I saw a Facebook video yesterday talking about real estate investment with the investor talking about how he gets a 35X ROI on all his deals and how this surprises people. In real estate anything over a 5% cap rate is considered good and that is what most people think of as ROI.
However this investor was talking about $50,000 specifically. He was comparing buying a rental property to investing in a retirement account. He had the wrong numbers on his retirement account as he said it would triple over 20 years and when I ran it through the compounding interest calculator at the average S&P return I got a much higher number.
When I checked the math on the real estate investment his 35% number might have been a little low. If you used $50,000 to purchase a property that is a down payment and whether you used a traditional mortgage, a HELOC on personal property, or a DSCR loan there is equity payoff in that ROI number and then there is appreciation, rent inflation, and depreciation. In other words it is one investment that makes money in multiple ways.
The stock market can do the same though and if you took the mortgage equivalent amount and fed that into the stock market then your ROI increases substantially in that avenue. The counter to that is once the rental property has enough equity in it it can either be 1031’d or refinanced to produce more income and ROI.
The interesting part is this is an artificial choice. A person is perfectly capable of investing in multiple avenues at the same time. One can invest in real estate and then take the profits of that rent and invest it in the stock market. It isn’t a binary choice of one or the other. It can be both and both hands can feed each other. A line of credit held against investments in one of the easiest to open and has some of the lowest rates available and that can be used to buy more properties while those properties are also growing the investments.
We live in a fascinating time. In the palm of our hands we have tools more powerful than professional investors had ten or twenty years ago. We also have a vast wealth of information and education at our fingertips. Say what you want about Jim Cramer but when he says, “Bulls make money, bears make money, and pigs get slaughtered,” he is exactly right. As long as you have a plan your investments will make money.
David Huzzard Writes 