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If you had to give an elevator speech about investing in real estate versus investing in the stock market, could you?
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Many investors compare and contrast real estate vs. stock. Here, Simon shares his experiences in a conversation about how the two different investment avenues stack up against each other.
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Where the Business Conversation Begins
If you had to give an elevator speech about investing in real estate versus investing in the stock market, could you?
Simon S. Mass
CEO, The Condo Store
Of course
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The floor is yours...
Simon S. Mass
CEO, The Condo Store
OK, for this comparison I will use a low-cost S&P 500 fund and a $600k family rental property. Let’s begin and please remember we always advise to have a balanced approach to investing.
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Let’s start with the basics of getting in.
Simon S. Mass
CEO, The Condo Store
OK, if you buy a $600k rental property with 20% down (it would be less with our firm’s program but we’ll use the numbers off the street) you will need to invest $120k plus $10-15k in closing costs so let’s go with $135,000. If you invest into the stock market at $135,000 you will not need to lift a finger again and get up to 8% returns annually.
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Well, that certainly sounds like a good thing.
Simon S. Mass
CEO, The Condo Store
Sure is. Now, when you look at the real estate investment you will have a monthly payment of approximately $2,000 and you will rent the place for $2,500…minus maintenance, capex etc you are cashflowing $250 per month, for a return of 4% annually.
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OK then, that makes the case for the fund, 8 is higher than 4.
Simon S. Mass
CEO, The Condo Store
It is, but we aren’t done. Let’s talk about loan pay down…Every time you pay the mortgage, $450 of that payment is principal pay down. That’s another 8% on your $135K down payment.
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Oh.
Simon S. Mass
CEO, The Condo Store
And we haven’t even touched on the most important and valuable part yet.
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What’s that?
Simon S. Mass
CEO, The Condo Store
Appreciation. Real estate in our area has historically appreciated 6-10% annually. This percentage is added to the entire $600K purchase. That’s $60k - $100k in year one, and even more on your down payment (approximately 13%).
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Can we recap?
Simon S. Mass
CEO, The Condo Store
Sure. The index fund = 8% return. Real Estate: *4% from cashflow *8% from principal paydown *13% from appreciation = 25% total projected return.
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Well that seems fairly straight forward, is there any more?
Simon S. Mass
CEO, The Condo Store
Actually yes, there is = tax breaks. Tax laws are weighted in favor of real estate. Due to deductions for property taxes, interest, maintenance, and depreciation, the vast majority for that 25% return is not taxable. With the right strategy, you may NEVER pay taxes on these gains (consult your CPA)
LinkedIn News
Where the Business Conversation Begins
I can see why you are so heavily into real estate.
Simon S. Mass
CEO, The Condo Store
And, this is a simplified explanation, the numbers are substantially more impressive when you consider my firm negotiates for our clients to need lower down payments on pre-construction investment properties (5-10% only), you can add even more to the numbers above.
LinkedIn News
Where the Business Conversation Begins
While the hands-off approach from stock investing may seem appealing, real estate investing has much more upside.
Many investors compare and contrast real estate vs. stock. Here, Simon shares his experiences in a conversation about how the two different investment avenues stack up against each other.
LinkedIn News
Where the Business Conversation Begins
If you had to give an elevator speech about investing in real estate versus investing in the stock market, could you?
Simon S. Mass
CEO, The Condo Store
Of course
LinkedIn News
Where the Business Conversation Begins
The floor is yours...
Simon S. Mass
CEO, The Condo Store
OK, for this comparison I will use a low-cost S&P 500 fund and a $600k family rental property. Let’s begin and please remember we always advise to have a balanced approach to investing.
LinkedIn News
Where the Business Conversation Begins
Let’s start with the basics of getting in.
Simon S. Mass
CEO, The Condo Store
OK, if you buy a $600k rental property with 20% down (it would be less with our firm’s program but we’ll use the numbers off the street) you will need to invest $120k plus $10-15k in closing costs so let’s go with $135,000. If you invest into the stock market at $135,000 you will not need to lift a finger again and get up to 8% returns annually.
LinkedIn News
Where the Business Conversation Begins
Well, that certainly sounds like a good thing.
Simon S. Mass
CEO, The Condo Store
Sure is. Now, when you look at the real estate investment you will have a monthly payment of approximately $2,000 and you will rent the place for $2,500…minus maintenance, capex etc you are cashflowing $250 per month, for a return of 4% annually.
LinkedIn News
Where the Business Conversation Begins
OK then, that makes the case for the fund, 8 is higher than 4.
Simon S. Mass
CEO, The Condo Store
It is, but we aren’t done. Let’s talk about loan pay down…Every time you pay the mortgage, $450 of that payment is principal pay down. That’s another 8% on your $135K down payment.
LinkedIn News
Where the Business Conversation Begins
Oh.
Simon S. Mass
CEO, The Condo Store
And we haven’t even touched on the most important and valuable part yet.
LinkedIn News
Where the Business Conversation Begins
What’s that?
Simon S. Mass
CEO, The Condo Store
Appreciation. Real estate in our area has historically appreciated 6-10% annually. This percentage is added to the entire $600K purchase. That’s $60k - $100k in year one, and even more on your down payment (approximately 13%).
LinkedIn News
Where the Business Conversation Begins
Can we recap?
Simon S. Mass
CEO, The Condo Store
Sure. The index fund = 8% return. Real Estate: *4% from cashflow *8% from principal paydown *13% from appreciation = 25% total projected return.
LinkedIn News
Where the Business Conversation Begins
Well that seems fairly straight forward, is there any more?
Simon S. Mass
CEO, The Condo Store
Actually yes, there is = tax breaks. Tax laws are weighted in favor of real estate. Due to deductions for property taxes, interest, maintenance, and depreciation, the vast majority for that 25% return is not taxable. With the right strategy, you may NEVER pay taxes on these gains (consult your CPA)
LinkedIn News
Where the Business Conversation Begins
I can see why you are so heavily into real estate.
Simon S. Mass
CEO, The Condo Store
And, this is a simplified explanation, the numbers are substantially more impressive when you consider my firm negotiates for our clients to need lower down payments on pre-construction investment properties (5-10% only), you can add even more to the numbers above.
LinkedIn News
Where the Business Conversation Begins
While the hands-off approach from stock investing may seem appealing, real estate investing has much more upside.
CREATING REAL ESTATE MILLIONAIRES
ONE CLIENT AT A TIME
The Condo Store Realty Inc. (Brokerage)
171 East Liberty Street, Suite 101
Toronto, ON M6K 3P6 CANADA
Tel: 1.416.533.5888
Email: office@condostorecanada.com
CREATING REAL ESTATE MILLIONAIRES
ONE CLIENT AT A TIME
The Condo Store Realty Inc. (Brokerage)
171 East Liberty Street, Suite 101
Toronto, ON M6K 3P6 CANADA
Tel: 1.416.533.5888
Email: office@condostorecanada.com
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