Ok, a “savior” to such a slow RE news day… I can’t wait to find out which was better!!!
Amazon stock has absolutely walloped Seattle real estate as an investment over the last twenty years, with nearly fifty times larger returns.
If you want a place to live, buy a home. If you want to make money, buy stocks.
Agree with the author.
We all know this type of comparisons is meaningless. Why? Because very, very few would have hold on to AMZN for 20 years. There are many times when AMZN dropped more than 50%. You would need nerve made of steel to sit tight and hold on.
That’s why there are 100X more millionaires who made their money thru real estate than stocks. People looking at charts fail to account for human psychology.
How do you explain those foreclosed RE purchasers who are still reeling from the financial crisis?
You need to provide evidence for such claims. Your evidence should exclude owner-occupied from net worth computation. The author said after purchasing your owner-occupied, where should you invest, he prefers stocks. That’s what I did too.
How do you explain people who lost all their savings in stocks in 2000 and 2008?
And I disagree. The only evidence he provides, by comparing AMZN stock vs Seattle RE is ludicrous. Do you know anyone in real life who has held on to AMZN thru thick and thin for 20 years? There may be fewer than 100 people in the whole world who have done that, and I bet 90% of them are Amazon insiders.
You need to account for human psychology. The worst enemy of you is you yourself. Real estate benefits from its illiquidity. You can’t just push a Sell button while sitting on the toilet. It forces discipline. It’s a get-rich-slow scheme that works for millions.
Any1 long enough in the stock and/or RE market knew that. Is not an evidence. Is a logical reasoning.
He was just illustrating using AMZN. I do not know anyone holding AMZN for that long but I do know many holding AAPLs for that long, in fact, much longer. This year, is my 20th year anniversary holding AAPLs.
If every original AAPL shareholder hold their shares forever, no one else would be able to buy any AAPL share at all. Most people sell.
I would say getting rich from stocks is so rare that that possibility should be ignore by most folks
Congratulations. But out of millions of AAPL shareholders how many did that?
Compare that to everyone who bought a house in Bay Area 20 years ago. Most became multi-millionaire by doing nothing.
I am not against stocks. I myself hold a lot of it. A proper analysis needs to account for the probability of holding that long. In math speak you need to look at the expected value.
Should I rephrase to:
Stocks are ignored by most folks hence very few get rich from stocks
I’m still wondering how many actually get rich investing in RE (exclude owner-occupied).
Thinking aloud: Well the (in)famous rich dad, poor dad guy is not very rich.
May be, Asians and Americans think and behave differently.
In USA, the richest guys are mostly in non-RE businesses.
In Singapore, the top few are in RE businesses:
- Robert & Philip Ng $8.6B, real estate
- Kwek Leng Beng, $7.6B, real estate
- Kwee family, $5.4B, real estate
- Raj Kumar & Kishin RK, $2.6B, real estate
Many of my Singaporean friends become rich through RE investments, rather than stocks.
Amazon is like a unicorn with double rainbow in the pink sky. A median real estate should be compared with a median stock. May be stocks will still return better but it would nowhere be as dramatic. In fact, with 5x leverage, RE may come out ahead.
I think even this can be misleading. We should compare the middle, not the top. How about we compare people with 1-10M USD net worth, and see where they made their money. Many of them may be lawyers and doctors and not from investment. That’s fine. But how about the ones who make their money from investment? How many of them from stock and how many from real estate?
I have my opinion but I don’t know the answer.
In the eastern culture where I grew up in, people always talk about the “middle way”. In baseball speak we were taught to aim for singles and doubles and not home runs. I think that has solid mathematical foundation if you look at the expected value and not just the prize money. Real estate is like the singles and doubles. You win the game slowly.
Real estate is also asset with preferential tax treatment. You cannot sell stocks and avoid paying taxes on first 500k gain.
How many people trade their 401k on margin? Every first time home owner is a leveraged investor. And interest is tax deductible.
Zero. You can’t trade retirement accounts on margin.
My point exactly. Lots of stars should align to do well with stocks. But with real estate all stars are aligned for average Joe.
You can do options in IRA. It’s not margin, but it’s leverage. The downside is you pay a premium for the option, and they expire. They also limit the downside though.
Apparently, some people didn’t read the article
This is the real test:
Which would you suggest you kid do? Buy a house? Or use the down payment to buy some new company’s IPO?
You don’t have the 20/20 hindsight 20 years later. You don’t know which will turn out to be Amazon and which will be Enron. Out of the IPO’s in the last 12 months, which one would you sink your down payment money into?
Answer to your question is obvious.
That’s fine. Even after you bought your primary. It’s a good thought experiment.
Let’s say you have the down payment of an average Bay Area house saved up. 1M x 20% = 200K. Which one would you suggest your kid do:
- Buy one more Bay Area house; or
- Buy 200K worth of stocks in a hot company IPO’ed in the last 12 months
If your answer is 2 I’d like to know which company that is. I may have some spare money.