# Owning Real Estate VS Other Investments - Stock Bonds etc.



## Berubeland (Sep 6, 2009)

I'm not sure why but there seems to be a trend for people lately to be absolute in their investments. Funnily enough I'm not sure there's a rule that says if you invest in real estate you may not also invest in stocks or bonds. There is no rule that says this. Yet over and over I hear people say that stocks are bad and real estate is guaranteed. 

Most of the successful investors I have known are very financially literate and very comfortable with both kinds of investing. Real estate is simply another vehicle for turning money into more money. One is not better than the other, each kind of investing has advantages and disadvantages.

In all cases buying at the top can erode returns for years to come. The price you pay and when has more to do with amount of return than any other factor. Yet both tops and bottoms are impossible to predict with any degree of accuracy. The best one can say is that an asset seems overbought or oversold. In the case of income producing real estate calculation can predict with a fair degree of accuracy what the return will be unless you are using a more sophisticated and unpredictable technique such as subdividing or severing lots or rehabilitating property etc. 

On the other hand with real estate you are much more in control of the investment than stocks. You get to pick where it is, who you rent it to, what improvements you make. You have the opportunity to add value by leveraging your own skills and judgement. You can add sweat equity. It will take time to "manage" this. If you have extra time it can be a very worthwhile "hobby" If you make good decisions it can work out very well, if you make bad ones...well it's not pretty. 

With stocks you have no control but it takes virtually no time. You only control when you buy or when you sell. You will never get to pick the location of the next Apple store, or electronic device they manufacture. You implicitly trust the executive of the company to make better decisions that you could. You are also very unknowledgeable about the inner workings of the company. You will only find out when the scandal comes to light and you lose most of your investment. 

There are advantages and disadvantages to both methods. My experience is that good investors are good at investing and real estate is part of that. Spotting a bargain on the MLS and spotting a bargain on the TSE require many of the same skills. 

Anyways... has anyone else noticed this trend lately or is it just me? Thoughts?


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## HaroldCrump (Jun 10, 2009)

Berubeland said:


> I'm not sure why but there seems to be a trend for people lately to be absolute in their investments. Funnily enough I'm not sure there's a rule that says if you invest in real estate you may not also invest in stocks or bonds. There is no rule that says this. Yet over and over I hear people say that stocks are bad and real estate is guaranteed.


These are all classic signs of a bubble/market top.
When your cab driver talks about buying dot com stocks (or "investment properties") that is a clear signal that the said market is over-bought and due for some sort of correction or flattening at the very least.



> On the other hand with real estate you are much more in control of the investment than stocks.
> ...
> With stocks you have no control but it takes virtually no time. You only control when you buy or when you sell.


Not sure I can agree.
I find the opposite to be true.
I find myself in complete control of my stocks.
I can buy and sell when I want.
I can divide my buys and sells into chunks (tranches).
I can hedge my positions using options and/or other counter-acting positions.
I can control the tax implications.

On the other hand, an "investment property" is one big hulking piece of monolith that you can be "stuck" with.
You can't buy and sell pieces of it.
It is illiquid.
You can't hedge your risks.
etc.

I suppose to each his/her own.


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## londoncalling (Sep 17, 2011)

I agree with both of the above comments. Most people forget to calculate the time cost of being a landlord. The more you make in your real job the less being a landlord makes sense from a financial perspective. There can be personal benefits (or costs) to being a landlord as well. I think it is how you view being a landlord. I think selecting your investment and the price you pay whether real estate or equities are very similar. With real estate liquidity is definitely an issue. Berube mentions you can screen your tenants and control day to day operations. What you can't control is if a tenant chooses to vacate. Just like a shareholder can't do much if management makes some bad choices that is not necessarily shareholder friendly which can affect share price. There are definitely similarities and differences. I would agree that those that do well in selecting equities are equally suited for selecting real estate. This does not mean that these folks are equally suited to be landlords. Nor do good landlords necessarily make good stockholders(and vice versa). I do think it is important to hold real estate as part of your asset allocation. For some this is home ownership, others rental properties and others choose reits. To each their own. I do like this idea for a thread and am anxious to see others' opinions. I do not see the same amount of posts on other threads with people seeking confirmation of purchasing revenue properties. Perhaps CMF is an anomoly in this regard. I do see people thinking buying property is a great idea even at high prices. It seems that humans by nature tend to get in at peaks and run at lows. The wise investor takes the opposite approach. That being said there is money to be made (and good investments to be found) in any market. Like any investment idea... some are bad... some are good... some require much more thought.

