I hope this is not another boring RE versus Stock comparison

Let's look at a dividend yielding stock holding and a slowly paid off house over the same period of time, say, 20 years. We should take upfront leverage cost and cash flow.

Let's say I borrowed 500K to split investing in 1 townhouse and 1 condo. My upfront cost is 10% down which is 50K. Location is NYC suburb or DC suburb to assume a consistent double over decade. My carrying cost is offset by rental income so, it's insignificant cost amount.

From house: Over 20 years, mortgage is paid down from 450K to about 200K balance. The value of the house will rise to 1500K (3 multiple, which is conservative considering that every 10 it should double). By end of 20th year, your total equity will be 1500 - 200 = 1300K. Your income should be about $3000/month (after paying remaining mortgage interest and tax). Assuming that on year 1st, you have even cash flow = 0/month income. Summary:

Year 1st: 50K equity, 0/month income (ignore tax benefit and depreciation etc), carrying cost: 0 due to even cash flow. Leverage: 450K

Year 20th: 1200K equity, 3000/month (36K annual) income, carrying cost 0.
Let's also assume that you have 500K in cash and put that into a good safe dividend yielding stock holding or a portfolio of stock holdings. Assume a 12% long term annual appreciation over 20 year. Please, it's 500K cash, because it's hard to borrow 500K as leverage from any banks.

Now, let's assume you have 500K in cash, putting that into a stock portfolio with combined capital gain and dividend of 12% long term average annual growth rate.

year 1st: 500K stock portfolio position. 12% annual return (with dividend included). Leverage: 0

Year 20th: 4820K equity (with assumed 12% return dividend included). Income: 12% = 500K annual.

Conclusion from numbers alone: if 12% return is guaranteed or realistic, stock market returns far better than RE market. However the sticky issue in real life cast some clouds over this:

1) Do you have 500K today in cash? If you do, you are pretty good already. If you don't, then borrowing such a big sum is very hard from our banking system.

2) Can we have self discipline to consistently choose a good portfolio that guarantee 12%? Not impossible, but over 20 years with such consistency, it's very hard. It may be better to use index fund and such.

3) Even if we found such good portfolio. The very advantage of easy liguidity may cast a personal shadow on ourself. Can we resist outside temptation to not withdraw too early, screwing up the long term return rate? The illiquity of real estate forced us from withdrawing our funds.

Final conclusion: We need to do both RE and stock. They don't conflict with each other, they only super-charge each other. The benefit of being able to leverage without heavy carrying cost is definitely something our middle class should not easily give up. Of course, we also need to invest as much in 401k as possible to reap the long term benefit from stock market. If you have extra cash for regular account, the better. That's what I am doing and will continue to do. By the way, due to my incapability to predict stock market, I don't trade individual stocks, I only invest in mutual funds. In my spare time, I focus on real estate.

所有跟帖： 

• Ding first, read later. -JR98- ♂ (0 bytes) () 10/12/2007 postreply 10:23:02

• 嗯，这个不像半年前的老M兄哦？“we also need to invest -抛玉引砖- ♂ (160 bytes) () 10/12/2007 postreply 10:42:53

• No I haven't changed. But I have to admit stock market -miat42- ♂ (205 bytes) () 10/12/2007 postreply 11:00:08

• 还是有些想不到，俺还以为你和石头阿贝一样痛恨401k -抛玉引砖- ♂ (0 bytes) () 10/12/2007 postreply 11:13:40

• 冤枉、、、、俺也没说过痛恨401k啊。 -小小石头- ♂ (0 bytes) () 10/12/2007 postreply 11:19:17

• 狮S胜于熊便！您老人家坦白过只存有无限少401K, 阿贝猜 -抛玉引砖- ♂ (28 bytes) () 10/12/2007 postreply 11:25:44

• 不可以没嘛泥了...~_~... -小小石头- ♂ (0 bytes) () 10/12/2007 postreply 11:54:48

• :)))回复：狮S胜于熊便！您老人家坦白过只存有无限少401K, 阿贝猜 -tafa- ♂ (0 bytes) () 10/12/2007 postreply 11:55:32

• where else can he get cash to fight off the credit crunch? -tafa- ♂ (51 bytes) () 10/12/2007 postreply 11:53:54

• Credit crunch has no effect to case with good cashflow -miat42- ♂ (158 bytes) () 10/12/2007 postreply 12:21:15

• no need to refinance? I thought many have ARM for max levegage回复 -tafa- ♂ (0 bytes) () 10/12/2007 postreply 13:06:10

• For longterm safety, ARM is a no no. -miat42- ♂ (0 bytes) () 10/12/2007 postreply 13:28:34

• Northern CA ppl have different view for ARM, I can't -miat42- ♂ (21 bytes) () 10/12/2007 postreply 13:29:52

• Key is #1,leveraged Capital with low interest rate -SZHOU888- ♂ (367 bytes) () 10/12/2007 postreply 12:50:42