Real Estate Investing Vs Stock Market

If you have read any of my recent blogs.....which I hope you have.   You may have gotten the feeling that I think that real estate investing is great, in which case you would be right.  This week I wanted to give an example of the power of real estate investing as opposed to a portfolio of just  stocks.

Let's say in the year 2000 you had $25K to invest and had 2 options.

 25K invested in stock at Wal Mart or $25K to invest in a 3 family home in Providence.  

• On Jan 1, 2000 Wal-Mart traded for  a split adjusted 46.36 per share, so that would get you 540 shares.
• On Jan 10, 2012 Wal-Mart traded for 59.04.
• So your $25K investment is now worth $31,881.60 or 27% ROI.
• Your stock has paid you a dividend of $4,579.20.
• Total ROI including the dividend is 46%. Not too bad.

Now here is your 3 family home.  In Jan. 2000 you instead invested 25K and obtained a mortgage to purchase a 125K 3 family home in Providence.

• Assume a conservative growth for RI(20% since 2000) your 125K home is now worth $150K. 
• Using that same math your current mortgage at 8.3(the average in Jan 2000) is around $86,500, of which your tenants have paid every dollar of.  Also hope at some point you have refinanced.  That leaves you $63,500 in equity.  Or 254% ROI.
• This doesn't even take into account the cash flow you should be seeing on a 3 family or the potential additional properties you have bought leveraging the equity... we will save that for another blog :)

That is why leverage may be the most imprortant factor in harnessing the power of real estate investment.  Until Next Time, Happy Hunting!!!