Stocks vs Real Estate: Why I Changed My Mind

Alright, alright, alright. Money is on my mind indeed, always. This is Financial State of Minds, and I am your gracious host, Darren Harvey, aka the Money Counselor. And this is the show where we help you get to that bag, manage that bag, and grow that bag as best as possible as we discuss financial and business literacy. Ain't to do with money, anything to do with motivation, you guys. Yes, so we're just gonna jump straight into this episode. So I want to open up this episode with a question. If you have the money, any lump sum of money, let's just say, let's start with five years. Would you invest into the stock market, or would you invest into real estate? The old age question in the world investing. These two Titans have been going at it for years, and people have been discussing it. People will continue to discuss it. But I just want you guys to ponder for a second. If you just had a lump sum of money, imagine you got a life insurance policy, maybe you end up getting a crust fund. Heck, maybe you end up winning the lottery. What would you guys invest in if you had to pick one or at least one first? So I'll give you guys my take. I used to be a real estate guy. Absolutely. I'm gonna make a single episode explaining the whole story soon, but I did house hack and I did revenue over a quarter of a million dollars over the span of 10 years. I was in one room, and over time I ended up bringing out the remainder of my house. Even at one point, I rented out my garage, and I was able to pay all my bills with just the rent money. And it was a great feeling. That was my first time getting what people call mailbox money. I would wake up on the first of the month and I would just get money into my Venmo, my Zale, which eventually would lead into my bank account. So man, it's a good feeling. Man, it's a good feeling, you guys. But I'll just be straight to the point. If I have to pick personally between stocks and real estate, I'm gonna go into stocks, baby. Yeah, I can switch sides. I'm sorry. I'm sorry for all my um real estate people, for all my house hackers, my flippers. I know you may be upset, but I've switched sides into stocks. I'll tell you why. Why would I pick stocks now? The first thing I would say, and why I tell people to invest in stocks first, if they ask me, is that it's much easier to start with. You can technically invest with as little as a penny. They're called penny stocks, as I'm sure you guys have heard. However, you can really start realistically in the SP 500, which is the index fund I typically recommend to people, and most people typically recommend. You can start with as few as a few hundred dollars getting started. Now, in the world of real estate, yes, there are creative ways to get into making money, but as far as ownership, there really isn't that many ways into getting into real estate traditionally, unless you put down a down payment. At least, bare minimum, if you're a first-time homeowner, it's gonna be a 5%, maybe as low as 3.5. But I don't even recommend that. But you can get into a home or a condo with as little as 3.5 down. Now, you guys, I live in the San Francisco Bay Area here in California. As you guys, I'm sure know, it is one of the most expensive places to live in the country. So even 3.5% of a million dollars, if I do my math correctly, is $35,000. How many people have $30,000, $35,000 lying around? Now, to be fair, there is a chunk of people who have that. However, with the stock market, you can entry level into there with as few as a few hundred dollars. And that's the first point. Stocks over real estate have an easier and lower bar of entry. And the truth is, I think it's like what 60% of Americans have a retirement fund of something. So most of you guys are already taken in part into the stock market with your 401k or for 403Bs. You already have retirement accounts and the companies, your employers that you work with incentivize you to put money in there by what is called an employer match. And I always tell people if you have an employer match, that is the first thing you should be putting your money into if you're able to invest, because it's a hundred percent ROI guaranteed. No matter if it's a 1% Mac you put in or as high as I've heard is like five or six percent match. Guaranteed ROI baby wins everything when it comes to investing. But why personally someone who did rent out their home for over a decade switch over from team real estate to team stock market? For me personally, at this point in my life, I value time and I value my bandwidth, my mental bandwidth, meaning that it's just a lot less work to maintain a stock portfolio. Anybody can maintain a stock portfolio. When people ask me, hey Darren, I got you guys make up a number. I've heard it all. $200, $500, $20, $20,000, $50,000. I've heard every single thing, you guys. Hey Darren, I have this much money and I'm thinking about investing. What should I put it in? I say the same answer every time. The SP $500. And if you don't want that, that's fine. Any index fund will work. Any index fund will work. And again, I recommend the SP 500, but there's other ones like the international index fund. But the point is that it's simple. You throw the money in there. Oh, sorry. I'll just give you guys a step. Open up a brokerage account. You've heard of them. They're called Robin Hood, they're