 2024, DR Horton stock is valued at $140, resulting in a $1,300,000 (1,300%) gain, excluding reinvested dividends or premiums collected from selling derivatives averaging 10% per year.
Additionally, most real estate investors are limited to one asset, typically with one paying tenant in a local market. Urban Bear Capital can invest in over 5,000 different assets in the equity markets, with hundreds of thousands of derivatives available, allowing for a diversified and risk-managed approach. The previous example was a straightforward comparison between a residential homebuilder stock and a property they actually developed.
However, had the $100,000 been invested in Nvidia, the gain today would exceed $7 million. This demonstrates that diversifying in the stock market can yield exponential gains, a feat that is not easily achievable in real estate.
THE LEVERAGE CONUNDRUM
“But I can just refinance and buy endless properties..”
Leverage in finance involves borrowing funds (debt) to acquire assets, with the expectation that the income or capital gains generated from these assets will surpass the borrowing costs. Nearly every asset class permits some level of leverage. In real estate, this typically means making a down payment of 20% or less of the property's value while a lender covers the remaining amount.
Let’s revisit the previous case with leverage:
The Central Florida property was worth $100,000 in 2008 and is now worth $300,000. As already mentioned, that is a 300% return just over 15 years or so. However, if one was to use a mortgage, they would only put $20,000 down (20% standard) leveraging the remaining $80,000 (80% (Loan to Value) from the bank.
In 2025 the value of the property is $300,000. Once the bank is paid back their $80,000 the remainder is $220,000. That is an 1100% gain not accounting for interest payments, rental income or any other costs in the same time frame.
However, one major counterpoint is that this strategy becomes ineffective during periods of high interest rates. Over the last three years (2022-2025), this approach has proven unviable and may remain so for many years ahead. Monthly loan payments owed to the bank can exceed rental income, not factoring in additional overhead or unexpected expenses. This makes it a poor investment as the income can never exceed the overheads. So yes there would be an 1100% gain over 17 years, but the investor would make no income and in fact have to pay out of pocket during that time frame, severely reducing the overall net gain.
According to data from CBRE, a firm that monitors real estate prices, the average monthly payment for a new apartment lease in the U.S. stands at $2,165. In contrast, the average monthly mortgage payment for a new home is $2,997, indicating that, on average, it costs households 38% more to purchase than to rent, as per the analysis. For every 100-basis-point increase in mortgage rates, an additional $10,000 in household income is necessary to qualify for a mortgage of the same size. This highlights the difficulties faced by real estate investors who rely heavily on leverage. The report anticipates that the market will remain in this state for another five years, rendering the entire strategy ineffective for almost a decade.
Obtaining multiple mortgages and refinances is not as straightforward as it may seem either. Not everyone qualifies easily, as various conditions must be satisfied, which differ based on federal and state regulations along with lender-specific criteria. Financial institutions typically evaluate aspects like income, credit history, and employment verification before approving a mortgage.
Additionally, some lenders may only provide adjustable-rate mortgages (ARMs) for shorter durations, which can complicate refinancing when the time comes. Coupled with periods of high interest rates, such as those seen in 2022 and 2023, the difficulties increase significantly. As interest rates rise, borrowing costs can become prohibitively expensive, posing challenges for maintaining or expanding property portfolios.
What would leverage look like in the stock market?
Every brokerage offers leverage known as a ‘Margin Account’ as long as a minimum of $2000 is deposited in the account. This essentially allows investors to borrow money to invest in securities. Depending on the volatility of the ticker, one can get 100% of their account value loaned to them without the same demanding paperwork a mortgage house or bank would need.
If you deposited $20,000 into your brokerage account, they would give you leverage to enhance your purchasing power, allowing you to invest as if you had more capital at your disposal. This means you could potentially buy $40,000 worth of stocks, doubling your investment capital. This leverage, often called a margin, empowers investors to amplify their returns. It's essential to manage this carefully, as the downside can lead to greater losses if the market moves unfavorably. However, with prudent strategies and market knowledge, leveraging can be a powerful tool to maximize investment opportunities just as in real estate.
Referring back to the example, if we invested $20,000 in DR Horton Stock and utilize leverage similar to real estate, we could acquire $40,000 worth of stock, which translates to 4,000 shares at $10 each. When the stock reaches $140 per share, that results in a gain of $520,000, or 1,300%, not factoring in interest payments or reinvested dividends/derivatives income.
Unlike real estate, where tenant issues or property damage can arise, equities are intangible and free from such concerns. Conversely, if we invested that same $40,000 in Nvidia, it would skyrocket to $9.5 million, achieving a remarkable 23,000% gain. A diversified portfolio of growth and stable stocks could easily yield over a million dollars in the same period when using leverage.