Cheers


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## marina628 (Dec 14, 2010)

We do both and in less than 3 years we bought 4 properties for investment.RE is part of our long term retirement plan ,other than the initial down payment we do not have to pay anything but we have elected to make lump sums and extra mortgage payments.In 2016 /2017 we will have two properties paid off so we plan to purchase two more then so we have some expenses to offset the revenue or we could finish a basement each year and delay purchasing until 2019.Eventually we plan to have 10-15 single family homes for investment.


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## Sampson (Apr 3, 2009)

Berubeland said:


> Real estate is simply another vehicle for turning money into more money. One is not better than the other, each kind of investing has advantages and disadvantages.


Exactly.

I do agree, I see people taking one extreme only. I think it is a method for finding self-justification. No on wants to make the wrong decision, so they fight voraciously for the strategy they chose. After all, who wants to think that they made the wrong decision.


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## the-royal-mail (Dec 11, 2009)

What I've noticed is that the typical CMF newbie specuvestor either calls their $640K purchase a home if they're living in it, or an investment if not.

So many people are getting suckered in and falling for the trap being set by artifically low interest rates. I predict a US style housing correction once the govt is forced to start raising rates. Here in CMF we'll be reading all sorts of sob stories from these "investors" (most of whom are carrying excessive debt and have no idea how to be a good landlord) wanting advice on how to get out of their mortgage. Only at that point will they start calling it a house and looking at it in a more realistic light. They will no longer be calling it a home or an investment at that point.


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## Four Pillars (Apr 5, 2009)

Good topic. I think I'll write an article about it. 

The same issue exists with investing styles - dividend investors, active traders, tech traders, passive investors are all different styles which are not necessarily mutually exclusive, but some people certainly take negative views of investing styles (which of course could include real estate) that are different than their own.


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## kcowan (Jul 1, 2010)

Real estate is attractive because it offers a rare opportunity for high leverage for an individual. During times of high RE inflation, that can work to their favour.

What bothers me is when people underestimate the costs of vacancy, maintenance, property management, tenant screening, et al when considering an investment. Obviously this does no apply to their principle residence. So for someone to buy above their level during periods of high RE inflation may make sense, especially for people who are handy. But they often forget about ongoing costs, like the weekly trip to Canadian Tire or Home Depot, or the high cost of renting money for their mortgage.

But there is a whole industry who is paid to encourage RE investment. How can a few people on a DIY forum compensate for that? We already represent the minority who choose to manage their own investments.

IOW it will always be a problem. Plus there is the strong emotional tie to owning property.


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## blin10 (Jun 27, 2011)

back in 09 when lehmans went bankrupt and nobody knew whats going to happen, in a heart of doom and gloom when USA didn't want to sign 800bill package, when royal bank dipped to $20 a share and noone knew how strong Canadian banks are, houses around my area only lost 10% of the value... I really doubt collapse will happen, might be small correction but you never know



the-royal-mail said:


> What I've noticed is that the typical CMF newbie specuvestor either calls their $640K purchase a home if they're living in it, or an investment if not.
> 
> So many people are getting suckered in and falling for the trap being set by artifically low interest rates. *I predict a US style housing correction once the govt is forced to start raising rates.* Here in CMF we'll be reading all sorts of sob stories from these "investors" (most of whom are carrying excessive debt and have no idea how to be a good landlord) wanting advice on how to get out of their mortgage. Only at that point will they start calling it a house and looking at it in a more realistic light. They will no longer be calling it a home or an investment at that point.