called Fidelity, they're called Vanguard. One of those, there's tons of others more. Doesn't matter which one. I personally use Fidelity because honestly, that was what was given to me when I had my 401k offered to me, and I've been with Fidelity since. However, I do know Fidelity offers very low management rates when it comes to their index funds and stuff like that. So I have Fidelity. You open it up, you open it up on your phone, just grab your phone, make a brokerage account, and find their SP 500 fund. We'll continue to use SP 500 for this example and throw whatever money you can afford that you won't miss into that fund. And that's it. And I'm again using that for example. But if you want to do single stocks, go ahead and buy some Apple. If you want to do some other stuff, I don't care. The whole argument, my point though, is it's that simple. It's that freaking simple to invest. That's it. When it comes to buying property, oh God, it's a process. First off, the hardest part, in my opinion, is getting to down payment. Getting to down payment is probably the most challenging part. But then you have to make sure your credit score is right. So if you guys are walking around thinking you're gonna buy a house and you have a 600 credit score of 650, first off, you most likely don't have $50,000 lying around if you have a credit score of $650. But if you manage to somehow do that, you probably still couldn't qualify because your credit score is low. So you have to make sure your credit score is right. You gotta make sure you have the down payment. And the other third factor before you just even get qualified is to make sure you have a high enough income. And the formula is called the income to debt expense ratio that they use when you qualify for your loan. This episode is not about how to buy a house, but that's just the start. That's just the start. You got to have those three before you even qualify to borrow the money to invest into a house, unless you're trying to buy it outright. So that reinforces my point of the barrier entry and the simplicity that the stock market has over real estate. Now, let's just say, Darren, I'm a big baller. I got a life insurance policy, I won the lottery, I got a tremendous first check for a million dollar, whatever, some crazy way where you got a windfall of money, and you can just buy a house in cash like that. Cool. Let's just say you bought a million-dollar house out here in the Bay Area and you wanted to rent it out, and you get to just keep all that money. There's no overhead. Your tenants pay the overhead, your tenants even find the way to pay the property taxes. You just have the money like that. Well, you still are the landlord, and you still have to deal with all the headaches that come with the landlord. And you guys, I will make that episode where I explain all the headaches that can come when you directly are the landlord. That honestly, I'm gonna just tell you guys straight up. The number one reason why at this point in my personal life, I'm gonna choose stocks is I don't gotta deal with tenants. I don't gotta deal with the headache of being the landlord and owner of a property. Now, I hear what you guys are saying over there, somewhere back over there, somewhere I heard the noise, somewhere, I don't know. But I hear the noise, you guys. Darren, you can just delegate that all to property management. Darren, you can delegate it to someone you trust. Darren, you can delegate it to whoever. And that's true, you guys. I'm not gonna dismiss that. If you hire a property management individual or team, you can delegate up to 99% of that work and you don't have to worry about that. Now, at the end of the day, though, you still have to manage or oversee the property manager or the team and make sure that you're doing something right. And at the end of the day, the onus is still on you, the landlord, for owning the property. So if something goes wrong where the fire breaks out or an earthquake happens or a criminal activity happens in your house, not saying that that's common, but I'm saying that it's possible, you have to deal with that. Yes, maybe property management deals with most of it, but you're gonna have to deal with that headache indirectly or directly, no matter what. Again, I can't stress it enough. Let me just start to close it out with this point. You guys, at this point in my life, I'm 36 years old. I have a lady, I have her son that I care for, I have many other things. You guys know I'm a financial coach, I'm a speaker, I am trying to open up this nonprofit. I do a lot. I'm busy, and everybody's busy, and I'm a busy man. My time is extremely valuable, and most importantly, my mental bandwidth is extremely valuable. I simply don't want to deal with things that I don't have to deal with. That is my main reason why I would go and I have switched over to team stocks, is because it is simple. Once I throw the money, that's it. I get paid my dividends, that's it. I'm done. If I want to sell the stocks off, I get my money. And you go in the app, you sell it, that's it. If I want to borrow against my stocks, I hit up Fidelity. That's it. That's simple. It really is that simple. And I think I've named three reasons, but let me guys give you the fourth reason, and honestly, one of the most important reasons why I have switched from team real estate to team stocks. You guys, you make more