An analysis:

Recently, an article in Money Magazine has rekindled the old "Real Estate vs. Stock Market" debate. It declares stocks to be the clear winner. I think they're wrong. It seems to me that their comparison is not really "Real Estate Investment vs. Stocks," but "Home Ownership vs. Stocks." There are a zillion different ways to invest in real estate and home ownership doesn't give all of the same benefits that some others give. Let's go over the categories the article used to judge the competition, but this time let's consider a different real estate investment -  My specialty, apartments (in particular 1-4 residential income properties)

#1. Performance

The article gave this category to stocks, stating that stocks have appreciated more than real estate over the long haul. Maybe it has. But that is all that stocks have; appreciation, and maybe some pittance of a yearly distribution. Though the historical average of appreciation in California (going back to the 1950's) is and average of 9% appreciation year over year (and this is on the full value of the property, not your leveraged investment).
Real estate offers much more than just appreciation as a return. If you purchase wisely, you will also have cash flow. That adds to your return.
But that's not all. You are also gaining equity. Not just that equity from appreciation, but from the pay down of your loan. And you're not even paying it. Your tenants are.
There are also tax benefits that put additional new found cash in your pocket, but in the article, it's treated as a separate category.
So even if you leave out the tax benefits, real estate still gets appreciation + cash flow + equity build up. Exactly what kind of ROI or performance that translates to varies depending on the property, but 15% or more IS common (and expected).

#3. Costs

Commissions can be the biggest issue in this category. Commission costs can be huge. But they don't have to be. Commissions are negotiable. An important way to look at it is that those costs are rolled into the loan, which your tenants pay off for you anyway. And remember, buyers never pay the commission and most highly successful long term RE investors rarely sell.
Money Magazine even mentions standard expenses, such as advertising and evictions as costs. True, they do cost money, but they also should have been budgeted for when you bought the property, and thus they would come out of income from the property (once again: your tenants pay for it). Does that mean an investor might sometime have to come up with some cash out of pocket? Sure, sometimes things happen. But it doesn?t have to be nearly as dire as the article would have you believe.

#4. Taxes

The article names real estate as being better.
One thing I would like to mention is that the article brings up the capital gains tax when you sell your investment property. If you are just "moving up" to a larger investment property, you can defer those taxes via a 1031 exchange. A 1031 means you don't have to pay the taxes until you sell the property that you exchanged into, unless you do another 1031 at that time.
There's actually a lot to this that I don't have space to go into right now, but the point is this; if you are planning on keeping the real estate until you die, you will never have to pay those taxes. Your tenants will continue to give you money for your retirement. When you pass on, your heirs will inherit the property on a "stepped up" basis, meaning they don't have to pay the capital gains tax, either.

#5. Transparency

The article states that neither real estate nor stocks are better or worse as far a transparency goes. Basically, that means how well you can see exactly what you're getting into. I would argue differently.
Every real estate transaction has a due diligence period in which you are allowed, at no risk, to thoroughly investigate all claims and all facets of the property. It makes no difference what the 'owner' says to you; you have the opportunity to substantiate EVERYTHING before buying. We all know the recent horror stories of mutual fund managers and corporate CEO's cooking the books and lying about the financials. Savvy professional investigators missed the lies.  Every investment I have ever bought or sold offered my clients and me the time needed to know EXACTLY what we were getting into.
How many stocks can you buy with a contract that locks up the stock in your name and gives you 10-45 days to do your research before you buy?
You just need to make sure you do all the research necessary before you get in to any investment.

#6. Effort

I agree that buying and owning stocks requires less effort. They are super easy to own. You just buy them and hope for the best.
Yes, there is more effort in real estate, but that effort should directly translate into greater profits for you.  
Property managers do hurt your bottom line but a good one can make RE ownership virtually trouble free.

#7. Volatility

I agree with the article that real estate is less volatile than stock, especially the real estate where people have to live, like apartments and houses.  The recent down turn in RE prices has hurt over all values but anyone who purchased with the proper guidelines has the tenant income to pay their bills and thus the ability to weather this temporary price drop.

#8. Diversification

The article starts this category with, "Mama told you not to put all your eggs in one basket."
Well, Andrew Carnegie said, "Concentrate your energies, your thoughts and your capital. The wise man puts all his eggs in one basket and watches the basket."
Now, I don't know this for certain, but I'm pretty sure Andrew Carnegie did better financially than Mama.
I think the reason we hear so much about diversification is because diversification is the only reasonable way to make stock investments safer. With real estate, your own skill in negotiation, property management, or even maintenance can make a huge difference.
And you can do something about your own skill set.

Conclusion

Does all of this mean that you should never invest in stock or that you should rush out and buy some real estate? No. Wherever you invest, you need to know the pros and cons. You need to take a look at your situation and see what works for you.
Hopefully you understand there is a little more to "Real Estate" than just owning a house and hoping it goes up in price. It IS terrific investment.

Good luck in whatever investment you choose to make. If you want more information about how to get that 15% ++ return, year after year, call Dana Lopez for a free consultation.  707-225-1844

Great News!!!
 
Call Dana Lopez  or any BRiX agents for more infomation and for a list of properties that qualify under this new program.

FANNIE MAE INCREASES THE NUMBER OF FINANCED INVESTMENT PROPERTIES BACK TO 10

Fannie Mae makes an announcement today to raise the number of financed investment properties back to ten. Since October of 2008, Fannie Mae had lowered the number of financed investment properties a borrower could have to three. Starting again March 1st, 2009, the limit will go back up to 10 properties.

This is BIG news to the real estate investor. I think we all knew that going down to three financed properties was too aggressive of a move. Fannie Mae sites it's reason for the change as a means to help with the housing recovery effort. There will be however tighter guidelines and restrictions from the previous rules.

Below are the new guidelines for financed properties from number 5 thru 10:
* The minimum credit score goes to 720
* 75% LTV for a Purchase and 70% LTV on a Limited Cash Out for 1 unit properties
* 70% LTV for a Purchase or Limited Cash out on 2-4 unit properties
* No Bankruptcies or Foreclosures for 7 years
* No deliquencies within the last 12 months on any mortgages
* In order to count the rental income from other rental properties the investor has, a two year look back is required from the borrowers Federal income tax returns.

* 6 months reserves will be required on each investment property that you own and the subject property.