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## Sampson (Apr 3, 2009)

^ +1 to kcowan's post.

People often do the same when investing in equities. You often hear, oh, people will be drinking coke forever, whether recession or not.

Well, that doesn't mean Coca-cola can continue growing their sales, and hence the value of their stock. Analysis, whether you believe in technical or fundamentals is crucial.

The danger as you point out with real estate investing IS the leverage. Easier to lose your shirt when owing hundreds of thousands of dollars. I fully agree too many people jump in without knowing what is going on.


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## crazyjackcsa (Aug 8, 2010)

Another factor would be geography. While the real estate market has been hot in a some larger urban centres, much of of the country has actually missed out on the huge real estate gains. So if you're looking to invest in real estate, you're in it for income and not for capital appreciation. An investor can really only speak to what they know, and they know they're local market best.

Time is also a factor. With two small kids, I don't have the time to handle real estate, or do indepth analysis of stocks, so I'm a passive investor that avoids real estate. If I had more time to research or manage a property, I may have gone that route.


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## marina628 (Dec 14, 2010)

the-royal-mail said:


> What I've noticed is that the typical CMF newbie specuvestor either calls their $640K purchase a home if they're living in it, or an investment if not.
> 
> So many people are getting suckered in and falling for the trap being set by artifically low interest rates. I predict a US style housing correction once the govt is forced to start raising rates. Here in CMF we'll be reading all sorts of sob stories from these "investors" (most of whom are carrying excessive debt and have no idea how to be a good landlord) wanting advice on how to get out of their mortgage. Only at that point will they start calling it a house and looking at it in a more realistic light. They will no longer be calling it a home or an investment at that point.


TRM sorry to use the quote function but Re is investment if you live in it or rent it out.Speaking from experience when I go to buy a property for investment I must put down 35% down and I must qualify for the posted 5 year rate.Back in the day people could buy as many homes as they wanted for the 5-10% down ,myself included but in past three years these issues have been addressed and the banks are tightening things up which makes it better for everyone.As long as homes don't drop 35% the investors of today won't go underwater .I know currently in USA you can still buy a 2nd home with 3% down ,I know this as my friends who live in Ann Arbor Michicgan did this in Sept 2011.
Now having said all of that I know there are still mortgage brokers who work in GTA with agents and lawyers who fake job letters and inflate purchase prices and show a bigger down payment for lending purposes but I would like to think there are more responsible people like myself and Jungle who have investment properties and have followed all the rules.

Marina


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## Cal (Jun 17, 2009)

I think that both methods are a great way to assemble a balanced portfolio. Some people are better at one than the other, or have a greater interest in one than the other, which can also influence the way in which they move forward with their investments.


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## praire_guy (Sep 8, 2011)

Four Pillars said:


> Good topic. I think I'll write an article about it.
> 
> The same issue exists with investing styles - dividend investors, active traders, tech traders, passive investors are all different styles which are not necessarily mutually exclusive, but some people certainly take negative views of investing styles (which of course could include real estate) that are different than their own.



My dad owned some rentals when I was growing up. It seemed like a lot of work. Not for me. But it works for some. 

I consider myself a dividend growth investor. I am comfortable with it, and it works for me. Index investing also works. 

I just read the dick Davis dividend. The book covers many investment strategies. 

What I took from the book was that everything works, but not everything works all the time. 

The main thing to me is to pick something you are comfortable with and stick with it. 

If you are a value investor you may feel stupid when even the cab driver is talking about the latest tends, etc. this would be the wrong time to jump ship. Stick with value because just when you want to jump ship is probably when there great bargains to be had. 

Even buffet gets criticized sometimes when markets are hot and he "misses" the boat. 

I don't criticize anything. I like my dividends. They take the edge off fluctuating stock prices. So long as the dividends roll in, and hopefully increase, price doesn't matter to me. Price matters when I want to buy. 

