Real Estate Investing Vs. The Stock Market

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This article is the third in my series focusing on the beginnings of my real estate investment experience. In this post, I am providing my perspective on why I chose to invest in real estate instead of the stock market. The stock market seems like gambling to me. It is a lot of fun to watch a stock or a mutual fund go up, but what do you do when it goes down. Particularly when the money you are losing is for your future, not just a few hundred bucks you brought to Vegas for a fun weekend. Watching the performance of the stock market from 2000 to 2010 (the first ten years of my time in the working world, building up a 401k account), resulted in significant disillusionment and worry that the standard advice given in a range of personal finance books and websites (contribute to your 401k, invest in stocks) either wouldn't result in enough money for my retirement or it would, but then some economic problem or market collapse would come along and wipe out a significant portion of my savings in an instant. Count me out. Control over your investment. So why invest in real estate? The primary attraction was the thought that I would have more control over my money and that I would be investing in something physical and tangible (a house) that would retain some measure value while also generating income. When investing in real estate, you are in control of the purchase, maintaining your investment, and growing your investment. Benefit from your income now. Another benefit of real estate investment is the income you make from the property can help improve your income and standard of living now. Income from 401ks and Individual Retirement Accounts (IRAs) cannot be touched until you are 59½ years old. Why should I have to wait 25 years to appreciate some benefit from my investment? With a rental investment property, there is income available now and income available in the future. Maintain the value of your asset. Another key benefit in rental investment property is that the income it provides to you does not impact the underlying value of the asset (in this case the house). Once you retire, you start drawing down on the balance of your 401k or IRA, which then reduces the balance and your potential earnings. For example, earning a 5% return on $500,000 would net you $25,000 a year. If your balance is reduced to $400,000, your gain also reduces a corresponding amount to $20,000. This $5,000 can add up to a significant amount of many over several years. In a real estate investment, you will earn income, but the value of the property, say a $100,000 house, will not lose value due to the income you received from renting the property. It should continue to be worth $100,000 over multiple years.The factors above contributed to my conversion from stock market investor to real estate investor. Is it a significant enough argument for you? That is for you to decide.

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