Additionally, interest rates for margin accounts related to equities and derivatives tend to be significantly lower than mortgage rates. As of January 2025, margin rates in the US can start as low as 5% (see graphic above), while the average mortgage rate sits at 7%. This does not even consider the impact of poor credit scores, which can increase rates or lead to rejected applications, not to mention the extensive paperwork involved.
An interesting aspect to consider is that when you invest through a margin account, you are only charged 5% interest on the capital you are actively using. As a result, if you're investing strictly within your account's value or frequently trading positions, margin fees become quite low. Moreover, we haven't yet mentioned the 4% interest earned on the cash that remains idle in the account. This means that while the cash is uninvested between trades, it generates income, which effectively lowers your overall expenses.
In contrast, real estate does not offer a sweep account that earns money when not in use. Additionally, if a tenant fails to pay or if unexpected costs arise from damage or maintenance, the bank remains indifferent. You are still obligated to pay the bank, which can put you in a challenging position, particularly if you're just starting out or heavily leveraged. Defaults can lead to bankruptcy and credit scores being wiped out.
Wait till you hear about derivatives
Derivatives are financial instruments whose value is derived from an underlying asset, such as a stock, bond, or index. Common types of derivatives include options and futures. Options provide the right, but not the obligation, to buy or sell an asset at a specified price before a
certain date.
Buying Options (Leverage Tool): Investors can purchase call or put options to gain exposure to a stock at a fraction of its cost, enabling significant returns if the stock price increases or decreases.
Selling Options (Income Tool): Investors can sell covered calls or cash-secured puts to earn premium income, enhancing returns in any type of market. This is very similar to collecting rental income on a property.
When it comes to leverage, derivatives are an unmatched tool that provide extreme amounts of leverage for a fraction of the price, something unavailable in real estate.
Each options contract gives an investor the right to control 100 shares of the underlying stock. So if you are bullish, instead of buying 100 shares of $TSLA for $40,000, you could buy 1 call option that would allow you to control 100 shares of Tesla for $4000 for 6 months. So for 10% of the value, you get 90% leverage.
Options contracts also effected by various factors such as time decay and implied volatility, which can push options premiums higher uncapped, sometimes even by thousands of percent. You can also set stop losses and buy put contracts to hedge the position or bet against the market. Effectively allowing you to severely leverage positions with risk control.
Not only is the ROI percentage significantly higher with derivatives, so is the net gain in dollar amounts. All with less capital too.
Fund Manager
One important thing to remember is that investments are very reliant on a fund manager. With real estate, investors can opt into specific deals. If one prefers to own Starbucks as a tenant buildings, they can directly purchase them directly or buy into a specific deal via a private equity real estate fund in that niche.
When it comes to equity funds, investors don't get an exact say in what is being bought. The investor has to beleive in the strategy pitched by the fund as well as the reputation and persona of the fund manager. This relies a lot on trust and can either lead to very poor results or phenomenal gains. Believeing in the funds strategy and the managers ability to navigate markets in various climates is the key to picking a solid equity fund for your future.
Real Estate Investment Trusts (REITs): A Mixed Bag
Real Estate Investment Trusts (REITs) are companies that own, operate, or finance income-producing real estate. While they offer investors exposure to real estate without direct ownership, they come with their own set of challenges:
Benefits: REITs provide liquidity and require a lower capital commitment compared to direct property ownership. They also offer diversification and regular dividend income.
Drawbacks: REITs often underperform equities due to management fees, limited growth potential, and market volatility.
Performance Comparison:
Investment Type | 5-Year Return (2018-2023) | Example |
REITs | 6.5% | Vanguard Real Estate ETF (VNQ) |
Equities | 12.4% | S&P 500 |
Multifamily, retail and industrials have all become extremely popular post Covid. Cap rate data aggregated across office, retail, multifamily, industrial and hotel properties from Q1 2001 through Q4 2022 averaged 6.29%. The minimum and maximum cap rates were 4.88% and 8.87%, respectively.
Real Estate Research Corporation (RERC), a data source extending back to Q1 1989, produced close to the same results with an average cap rate of 7.85%. While it might be lucrative to own a multifamily building with several units or a commercial building with Starbucks as a tenant, the acquisition costs are through the roof and the ROI doesn’t live up to the hype.
The average commercial property with Starbucks as a tenant costs over $2 million USD with an average ROI of 5%, excluding any unforeseen costs or mishaps that could derail the investment. They just can’t beat equities.
