My take on Ivyli's DOW theory: Why RE makes you real money

Let me just get to the point quickly. If you don't agree or understand me, that's fine :-) At least my post can reinforce some people's concept about which is the real money maker.

With DOW's inflation adjusted 1.64% average annual return over the long term, if you consider the big up and down market swings and how people failed to conquer their psychological weaknesses, holding long term in stock portfolio is next to impossible. Yes, somebody can hold maybe 5 years, but few can hold pass 10 years, and even worse, the companies they hold may become obsolete with times and went bankrupt. Simple example, How many DotComs went belly up from 1997 to 2007? Lastly, stock doesn't offer opportunities for leveraging other people's money. Who makes real money from stock market? professional brokers and players who are skillfull enough to manipulate the market volatility or extracting transaction cost (commission) from clueless investors.

Now, real estate. It's entirely different ball game. The money you may make from RE (real estate) is exactly from pure inflation arbitrage, nothing else. A real property can serve to hold value over the long term. The value is held constant to the same buying power as that of 10 years ago by artificially inflating the sales price 10 years later. Some people view it as not able to really create value over times for the investor. However, that view is wrong. When you buy one house, you simply help yourself by preserving your money's buying power. However, if you buy more than one house, let's say 5 houses, you borrow bank's money to make gain from inflation increase, which end up in your own pocket, not bank's pockets. You leverage it by renting them out to tenants so that your total cost of operation is minimal.

In simple word, real estate is able to create values out of inflation increase with other people's money: 1) Bank's money 2) Your tenant's rental income to offset bank's interest. You, the investor, will be able to extract pure value from nothing down by owning multiple houses or properties. That's fundamentally different from playing stock market.