Others may not care for dividends and look for capital appreciation. 

Each to their own.


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## Jungle (Feb 17, 2010)

We have both a rental, stock and mutual fund portfolios. In 3-5 years I would want an exit strategy to the rental and replace it with some sort of dividend stocks, to still receive the income buy without the hassle of being a landlord. 

Or I could just pay a management company to deal with it, but they seem expensive.


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## Potato (Apr 3, 2009)

blin10 said:


> back in 09 when lehmans went bankrupt and [...] houses around my area only lost 10% of the value... I really doubt collapse will happen, might be small correction but you never know


To be precise, houses lost 10% in_ less than a year_, and then interest rates brushed up against the zero-bound. Then the decline stopped and in some areas, prices recovered. But you're free to draw your own conclusion about what that might mean for the future risks of a collapse.



Jungle said:


> In 3-5 years I would want an exit strategy to the rental


Why wait?


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## Rusty O'Toole (Feb 1, 2012)

There are several factors so called investment experts tend to overlook. One is the leverage possibilities with real estate. You can buy a house with 20% down or even 10%. So if you buy with 10% down, and real estate goes up 10%, you just doubled your money.

This was an important factor for me when I started investing because I had very little money. There is no way I could have made as much over the years, in any other investment, because of leverage.

Another factor is knowledge and control. I can use my local knowledge of my local market, and can inspect a house I want to buy, in much more detail than a stock or similar paper investment. You could probably suck me in on a phony investment like Nortel, Bre X or MF Global. A lot of very smart investors did get sucked in because those companies financial statements were fraudulent and there was no way to tell in advance. But if I look at a house with the roof caved in, there is no way for the agent to kid me.

When it comes to control, a smart investor can improve a property to his or her advantage. Something you can't do with a stock. If the management isn't doing their job you can't give them a paint job and plant some shrubbery. You are at someone else's mercy.

On the down side, real estate is not an investment per se. It is a combination of investment and business. You have to take on a lot more work and responsibility. But if you know what you are doing you can make it pay off.

I have been investing in real estate for years and wish I could quit. But nothing else I can find is as safe or has such high returns. What kills me is that when I was starting out in the seventies I was paying, 9% 10% and more on mortgage money because I didn't have any capital. Now that I have capital can I get returns like that? No way, I go to the bank and they offer 2 1/4%. What a swindle.


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## Rusty O'Toole (Feb 1, 2012)

I get a laugh when the stock market boys point out how much money you can lose in RE if you buy at the top of the market. But they never mention that you can take a bigger bath, more often, in the stock market if you buy at the top. Of course you are not supposed to buy at the top, but who knows when the top is in?

In real estate it is a lot easier to tell when properties are overpriced. Only buy rentals when you can get positive cash flow or at least break even cash flow with 100% financing. I'm not saying you have to finance out, I am saying your own invested capital deserves the same interest the bank gets.

If you follow this rule you will automatically be out of the market when it is overpriced and buying when real estate is on the bargain counter.


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## Plugging Along (Jan 3, 2011)

As said before, everyone has their own investing style and risk tolerances to what they are comfortable with. 

I have a close friend who has managed to purchase at least 8 properties in the last 6 years (possibly more, because this person is always finding deals. I have no problems with that, as they have a strategy, however, where I am totally stunned is they did all of them with 0% down with their own money through some fancy maneovering and refinancing. They are almost 100% leverage in over $1 mil. They make a lot less than us, and have had their ups and downs with job losses too in this time. I am always amazed at how well they have handled the stress and have come out ahead. For most people, I think this risk profile is way too high, but they as a couple have managed well. 

I have grown up in a family who has owned real estate, and from a very young age have had to help my parents manage their properties (they didn't speak english well). It is really hard work, but I've never been scared of that. For me, real estate is relatively low in risk for the amount leverage there is. Why? I am in it for the long term, just like my parents, and have no plans to sell ever. If my plan works out, my real estate will be passed on to my children. Sounds unlikely for some, but that's just how my family has learned. All of my siblings have real estate, and my young nephew (21) is getting into it. We have a strong family support network, so this really minimizes the risk for us. I have no exit strategy for my real estate, other than to die and pass it along. 

