Someone Posted this in reddit, just reproduced to see your quantitative analysis. Assume S&P investment returns 8% year over year
**(Do not just say “Do not sell, keep forever”), need quantitative or logical justification **
I know a lot of us aim to FIRE having a percentage of our portfolios invested in real estate, myself included, and it seems the conventional wisdom, or expectation, is to buy and hold either long-term or indefinitely.
But if the equity in a property (net of any taxes and fees to sell) multiplied by your SWR exceeds your cash flow, or if equity times historical average of the stock market exceeds cash flow + principal, then logically you sell and invest in Vanguard funds because you’re no longer getting paid for the additional risk, right?
Looking at the properties I own, I will reach this point in about 6-8 years, which also warps calculations for some CapEx repairs…
Seems cut and dry, just want to make sure I’m not outsmarting myself or missing something.
tl;dr If (RE Equity:Net of taxes and fees * SWR > Cash Flow) or (RE Equity:Net of taxes and fees * Avg Return on Index Fund > Cash Flow + Principal), you’re no longer paid for risk of owning real estate and should sell.
Basically the question is comparing cash house purchase vs cash stock investment. It could be comparable.
However, Leveage is the beauty of real estate, without leverage, stocks can be more care free.
Comparing net return of stock investment (net dividend + capital gain) vs house (net rent + capital gain)
Above comparison is only a snapshot… the difference is changing all the times.
I have given up comparing as I’m not that good to flip between the two investments.
Two differnt animals…Redfinners obsessed on comparing the two…Buying your own home is the best investment period…All other investments are about personal preferences and tolerance for risk…Stocks are liquid, Real estate is not…Stocks are global Real Estate is local…Real Estate is about having control but also means maintenance and headaches like tenants. .Stocks require no hands on work but can fluctuate widely and cause sleeplessness as much as a call for a blocked toilet at midnight…I concentrate on RE…stocks for me are good in an IRA…no tax headaches. .
Agree with Elt1. Property investment will ensure regular yields and gain value. A wise choice is to invest in two various countries and two various asset classes. The key risk is of course location. In case you choose real estate, if you want secure returns, choose properties to be rented out with long-term rental contracts and lower yields. A good example will be this two-bed apartment at https://tranio.com/spain/adt/1537695/ or similar one. If you don’t, then short-term lettings in holiday destinations (see this Cannes apartment at https://tranio.com/france/adt/1175934/) with higher yields is better.
Location, location, location. How do you know is not Detroit? Btw, most midwest RE is still below peak 2007. Randomly checked Las Vegas, prices are about 50% off peak though have doubled from bottom… that’s bring the timing issue :).
For stocks, there are many hedging strategies e.g. long put, call replacement, collar, etc. You can’t hedge RE. Either sell or hold. There is also no need for stock picking, can merely DCA regularly into an index fund. Historically, S&P returns 7-11%… absolutely no maintenance or nightmares… No need to go into fetal position. Since I started DCA into a S&P index fund in 2002, it has gone up by over 500%… I didn’t monitor it at all… just check for this post.
I think you mean literally hands. Stock investment is varied. Index fund - no need to do anything except for the one-time setup. Stock picking - tons of brain work and judgement calls… CEOs, executive leadership, competition, business model, etc. Growth stocks - very headache. Traditional widow stocks - less headache. Option - Extremely risky and extremely high return… test of your guts, and nimbleness.
I prefer the bird droppings method of stock picking…or index funds…Unless you have insider info, research seems too much like work…
In stock, even during bullish period, we can easily loose money. Last year, my taxable account gained $10000+ and lost $10000, finally made $189 with 400 buy/sell. It was pure speculative and ignorance. Learnt lesson to do more research, buy and hold.
I was holding whole year,and almost all picks are researched, but recently sold as FED is going to increase rate and its uncertainty. Otherwise, I would not have sold them, it gave 26.63% in one small Robinhood account, another 6.5% and another 8.25%.
Stock means research, research and research to nail down.
I made 6.5% in one account by selling NVDA and NFLX ahead, but with profit. Otherwise, my profit would have been 20% in that account.