Hey guys. What's better? Stocks or real estate? Hey, guys. Toby Mathis. Today we're going to be talking about
stocks versus real estate. What's the better investment? What's your opinion on it? Last time I did a video on this,
I ended up with lots and lots
and lots of comments. It's always fun. So feel free to down below
put your comments and give your commentary.
I always enjoy it. Number one, let's talk about the growth
of assets in general. I have a real simple philosophy. Assets feed you in, liabilities bleed you. So if I ever buy anything, I need to be
seeing money put into my pocket. Otherwise it's a liability. So you look at an investment,
you want to have something that's putting money in your pocket. And we just eliminated
about 90% of the investments out there. And let me show you why I'm going to give
you kind of a visual depiction of what it looks like. But let's just say that
this is a baseline. This is a baseline of growth. You know, hey, let's just
see if we're just steady, Eddie. What we see is things like gold and your home, right? They're going to be right around in here. Gold and your home over time. This is about the growth pattern on it. It's kind of a linear curve. Digital. Digital, when you see
exponential growth is when you start getting into things
like let's just put the S&P 500, the the biggest 500 stocks
or we go up here and it's really close. They jockey for position
rental, real estate. And by the way, if I was being
fair the US dollars down here so if you're one of
those put your money under your mattress and just kind of hold it and you know
I, I'm going to be rich someday. Don't do that right. You're losing value
because of inflation's devaluing. The US dollar constantly
is the purchasing power of the US dollar. Just go chart it out someday. Just put it next to the S&P
or pick a pick a read, which is a real estate investment trust. Pick something and then compare it to gold in your home
like it's just not even close. What's the difference
between these things? Why are these guys jumping up versus something like gold
and your home being steady? And I know I just pissed off
all the gold people. I'm not saying it's not a great thing
and you shouldn't have gold. I'm going to say, yeah,
you should have some. But it's not an asset in my book. It's not paying you, it's not giving you. You can't go buy groceries with the money
that the golden kid is kicking off. It's going up in value
linearly, like it's this condition. I want to see dynamic growth
and that means we need a compounder. That's the word. So when I look at the difference
between stocks and real estate, I'm going to stay
both have the ability to have compounders. They're stocks
that are just growth stocks. Right? You buy them and you hope they go up. That's not what I'm talking about. I can't pay for the groceries with a hope and a prayer that something's going up
and I can borrow against it. But then it's going to cost me
against that growth. What I need is money. So in the stock market, the type of money
we get is something called a dividend. So that's a big one for us. And the stock market growth, if I look at the S&P 500
since its inception, if you go back like think it's like the 1920s,
the average growth rate as of what I'm sitting here
today is over 10% of that 10%. About 40% of it is the dividends. So you have to you factor in the dividends
as part of the growth. So you need a company
that is paying shareholders. And if you don't know what that means,
you've got to have to look at a company. You look at its ticker
and you look for the dividend yield. And if there is none, that means
they're not paying out a dividend. If it's you can look at their history
and make sure it's a dividend paying company,
but I'm going to take it a step further. I don't trust these companies,
these wily companies out there unless they've been doing something
for a long period of time. So I want to see a pattern of behavior of dividends for at least ten years before I'll even consider the company. And yep, I just removed myself
from all the growth stocks, so I just eliminated my ulcers. I'm sorry, but I'm looking for cash flow
and I'm just telling you which is better. We're going to get to that. It's going to end up being both and then I'm going to give you
which one is better to start with. But both stocks
and real estate can be fantastic if you identify where the compounder
is in the real estate market, its rents. So real estate generally grows
right around 4% to 5% over its history. If you look at it over a long enough
period of time, don't look. Give me the well, the last two years stuff and now we're going to look over a long time
horizon because we have to make sure
this is repeatable if we try to time things,
it just study after study shows
it's almost impossible to time markets. What you can do is you can say,
here's the best information I have based off of history and things
like that and make good decisions. But at the end of the day, the people
that are the wealthiest in this country are the ones that consistently make money
go into those two. Compounders
dividends are the equivalent of rents. And here's the trick
both dividends and rents grow as well. So if I'm owning a stock and I have a dividend
and that dividend consistently grows over time, by the way, there's
things called aristocrats and kings where the growth of dividends
has been going on for 25 years, 50 years, 60 years, year after year, the dividend grows and people are still going to say,
well, you ought to do the growth stocks. The stock grows, too. You're getting a twofer. But it's this guy here
that makes the biggest difference. So when I look at stocks, I'm
going to narrow the market down to things that have been increasing
their dividends for at least ten years. I'm going to be weighing
it more towards that 25 to 50 year. The longer period of time
you been increasing your dividends, the more I'm paying attention to you
and I'm going
to let that be one of the compounders. When I look at real estate, I don't just
buy a house and leave it vacant. I don't just buy a rental property
and say, Yeah, I hope it goes up in value. I'm just not going to rent it. No, I'm going to rent it. And those rents also increase. So I'm getting the growth of the property
and I'm getting the rents. So now that we've gotten
that out of the way, what's better? Those they're essentially equivalent. Now I have to have
an intelligent conversation with myself and what my risk