money in stocks. It's that simple. You make more money in stocks, so I will give you guys a real life example. Let's just slightly tweak some things, but most of this information is really happened. The home cost $220,000. So that's it. $220,000 for a four-bed, two and a half bath, 2,000 square foot home. Now, let's just say my parents had that money and they could have bought that house in cash. And they that's it. They just lived in it. That's it. Or heck, I'll even give you the benefit of a doubt. Let's just say they had that money and they rented it out to a family. Now, at that time, mortgages were, I believe, around like $1,200 to rent, $1,100, $1,300 around there was what it cost was to rent the house in that time. Okay, but let's just keep it simple. $220,000 was the value and the cost of that house in November 1993. If you have thrown that same amount of money into the SP $500 in November of 1993, $220,000 into the SP $500, you would today have over $6,000, you guys. You heard me right. I think the exact number is anywhere between $6,100,000 to around $6,200,000. That's the amount of money that if anybody had to throw in back then, you would have that money now. Let me tell you guys something. The house is not worth one $606 million,000 now. It's not close. Now you can make the argument, well, Darren, if you had bought the house scot-free, the house would be worth a little over a million dollars. You could have made hundreds of thousands, maybe millions of dollars over if you rented out the house over due time. I hear you. I'm not saying you wouldn't be winning if you don't invest in real estate. But what I'm saying is the numbers are in. This isn't projections. This is if you had done it. You would have six million dollars over the course of 35 or 33 something years if you had invested $220,000 into the SP $500 compared to that same house. That same house would be worth around $1.3 million, or give or take, a few hundred thousand dollars. You see the difference? $1.3 million, $6 million plus? Which one would you pick? Oh, and keep in mind, you don't have to worry about overhead, utilities, the house messing up, the rooftop being worn down, all property taxes, none of that. If you live in it, you got to deal with it directly. If you're running out, your tenants might wear everything down, the carpet. I've done it all because I've been a landlord and I've fixed everything up multiple times. You didn't have to do all of that if you invested in a stock market and you would have made more money. You would have made way more freaking money. So I'm gonna wrap it up around there, you guys. But those are my reasons why I have switched from team real estate to steam team stock market. Now, I want to emphasize this very clearly. If you have done the work to be debt free, have an emergency fund, and you're investing, bro, you're winning. Congratulations. I want to give you a round of applause. You are winning. This is not about shaming people who do real estate. I did real estate for 10 plus years and I don't regret it. I revenued over a quarter million dollars, and Lord, I needed that quarter million dollars when I was getting it. There is nothing wrong with real estate. I want to make that self clear. There are a lot of people who make fabulous, fabulous careers. They've made millions upon millions of dollars investing in real estate. And salute to you guys. No problem with that. But for me personally, as a 36-year-old blind entrepreneur, speaker, all that stuff, I need something that I can manage with little to no time commitment. And that is stocks, you guys. There are other forms and investments that you can do that is essentially doesn't cost any time, but I just wanted to have this fun little discussion. And I want you guys to be thinking as, or I hope you guys are thinking about what I'm saying. And again, this is not to convince you guys to do whatever. Really, I hope you guys are just investing, period, making your money grow, period, for whatever reason. Hopefully, to leave your kids something, hopefully for you to buy that Ferrari that you want. I don't care what the reason is, as long as your money is growing and working for you, you are winning in this world of economics. Because what are the statistics? What half of America has like credit card debt. Two out of three Americans are living paycheck to paycheck, just all this financial stuff that makes it hard out there. And it is hard out here. I'm not claiming that times are easy right now, but again, just a fun little conversation. Hope you guys enjoyed. Really think about it, ponder it. What would you do? Open it up, leave it in the comment, DM me, interact. I don't care how, but what would you do? Let's just have fun. You have a million dollars. Someone just gives you a million dollar life insurance policy. I don't care how, but you got a million dollars. How would you invest it after hearing all this? Would you still be team real estate like I used to be, or would you switch sides and join us in the world of the stock market side? Either way, it's all fun. Hope you guys enjoyed this episode. Please reach out, book me for a coaching session if it's not something you're interested in. Check out financial state of minds.org, financial state of minds dot com to learn more about my services and what I do. But until then, you guys, peace, kings and queens. I am out of here.