Which Has a Better Return? House vs. S&P 500

[@RB-je3yj]

Real Estate!!! You better have deep pockets and be ready to dish out cash fast and furious! AC Systems/ Taxes/Insurance/plumbing/ roofs/ electrical Tenants it's actually a terrible investment there's a ton of hidden cost ever time you have to buy stuff for the house call technician or someone to do repairs if you're out of town! I keep all my money in SCHD/VGT!! $3 million and not a single call for repairs or replacement of anything! Set it and forget it!

[@SeasideWealth]

The hidden costs are often overlooked!

[@hhli8]

in the example from 500k to 1.5 million, initial investment can be as low as 100k, the 20% and leverage the rest, the mortagge interest will hurt some returns but the leverage gave a lot more benefit.

[@SeasideWealth]

That could be true, but it depends if the property is your primary residence.

[@jackollason6074]

Mr matt always coming at us with the facts! Always appreciate the information . S and P seems like long term strategy and real estate FEELS better because it's more instantaneous gratification with something tangible. So I thinks it's more feelings than logic. But diversify that portfolio! Taxation is theft

[@SeasideWealth]

What kind of tax strategies are you using to make sure you don’t tip the IRS?

[@meemka8251]

Both are good investment instruments, both can fluctuate in price, but only one offers a shelter from a winter storm, and one is a lot more liquid than the other. This is why smart investors never put all their eggs in one basket or under one roof. 🙂 Very well done Seaside!

[@SeasideWealth]

Diversification and proper asset allocation are key!

[@MP-th6ob]

If you are watching this expecting some in-depth analysis of investment returns of real estate vs. S&P500, the discussion in this video barely scratches the surface. Except for maybe... the psychological aspect. The biggest problem with this discussion is that it completely omits the effects of the rental cashflow from a rental property (or the money saved on rent in case of a personal residence). If the property was purchased with a GRM (gross rent multiplier) or 15 (which is about average), over 15 years it has a potential to add another 100% of the initial property value to your overall return (minus the expenses obviously). You cannot just ignore something this big, especially since the long-term data on housing price appreciation excluding rental value is not very impressive barely beating the inflation of the last 100 years or so. After all, if you take out the effect of dividends from the S&P500, the returns on that will decrease by 2-3% as well. Also, the rent received (or saved) is what covers property taxes and various maintenance expenses, so they should not be deducted from the appreciation as the video suggests. There is no discussion of the effect of leverage. the 11% annual return on the full cash value of a property becomes 55% annual cash-on-cash return if you only put a down payment of 20% and your rents cover mortgage interest, insurance and property taxes. In case of an investment property, the down payment may need to be higher, but it is the same effect. You cannot do that with stocks (margin loans are not really a viable equivalent to mortgages). Then, there is no clarity whether this discussion involves investment properties or a personal residence. Each comes with its own set of specifics. The video seems to mix everything together without any sort of logic or pattern to it. For example, various limits on deductions of property taxes and mortgage interest do not apply to rental properties. 121 exclusion applies only to primary residence. 1031 exchange only applies to rental properties and comes with a lot of complexities/restrictions making it a lot less useful than it seems. There are some aspects to tax treatment of stocks too, with some potential tax efficiencies there as well since this topic is introduced. Putting aside the very incomplete and likely very inaccurate estimates of the rates of return on real estate, the advice to include physical real estate into an investment portfolio for the sole purpose of diversification is fraught with problems to say mildly. First, rental real estate is not a purely passive investment. In terms of responsibilities, skillset, potential liabilities and time commitment it is much closer to running a business than to a completely passive activity like owning S&P500 shares. This is not for everyone or faint hearted (as a long-time landlord, I can attest to that). Second, on the same note, if diversification is the goal here, you could look into REITs or syndications as an alternative. This would give you what you want (diversification) without all the work and the risk (at the cost of somewhat tempered returns vs S&P500). You also must know that physical real estate is not cheap. Unless you are diversifying a billon dollar portfolio, purchasing any single property will immediately take a huge chunk out of it. This would be the opposite of diversification as a huge percentage of your total investment would be tied up in a single property. Lastly, real estate and its returns are highly local. If you look at the data carefully, in most cases, there are pockets of real estate with very high returns surrounded by huge areas with rather modest appreciation rates. Depending on where your listeners live, the outcome of house vs S&P500 can be wildly different.

[@SeasideWealth]

Very good points! We would love to go through every little detail, but in less than 10 minutes it’s tough. Are there any other topics that would interest you?