Case Study 1: Medical Properties Trust (MPW)
Medical Properties Trust, a healthcare-focused REIT, has recently showcased the risks associated with over-reliance on specific tenant types:
Decline: MPW shares are down over 80% in five years, primarily due to tenant bankruptcies and financial mismanagement. In 2023, one of its largest tenants filed for bankruptcy, causing a ripple effect on its revenue stream. The stock market has gain 12% a year on average in the same time span.
Debt Concerns: MPW’s strategy of leveraging debt for aggressive expansion exposed it to rising interest rates, further eroding investor confidence.
High Effort: Being so leveraged in real estate requires tons of paperwork and hassle, especially when trying to restructure deals after facing issues jus as MPW did.
Case Study 2: Simon Property Group (SPG)
Simon Property Group, a leading retail REIT, showcases a more stable but still underwhelming performance:
Performance: Over the past five years (2018-2023), SPG delivered an annualized return of 8%, below the S&P 500’s 12.4%.
Challenges: Despite its dominant market position, SPG faces headwinds from declining foot traffic in malls, increased e-commerce adoption, and significant capital expenditure requirements.
Comparison: While SPG has maintained consistent dividends, its total return pales compared to major equity benchmarks.
Black Swan: The nature of real estate is inherently riskier due to tenant dependency. At any moment, tenants can face financial troubles, declare bankruptcy, or abruptly vacate, leading to significant revenue losses and delays. This risk is compounded by the lack of flexibility compared to equities, where investors can quickly adapt, go short, or liquidate positions within seconds to mitigate losses.
Equities it is..
Investors can purchase real estate with outright cash, invest in REIT’s, buy commercial, multifamily apartments, industrials, hotels or various other types of real estate. They can also take out loans and utilize leverage as long as rates are low. Real Estate is one of the best reputed investments in history. It has helped many grow their wealth.
However, regardless of how you slice it, in our opinion, it just doesn’t beat equities:
Real Estate:
Is Much more expensive
Is dictated by interest rates
Has Low liquidity
Has slow processing and transaction times
Too much paperwork
Too much hassle and effort
Too many commissions and fees
Too much maintenance and damage
Too much uncontrollable risk
Inability to invest both long and short
Black Swans such as Covid can bankrupt you
Is very hard or impossible to hedge
Can't capitalize on the downside
Equities and derivatives have countless more benefits than real estate. However, equities can be a mental game. The quick movement, the multitude of options and complex strategies can be detrimental to some investors. Some may be too emotionally attached to a stock or may not have the experience to correctly mitigate risk. A lot of research has also gone into the gamification of trading, putting brokers like Robinhood on the spot for likening investing and trading to gambling.
With real estate, the issues that can destroy the investment are out of the investors control such as bad tenants, damage or interest rates. When it comes to equities, risks can easily be mitigated when done correctly.
At Urban Bear Capital, we strive to keep our investors from all the complexities and just provide them with efficient and timely returns. As seasoned professionals, we utilize our proprietary trading framework and various mathematic models to achieve risk-managed growth for our investors.
Reach out to us today and let us take charge of your investments!
References
Current Mortgage Rates https://www.bankrate.com
Insight into the issues with CRE https://www.cbre.com/insights/viewpoints/connections-and-disconnections-of-commercial-property-cap-rates#:~:text=Cap%20rate%20data%20aggregated%20across,and%208.87%25%2C%20respectively1.
High interest rates destroy your investments cashflow https://abcnews.go.com/Business/more-expensive-buy-house-rent-us-analysis/story?id=108351536&utm_source=canva&utm_medium=iframely
US House Prices at Historically high levels https://finance.yahoo.com/news/owning-a-home-has-rarely-been-this-much-more-expensive-than-renting-155251484.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAKiTJd1HUO6mjTVINvH0yTzpJMmBax8-PWZfY9qrmZGOgZFh6fq9iMe4og_6iLOj69eDgN4gSDhhLSEM15IxsbyLw731PYjEtdljYFzj7cm80BKQFGuyaXBDOyJzCBZvgmYsgmmtrtPqj9jqGHPnvje2clYGitJ9SCwhLXfhdCm5
CRE woes continue: https://hbr.org/2024/07/u-s-commercial-real-estate-is-headed-toward-a-crisis?utm_source=canva&utm_medium=iframely
Margin on Equities: https://www.investopedia.com/terms/m/minimummargin.asp?utm_source=canva&utm_medium=iframely
Starbucks as a CRE tenant: https://netleaseadvisor.com/tenant/starbucks-coffee/?utm_source=canva&utm_medium=iframely
Average US House Price: https://www.fool.com/money/research/average-house-price-state/
Cost to Evict a tenant in the US https://www.mysmartmove.com/blog/eviction-process-tips
Minneapolis Tower 97% Discount https://finance-commerce.com/2025/01/97-discount-for-tower/
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