Could I do better in other investments? Probably. I also have cash, mutual fund, equities, and private ventures as a part of my portfolio. Each part of my portfolio serves a different purpose for various timelines. 

Real Estate - our 'legacy' to our kids and future grandkids, and if it doesn't work out, then my 'insurance' in retirement
Mutual Funds - My conservative investments for retirement
Equities - Mid term and long term funds
Private Investments - My high risk, get rich quick gambles that will accelerate the rate I reach my financial goals
Cash - Short terms stuff, and when opportunities arise. 

I don't understand why it needs to be a RE or other?


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## MoneyGal (Apr 24, 2009)

it doesn't, of course. In an odd convergence of thread topics, I am going to add that the fitness/health/weight loss/weightlifting/body composition people can also be extremely pro one method or another (and con all other methods). I'm all: whatever works, depending on what your particular goals are. I mean, I have lots of opinions - but honestly, to each their own.


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## Plugging Along (Jan 3, 2011)

Again... I think I may have said this once or twice... whatever Money Gal says is right :encouragement:


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## Four Pillars (Apr 5, 2009)

Plugging Along said:


> Again... I think I may have said this once or twice... whatever Money Gal says is right :encouragement:


+1!


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## MoneyGal (Apr 24, 2009)

Well, if you think I'm wrong, as long as you're not much over my bodyweight I will just deadlift you into a corner and then sit on you.


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## Just a Guy (Mar 27, 2012)

I personally like real estate because you can leverage your returns and this increase your profits. That being said, I believe investors should diversify. By diversify, I don't mean "a balanced portfolio of <underachieving and archiving> stocks, bonds and mutual funds", I mean stocks, bonds, real estate, businesses, etc.

I also think that true investors don't just buy something for the sake of buying, they buy a good deal in whatever they are looking at, and don't buy if the opportunity isn't there.

The one thing I don't like about real estate though is that you never really know the value of your holdings until you sell. Many people brag about their real estate gains, but until they actually have someone offer them that money, they really are just guessing. Often people read about market increases and then it goes to their heads, they inflate the value and ask too much when they try to sell.

Stocks tend to be a lot more honest. While the value isn't known until you sell as well, the daily trading gives you a better indication than real estate.


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## Rusty O'Toole (Feb 1, 2012)

MoneyGal said:


> it doesn't, of course. In an odd convergence of thread topics, I am going to add that the fitness/health/weight loss/weightlifting/body composition people can also be extremely pro one method or another (and con all other methods). I'm all: whatever works, depending on what your particular goals are. I mean, I have lots of opinions - but honestly, to each their own.


I'm with you on this. Real estate has been very good to me but I can see why it is not for everybody. I got into it because it was the only investment path open to me at the time. I have the uneasy feeling that if the internet had existed in small town Canada in 1972 I never would have bought a single rental property and would be a dedicated stock investor today.


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## Eclectic12 (Oct 20, 2010)

Rusty O'Toole said:


> There are several factors so called investment experts tend to overlook. One is the leverage possibilities with real estate. You can buy a house with 20% down or even 10%. So if you buy with 10% down, and real estate goes up 10%, you just doubled your money.
> 
> [ ... ]
> 
> ...


Possibly ... but then again, like the stock investor who buys on margin - the current price is not a gain until a sale happens (unless the rental income after expenses has doubled the money).

+1 on the combination of investment plus business. A lot of the RE positive posts lately seem to ignore there is work involved, whether it is a DIY or hiring a management company.




Rusty O'Toole said:


> I get a laugh when the stock market boys point out how much money you can lose in RE if you buy at the top of the market. But they never mention that you can take a bigger bath, more often, in the stock market if you buy at the top. Of course you are not supposed to buy at the top, but who knows when the top is in?
> 
> [ ... ]
> 
> If you follow this rule you will automatically be out of the market when it is overpriced and buying when real estate is on the bargain counter.


