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Investing in Real Estate vs Stocks [My Experience With Both!]

Real estate vs stocks — Which is the better investment? I hear this question quite often, and it’s something that I’ve actually been asking myself lately. I have money in both real estate and stocks, but does one yield better returns than the other? Should I be focusing more on one investment vs the other? 

In this post, I’ll analyze my personal returns in both areas to see which has performed best over the past five years – real estate or stocks. With this, I can get a clearer picture of where I should focus my energy in the future, and what percentage returns I can expect!

Real Estate vs Stocks – Summary of My Holdings

I’m currently 35 years old. I’ve been investing in the stock market since I was 23. And, I bought my first rental property at age 30.

The Stock Market

I started with single stock investing, and then quickly learned how risky that can actually be. So, I moved to mutual funds…but then realized how much money I was losing to fees! Finally, I wised up and discovered index funds – ie. funds with super low fees, typically no transaction costs, and the values just go up and down with the index (like the S&P 500).

Since probably five years ago, I’ve been investing almost exclusively through index funds that follow the S&P 500. 

Today, I’ve got over $300,000 invested.

Related: Can Your Mutual Funds Beat the Stock Market?

real estate vs stocksReal Estate

I bought my first house when I was 27 years old. I paid it off completely by age 29.

Then, my wife and I bought a rental property (with cash) when we were 30 (what can I say? We were both working, had no kids, and are both savers! What else were we going to do with all our earnings?! ;)).

We bought a 3 bedroom, 1 bath house for $81,000.

It needed new plumbing, a bunch of paint, and the floors needed to be refinished. After it was all fixed up, the total cost was $88,500.

We started renting it out in April of 2016.

Since that date, the house has appreciated in value quite substantially. Plus, we net a pretty nice rental income each year as well!

Related: 5 Reasons Index Investing is a Great Strategy for Beginners

Real Estate vs Stocks – Which Has Performed the Best?

Since 2016, I have obviously been investing in both the stock market as well as real estate. So now the big question is, “Which investment has performed the best?” 

Real Estate Performance

All in, our rental house cost us $88,500. Sure, we got it at a great price (even by West Michigan’s standards), but that’s how you’re supposed to buy real estate! If you don’t buy a deal, then you shouldn’t be buying!

The House Value

Just 5 years later, that property that initially cost us $88,500 is now worth $174,500. It has nearly doubled in value. BOOM.

The Rental Income

When we first started renting out the property, we found that we could get $1,200 a month for it. Since then, we have steadily increased the rates and charge $1,350/mo. today. 

But, with the revenue comes some expenses as well:

  • Property tax = $3,200/yr.
  • Insurance = $650/yr.
  • Misc Repair = $500/yr.

All in all, we typically net about $10,000 a year after all expenses.

Adding It All Up

After factoring in the appreciation of the home value and the incomes we received each year (after expenses), it turns out that our $88,500 investment has grown into $223,500!!

Whoa. 

Don’t believe me? Check out the proof below. This means that our real estate investment has grown at an annual rate of over 20%. Now THAT’s a solid number. And, it’s going to be a tough one for the stock market to beat…

real estate vs stocks - real estate returns

Stock Market Performance

Let’s say that instead of buying a rental house, we decided to just purchase $88,500 worth of shares in VFIAX, an S&P 500 index fund that I invest in often.

How much would that be worth today? Will it be more or less than the $223,500 that our real estate investment has yielded us? 

Check out the numbers below.

Real Estate vs Stocks - the S&P 500

As you can see, the index fund didn’t quite measure up.

It did well, but in the end it only grew by an average of 14.1% per year and ended at a net value of $171,100. 

Again, this is nothing to sneeze at! 14% is a great return in the stock market, BUT in this example it did pale in comparison to our real estate investment.

Real Estate vs Stocks – What’s My Next Move? Why?

When it comes time to invest again, the answer is pretty clear for us. We’re going to invest in real estate.

Obviously, the returns can outperform the general stock market, but we have other reasons for investing in real estate:

  • We’re currently heavy in the stock market – we need to diversify, and we’d rather do this in real estate than anywhere else
  • Depreciation – it’s pretty awesome to depreciate your asset that’s actually going up in value. Can anyone say tax savings?? 😉
  • Control – Sure, it takes a bit more work to rent out a house, but I love the fact that I can choose the rent prices, I can set criteria for my prospective tenants, and I can drive by the property once in a while to make sure it’s being taken care of.
  • Insurance – I can protect my real estate investment from catastrophic losses with home insurance. My stock holdings could tumble to 50% overnight and there’s nothing I can do about it.

And there are probably a handful of other reasons that I’m forgetting at the moment. 

The point is, real estate is a fantastic investment that can yield impressive returns. And, when the time is right (ie. when the market softens up – I predict this will happen in 2022 by the way), I plan to buy yet another single family rental house. 

What About You? What Do You Invest In? Real Estate or Stocks?

What’s your preference when it comes to real estate vs stocks? Are you 100% into one and not at all in the other? Or do you try to diversify into each like we do?

Let us know in the comments below!

Grow Rich Money

AUTHOR Derek

My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.

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