Real Estate Is For Chumps

17Jun08

Some supply chain jock may be dropping their jaws right now, but I had to say it. If you’re young and investing in the long term (at least 5-7 years) flipping houses and property will not make you rich unless you already have a lot of money to begin with.

CNN Money has a great article that pits the stock market against real estate. It’s an easy read and I seriously suggest you get educated before you decide to put your money into real estate

Stocks Earn More

Between 1978 to 2004 stocks delivered whopping 4.8% better return than real estate. Imagine buying the S&P500 and holding it (like Warren Buffett for all you chumps who think they can beat The Man himself). You could be sitting on a cash cow.

Stocks Have Less Fee’s

The only fee’s you pay in the market are ER’s and trading fees, with real estate processing, insurance, appraisals, broker fees, etc. will end up costing you up to 10% of the purchase price. That 10% can be better invested in the market or a short-term goal.

Stocks Are Easy to Manage

Investing in the market is effortless. You can do it on the internet, or even your cell-phone these days. Real estate requires you to maintain your property meaning time, and money. Investing in the market lets you focus on your real job which amasses to how much you’ll be able to invest, be it the market or real estate.

Stocks Are Easy To Diversify

You can diversify with the market. Buy international, small-caps whatever you want. Real estate is limited to geographical locations only. If you have a lot of money to buy properties all over the world you can be diversified but how many college grads can even afford an apartment let alone a beach house in Greece?

A House Is Not An Investment

A house is your home. Treat it that way. If you buy a house, you’ll be living in it and it will bring you a sense of accomplishment and personal satisfaction. If you want to make money, get a job – that is your main source of income, and plan for the long-term by investing in stocks.

Invest in REIT’s

So how do you get a piece of the “real estate” pie without buying property? Invest in an REIT. You are pretty much buying a fund that invests in construction and lending companies that enable the housing/property market. It also has a low correlation with the stock market meaning it diversifies your portfolio. When the real estate market is good, the REIT will be good. You basically get a piece of the action without all the fee’s and headaches of managing a real estate property.

Next time one of your “business major” chumps asks you to invest in real estate with them. Tell them to find a job. I hear Abercrombie & Fitch needs a store manager. The stock market is here to stay.

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