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Real Estate Vs Stock Market Investing

You can buy a house worth 50 Lacs with only 10 Lacs to start and have someone else (tenants) paydown the Loan amount

When you buy stocks, you buy 10 Lacs Of stocks and hope it goes up over time. And it maybe worth less than 10 Lacs.

I invested in stocks since I was 20. I also invested in real estate for the past ten years where I bought one a year…I was also a trader (futures) for a year.

Real estate (traditional buy and hold) is hands down more powerful.

Here is a real life example of the POWER of real estate investing.

1. Positive Cashflow (Rent – Expenses = Cashflow): I purchased a 3bhk apartment in 2009, renovated it and rented it out to a young professional couple. The rent coming in paid for all of the expenses, including property taxes, mortgage, insurance, maintenance and still made 10K + of positive cash per month. After seven years of holding it, I netted over 12 Lacs in cash flow, even with three months of vacancy and maintenance expenses.

2. Appreciation (Increase to property values): The cute war home increased in property value over time, averaging 5% annually! I forced appreciation by “blinging” it up, i.e. renovations and landscaping. The house was also located in a nice area adjacent to a very desirable high-end neighbourhood. I bought the house originally for 20 lacs and it was appraised at 60 lacs in 2015. It’s now worth 75 lacs in 2020.

3. Mortgage Loan Pay down: After seven years of holding this property with tenants primarily paying down the mortgage, I’ve locked in 5 lacs rupees in forced savings. Now, I am holding this house for my kids. I plan to keep this property for a long time to pay for my kids education; however, if I sold it now, I would have an easy extra 60-70 lacs in my pocket that was mostly paid down by my tenants. I initially invested 20 lacs , which has already Tripelled over the 10 year period. By the end of 20 years, due to mortgage paydown, I will own the property outright, Or potentially 4 Crore plus plus in 2040 assuming only 5% inflation growth.

5. Tax Write-Offs: There are loads of tax advantages to having rental income. Expenses like mortgage interest and maintenance costs are tax deductible. So, in a way, you can think of the savings in taxes as if your expenses were paid partially by the government. This reduces taxes that you would have paid annually to the government, which means more money in your pocket.

5. Power of Leverage: I bought this Apartment with a down payment that was leveraged by borrowed money from the bank, i.e. a mortgage. While the tenants paid for my mortgage, I benefited from the growth of both my down payment AND the borrowed money from the bank. After eight years of holding it, I’ve made over 320% return on my capital investment, including the benefits of positive cash flow, equity growth and appreciation.

This is why real estate investing makes you wealthy.

What’s even more amazing is that this is not an extraordinary property.

In fact, it’s less than ideal property because it only has three bedrooms and two bathroom. Despite its flaws, the house is still making money and matures with time.

With investing in stocks- there is only one way to make money, hoping that the company continues to generate more revenue and beats quarterly estimates. Some stocks pay a part of their profits through a dividend back to you. But if the stock goes up, the only way you can access the money is selling the stock.

With real estate, if it does well, you can access the gains (equity) without selling and invest even more.

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