and what my liquidity looks like. Because here's the reality. Stocks are very illiquid. I could turn it into money quickly. Real estate, not so much. Right? So if I'm just going side by side, liquidity wise, it's
hard to get your money out of real estate. If I have to sell stocks, I can sell
both of them I can borrow against. By the way, people don't realize that you could do a security back
line on credit on a blue chip portfolio and borrow
about 50, 60% of that out if you need to. You have a line of credit. I do. And if I need cash
and I'm sitting on a bunch of real estate and I'm real estate rich and cash poor,
I could borrow if I need to from other assets. Or you can borrow from your real estate. If you're if you're really struggling out there
and you're like, Oh, shoot, what do I do? You could borrow against your real estate,
but it's much more difficult to get your hands on the money. It's less liquid than stocks. So if I'm starting and I have and I'm
worried about cash at all, I'm sorry. I'm giving the nod to stocks. Historically, they're both fantastic
investments. Historically,
they both can have compounders. But I'm going to give the nod to it's just
even if I like if I sell a real estate, I might be lucky to get it closed
within two weeks. More likely it's going to be 30 to 60 days
so that I can go from soup to nuts. Stocks are also cheap to buy and sell. There's not a lot of transaction costs
anymore. Fact for the most part,
I can buy shares in a company. I go to Robinhood and buy it for free and I sell it
and I have my money in two days. Real estate. I got to generally I'm
going to have transfer taxes, I'm going to have commissions. If I'm selling a property with a realtor,
I'm going to have closing costs. I'm going to have the deed. All those costs, it's
much more expensive to get rid of. I'm not saying I hate real estate. I'm saying I love real estate. But here's the downside
now. Here's a trick. You ready? Here's a hack. If I want to use the benefits of the stock
and still invest in real estate, then I do what's called a real estate
investment trust, a writ, and I can buy and sell stock my real estate,
just like a stock. I can do that. I could go into apartments,
I could go into public storage, I could go into whatever, but I can go in
and I can be involved in real estate and still get a bunch of the benefits
without having the illiquidity. Illiquidity. Let's see if I said that. Right, right
now, stocks are also cheaper to get into so I can do it with less money
than my real estate equivalent. Real estate. Generally, you're going to
have to put a lot of money in. And even these guys that say,
oh, you could buy no money down. Yeah. All right. Good luck. You could you could you could work
and hopefully you're going to find some, but it's going to take cash at some point and it's going to take quite a bit
more than if I just want to buy stocks. If I have 100 bucks, I can buy stock. If I have 100 bucks, I'm going to have a tough time. Like even if I'm a wholesaler
getting things under contract, things like that, a lot of times I'm going to have to have some money,
even if it's a small amount, I'm going have to have some money to go out
and actually invest in real estate. So I'm just I'm not knocking real estate. I'm a huge real estate investor. One of my favorite things in the world
is both of these. But I'm just saying, here's the downside. Here's the upside. It's more cash, it's slower,
harder to get in and out of. Both of them are absolutely fantastic. And if you're doing this and by the way, I'll put it like that,
there's your baseline. Hey, you can have growth on your compounders,
you can have growth on your rents. So those dividends are fantastic. By the way, from a tax angle,
since I'm a tax attorney, I'll just tell you,
dividends are taxed as long term capital gains when is qualified
dividends from U.S. companies. So for the most part,
if you're investing in these and you're getting these dividends,
they're tax advantaged, too. Like if you're making married, filing jointly, making less than 90 grand or so,
you're probably paying zero on that. So that's that's a benefit rents
another you get to take depreciation and get your rent. So you're probably not paying tax on
that either. Both are fantastic, right? From a tax standpoint,
the tax code is literally yelling at you, the universe,
hey, this is the universe calling. This is the U.S. tax code calling. Invest in both. And if I'm doing it in order of difficulty,
I'm starting with stocks. I'm buying dividend producing stocks,
I'm filling up my buckets. They're making sure
that I have nice cash flow and then I'm stepping into the real estate
world once I have some liquidity and it's not going to kill me
to carry property if I need to. If you've never been involved
in rental real estate, I say you're going to want to buy a house and get you're going to learn it,
but make sure that you have some buffer. When I get into real estate or when I get into stocks,
I don't have to have nearly the buffer and it's easier to get out of just in case
I get into some hot water or have an emergency or have a dire need,
then I'm able to do it. But if you're going to do it,
that's how I said I would start. So which is better stocks or real estate? Yes, they're both awesome. Which is better
from a use of getting into it. I'm going to start with stocks
and then I'm going to move to real estate. So all your real estate investors,
I love you and you could. How do you get ahead? I know there's people that are just like,
I hate the stock market. I hate this, I hate that. And then there's the stock people
that like I love the stock, right? I hate real estate. Do you want to actually
be exposed to both? And even if you're a stock person,
there's a way to expose yourself to real estate through the use of rates. And if you're a real estate person,
get over it. Get some stocks. Man, there's a reason most
of the wealth in this country is held. That stock market, there's a ton
there of the wealthiest people. And I think it's
the top 10% own 90% of that market. There's a reason. It's because if you do it correctly
and you're using like like Warren Buffett does, you're buying great companies that are producing cash
and you're treating it like an asset it's going to pay off over the long run
and do your grade. So good luck with that. If you think this information
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