True ... but then again, there are those who've taken a bath on RE where the buyer passed the financial tests but then had their assets, including the house seized as part of another case against the buyer. The seller lost both the cash and the house.

Or then there's the landlord who was doing well until the local paper profiled the Hell's Angels clubhouse that opened up three doors down the street. Housing values went down and good tenants moved out quickly.


Rare occurrences - but there are many ways to take a bath in any investment.


All the more reason to be sure to learn about what one is investing in before making a big commitment. 


Cheers


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## Eclectic12 (Oct 20, 2010)

Berubeland said:


> I'm not sure why but there seems to be a trend for people lately to be absolute in their investments. Funnily enough I'm not sure there's a rule that says if you invest in real estate you may not also invest in stocks or bonds. There is no rule that says this. Yet over and over I hear people say that stocks are bad and real estate is guaranteed.
> 
> Most of the successful investors I have known are very financially literate and very comfortable with both kinds of investing. Real estate is simply another vehicle for turning money into more money. One is not better than the other, each kind of investing has advantages and disadvantages.
> 
> ...


I'm wondering if this is more of CMF coming to the attention of the latest round of "one investment type only" investors. Since it conflicts with their investment of choice, they are jumping in to say their view.

My dad was a classic example of sticking to a few things. Twenty years ago, he was comfortable with GICs, bank accounts, gov't bonds or RE. I can remember him telling the credit union rep who suggested he learn about other options "thanks but give me what I asked for". Years later when rates had dropped so low that he was willing to risk a bit in other investments, he saw results he wasn't expecting and was upset that "no one told me there were other options".

So from my observation - it's an old trend that a new crop of investors are recycling.


To me, RE is another tool in the investor's toolbox - whether it fits depends on the opportunity and the investor.



Cheers


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## Just a Guy (Mar 27, 2012)

One should also remember that investing, done right, is work. It takes a lot of time to learn a certain technique. Most people are lazy, so once they learn one method they may be reluctant to learn a different one.

Even though I invest in real estate, stocks, and businesses, I don't invest in all the different ways I could in those areas. With real estate there is commercial, residential, multi family, buy and flip, pre sales, foreclosures, joint ventures, assignments, etc., etc... Stocks are worse, businesses, don't get me started...

No one can possibly know enough to invest in everything fully...pick your battle and be good at it, don't try to do everything or you'll wind up in trouble.


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## Causalien (Apr 4, 2009)

RE rentals provides steady income for when investment tanks (for they will). It removes the panic selling mentality because your cash flow is still positive. It's all about providing an environment where you can act logically. However... if you are knee deep in mortgage and the house is draining cash flow, that'll be the opposite effect of owning a rental.


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## Rusty O'Toole (Feb 1, 2012)

Berubeland said:


> I'm not sure why but there seems to be a trend for people lately to be absolute in their investments. Funnily enough I'm not sure there's a rule that says if you invest in real estate you may not also invest in stocks or bonds. There is no rule that says this. Yet over and over I hear people say that stocks are bad and real estate is guaranteed.
> 
> Most of the successful investors I have known are very financially literate and very comfortable with both kinds of investing. Real estate is simply another vehicle for turning money into more money. One is not better than the other, each kind of investing has advantages and disadvantages.
> 
> ...


Very true but there is nothing new about it. When I first took an interest in investing in the late sixties I read all the books at the local library on the subject. There were about six of them, all about stocks and bonds, every one was dead set against real estate or disparaging and dismissive, if they mentioned it at all.

I got into real estate investing anyway. In fact I didn't read a book on real estate, didn't know any existed, for the first 3 or 4 years.

It is still true, stock experts hate real estate and real estate experts hate the stock market. I don't know why. I do know they take different personality types, and it takes a lot of work and experience to do well in either. So there must not be many people who truly understand both.


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