Stock Investing vs. Real Estate Investing

[Robbm14]

Starting off this question I am going to explain some backroung information. I am 20 years old and I had to leave the Univesity of Alabama last year because of medical problems. I also ended up having to take off the first semester of this year so I have a ton of time on my hands. I decided that it would be perfect to figure out what I would like to do for a career. I narrowed it down to either be in Real Estate or Stock Investing. My dad and I were talking the other night and we thought it would be interesting to get some other peoples' opinions.

Something to keep in mind, if I do enough research and can create a plan for a portfolio, I could be given a decent amount of money to invest in stock. Which is a great opportunity to have.

So I guess the things I can ask off the top of my head are:

1. Anyone in either profession recommend one or the other? and for any specific reason?

2. With the current economy, which do you think would be better in about 4-5 years when I would be graduating?

3. What are some recommended majors for both?

4. Based on which you think is a better career path, what are some tips, advice, or things I should be doing right now to prepare since I have an entire semester to study up!

Keep in mind that I do not know much about either, although I have done some research in both. I would love to do either of those professions, I just need to get some advice to help me lean towards one or the other.

Thanks!

-Robert

[tabo603]

Well Rob, I think you need to first identify what you're looking to get out of your investment.

Two Things:
1. Capital Gains
2. Cash Flow

If your objective is to be a flipper and invest for the short term capital gains, then I suggest investing in stocks, more specifically OPTIONS. If you're going to get into the stock market, you must absolutely look into options because, contrary to popular belief, they are safer, not riskier, than stocks if you KNOW HOW TO USE THEM CORRECTLY. Think of them as insurance for your stocks. If you invest for capital gains I would not suggest getting into real estate mainly because it's a bad investment for people like us who are just starting out. 4 years ago maybe, but not now.

If your objective is cash flow, then you should definitely invest in real estate. Stock dividends don't pay out nearly as much as real estate rents would if you invest correctly. The average "solid" dividends out there for stocks are probably in the range of 4-6% annually which is very low compared to the renting opportunities there are in real estate. If you invest correctly in real estate, you could recover all your money in two or three years. That's a 33%-50% ROI.

With regards to the economy, first let me say that this is my favorite subject. I am an avid student of the economy and follow it with a passion. Given all that I have studied, I don't think the economy will improve much over the next 5 years. I believe a large contributor to this is the government. Not to get into politics but the fact of the matter is that, historically speaking, the more interventionist the government gets, the longer it is going to take for the economy to get better. Don't count on the government or the economy to get better for you to start making money. Regardless of what the economy does, we as entrepreneurs will find a way to make a profit.

So to reiterate:
Cash Flow: Real Estate
Capital Gains: Stock Options

Best Regards,
Luis Nakamoto

[GlobalWealth]

Both. It will depend on market conditions. Right now it is probably better to be in RE than stocks. From a contrian perspective, buy an asset when everyone else hates it and sell it when everyone else loves it. Right now everyone hates RE and loves stocks.

[DerekS]

I agree that both should be explored, as any smart investor should be diversified. I don't know too much about the markets, so I can't weigh in too much in that arena.

The main issue with real estate is the higher initial cost of entry. Between downpayments, closing costs, carrying costs, and a maintenance/rehab budget- most people are simply incapable of getting the ball rolling without some cash or a lot of leverage. Tabo also has a good point, but I think the question of cash flow vs. equity gains can be applied to real estate. Do you want to flip houses? Do you want to own rental properties? What do you see yourself doing in the RE field, and will your market sustain it?

Obviously, you'll need to choos one over the other when it comes to picking a career. You can be trader who also invests in real estate, or you can be a real estate investor who also has some money in the markets. More likely than not, you're going to focus more of your energy on one of the two. The question is- which industry speaks to you more?

In either case, finance is a great major. I was a marketing major, which definitely helped me understand the psychology of buyers and sellers, but I find myself seeking out my finance smart friends to help me with models and metrics. The numbers are key, and a finance major applies to both industries, so I always recommend a good background in the subject.

[Robbm14]

Well first off, let me say thanks for the great responses!

In response to Tabo:

I would probably go with stock for the capital gains because I would be looking to find those stocks that i could make huge profits off of in a shorter amount of time. I know that sounds like a pipe dream cause who doesn't strive for that right? Also, lets say the market doesn't really improve much over the next five years, I would think if that were the case, then stock would be a better path for me.

