When it comes to investing, statistics show that stocks are a much more popular choice than real estate. A recent Gallup poll shows that 56 percent of adults in the US, or approximately 145 million people, own stock. The most recent stats from the US Census Bureau on real estate investing — which is investing in properties that are rented by the owner, rather than lived in — show 14.1 million individual investors. By the numbers, stocks are 10 times more popular with investors than real estate.
Based on these numbers, you might think that stocks are the better choice when it comes to investing. If you think that, you are wrong. In fact, it has been found that not even those who are investing in the stock market believe it is a better investment than real estate. Steve Davis, CEO and Founder of Total Wealth Academy, explains this with his $300,000 bet that no one is willing to take.
“I have a radio show focused on investing in rental properties that produce an income stream for their owners. One day on the show, I received a call from a listener who harassed me for my negative comments about stock market investing. Because I know real estate is a better investment, I challenged the caller to a bet,” says Davis.
“I told him that I would put $100,000 into real estate investments if he would put $100,000 into the stock market and, at the end of one year, we would see who had made the most money. Whoever lost would owe the winner $100,000. He wouldn’t take the bet. I guess he did not really believe he had the better investment.”
Over the years, Davis has continued to offer the bet to hus listeners, eventually raising the stakes to $300,000. Despite having hundreds of thousands of listeners over the last 20 years, no one has ever taken up the offer.
“The reason is that nobody in their right mind believes that the stock market gives you better returns than real estate investing,” continues Davis.
So, why is it that 10 times more people invest in stocks?
Why do more people choose to invest in the stock market than in stocks?
The primary reason that more people invest in the stock market is not related to how profitable it is, but rather how easy it is. We are busy people. We have jobs to go to, spouses to spend time with, and kids to raise. We also need to play golf, or go fishing, or whatever it is we do for enjoyment on the weekend.
Once you have an account set up with an online stockbroker, you can buy stocks instantly. When you want to sell them, you can do that instantly, too. Compared to buying real estate, investing in the stock market is exponentially easier or faster. As a result, most people take the easy road, throw money at the stock market, and hope for the best.
Why should more people choose to invest in real estate?
The primary reason that more people should invest in real estate is because it gives you more control over your investments. Investing in stocks is a gamble, although some people might disagree with that. Davis explains, “You might say that the stock market has historically provided long term investors with a 7.5 percent rate of return. I still say that you are gambling that the market will be up, and not down, when you get to retirement age. You can’t retire on a historic average. If Apple, ExxonMobil, or Procter & Gamble plummets and tanks your retirement account, there is nothing you can do about it.”
Real estate investments, on the other hand, give you a high degree of control. If your property has problems that negatively affect their resale value or the price that you can charge renters, you can fix them. Broken air conditioners can be fixed. Roof leaks can be fixed. You can’t fix the stock market. When it isn’t performing to your liking, you have to live with it.
To be fair, renters are the one component of real estate investing that you cannot control completely. If they choose to be destructive or delinquent, you can’t stop that — but you can manage it.
Your two tools for making sure that bad renters don’t have a negative impact on your real estate investing are screening and evicting. The more you find out about a potential renter before you let them sign a lease, the better. “If they don’t have several positive recommendations and aren’t making at least three times the rent, move on. If a bad one sneaks in, evict them. Rent is due on the first day of the month, late on the second, and justification for eviction on the fourth. By the way, I have never had to evict a tenant in 30 years of investing,” says Davis.
Real estate investing does take more work than stock market investing. That work, however, can pay off handsomely. When the market crashes, your stock investments can easily fail you. Your real estate investments, however, will continue to provide you with a source of income. Hopefully, this convinces you that real estate is the better investment. If you still don’t accept that, maybe you would be willing to bet on it.