In response to Derek:

I also am turned away from real estate because it seems like it would be really hard to get going because money is needed. Although it would be hard to get started, it seems like once you got things going, it would be easier to expand and eventually a more promising income. I know several very wealthy people that are involved in real estate and they all are in the real estate development field. So real estate development would be what area I would want to do. I think if I were to say which industry I think I am leaning towards, it would be stock investing.

I really feel like my opportunity with stock is one I should take advantage of. I wasn't going to say, but the amount I would be given would be $10,000, which is a lot of money for someone my age. That is enough to get me started when I am ready and could build my portfolio and bankroll while in school.

Something else I should explain is that when I say stock investing, I mean doing my own portfolio to make money. I don't want to work for someone else, I want to be my own boss and work on my own hours. I have always been that way.

Thanks again for the great advice and keep it coming!

-Robert

EDIT: Also, I forgot to ask...I have to get a fulltime job for the semester, and I would like to do something that could give me even a little experience or something that would be good for either of those fields. So does anyone have any ideas on some jobs that people my age could do out of highschool? I'm not sure if there even is anything, I was just wondering. Maybe I should try to look into some internships?

[ernest1918]

I think that real estate can have more of a financial gain in the long term of course....and I guess you are unemployed which wouldnt help you get a FHA loan but with FHA loans you need 3.5 % down and a job that you would be able to pay the monthly payments. Personally right now, I am looking to buy a house with FHA. Pay the 3.5% plus closing cost and then rent it out immediately..that means im looking for move in condition homes. Each year I could make atleast a 5k profit with that in mind in say 6 years I can resell the house and hopefully get a good amount back on what I paid say like 40K....of course that is if the market comes back up I'm an econ major and they say whatever goes down must come up...

[NikeMikey]

~I Daytrade for a living and i love it and its fun!(to me) Stock Market can make you Millions/Billions but keep in mind you can also lose it as well. Real Estate is to slow!! Plus if the economy goes to shit again you are screwed in real estate but in the stock market you can still make lots of money!
~School is pointless if your going to trade the market JMO!

[DerekS]

The markets took a huge dump in '09 too. In either case, you need to see what personally works for you, though diversification is essential to long term survival.

[BusinessAdviser]

Real estate is where it's at down the road. For beginners, stocks are a good option, due to the low cost of entry. However, studies show that day traders perform worse than long-term investors.

[NikeMikey]

There is no answer! You could have a horseshoe and pick stocks that have 1000% gains.

[kameron]

i suggest trying internet marketing its the only investment that u can actually control buy putting in hard work to determine the outcome of your money and your investment because it is your business. I am currently working directly with Micheal Force. if u would be interested in starting a home business usiong the carbon copy PRO marketing platform or if u have any questions or if u would like to know some more just shoot me an e-mail

[SirLucius]

Robert,

When you say "stock market investing" I'm under the impression you're not going to be investing for the long term, meaning 10+ years. What you may have in mind instead is short term stock trading whether it be day trading or short term investing (anything less than 10 years). While you may be able to make money in foreign exchange trading, I wouldn't advise you to try your hand at investing in stocks in the short term as a way to make your living. No ONE and I mean, NO ONE, wins by trying to time the market and investing in individual stocks. At best you'll have a good run for a few weeks, months, or even years, but you will get burned and lose everything.

If Wall Street firms hire the smartest and brightest minds from top schools as well as mathematical geniuses, and they mange mutual funds that lose money consistently, why do you think you'll fair better? Consider they have entire teams of researchers and access to corporate executives as well. They often tour the factories and companies and understand these industries inside and out, yet they still manage to lose money investing other people's money. Not to mention sophisticated financial models and computer systems that do electronic trading. Goldman Sachs (check for article on Wall Street Journal) has a computer platform that executes trades at fractions of a second, before these trades even get to your Level II quote machine.

For the average joe, stock investing is about asset allocation and diversifying your portfolio and holding onto you investments for the long term. You purchase the same amount of stocks every month to dollar cost average. Check out this informative post that speaks about the dangers of what you may be attempting to do. For us stock market investing is boring and nothing to talk about. Meaning, you invest in index funds or a life cycle fund, you put your money in consistently every month or week, and that's it. I guarantee you this "boring" strategy over 20-30 years will beat anybody who actively trades.

Real estate is probably the better of the two. At least its a tangible asset and you can leverage your real estate to purchase more. There is a lot to learn about real estate investing, I would recommend you join a local real estate investment club for six months before doing any deal.

My two cents,