The best investment on earth is earth. We all picture the day when we can sit on a beach far away from any cubical or traffic light. A place where we can catch some sun and sip on our favorite fruity drink as we watch the money roll in from the smart investments we made throughout our lifetimes.
At that point, you will never have to worry about money again. Your money is working hard for you, so you will never have to work hard for it. Your investments are paying for your mimosas and luxury lifestyle. Wouldn’t that be a dream?
Well, if you ever hope to make this dream a reality, you’re going to have to invest. But in the investment world, where the goal is to multiply your dollars, there are only two assets that dominate: stocks and real estate. They have long been pinned against each other, and have created trillions of dollars in returns for both classes of investors; however, the following question often arises:
Which asset is greater: stocks or real estate?
In the search for the answer, I Googled “What makes a good investment?” and found characteristics of good investments. They are:
- Safety
- Predictable outcome or guaranteed return
- In demand
- Consistent earnings or payout
- Easy to buy or sell
- Undervalued
In this blog, I want to prove to you that real estate was, is, and forever will be the greatest asset and best investment in the world.
Safety
The first characteristic of a good investment is safety. In this comparison between the two assets, it’s not even close. Real estate has long been the most durable asset by far. It’s literally as old as dirt. It was here long before us, and will be here for long after we are all gone. Land can be flooded, set on fire, and even bombed upon, but even the world’s largest bombs can’t destroy it.
Not only is it durable as all hell, but according to the United States constitution, it is our God-given right to own it. It’s your piece of the sky and earth. It’s a little spot to call your own, where no one can tell you what to do or what to wear. It’s the pinnacle of freedom and what this country was founded upon.
Stocks or equities, on the contrary, are far from safe. It’s tough to really justify its safety really! Can you name anyone, other than the Simpsons, who can predict the future or tell you if any stock will be up, down, or sideways? Nope! No one can!
Take, for example, if your grandfather had invested in one the top 500 stocks of the 1960s. These 500 companies were thought of as “one-decision stocks: buy and never sell.” However, since the 1960s, the former top 500 has experienced quite a lot of turn over. According to a Bloomberg report from March 2007, 50 years after the modern-day S&P 500 came into existence, there were only 86 original members still remaining. Your grandfather would have had a 1 in 20 chance of hitting a winner that would still be dominant today.
New data shows that companies are now moving in and out of the S&P 500 more than ever before. The truth is, your chances of picking a single winner in the market is less than 5 percent. So, how can you call an asset safe when you are not even behind the wheel? Equities are like linking your cart to someone else’s horse, where you hope that whoever is steering the horse isn’t a mad man. If he is, you have two choices: either jump off or wait until the fiery end. Steering the horse yourself is not an option; you’re just along for the ride.
Predictable Outcome
The second characteristic of a good investment is a predictable outcome or guaranteed return.
Guaranteed is a strong word; nothing is really guaranteed in life. However, something that can be predictable and almost guaranteed forever is our need for shelter. It is one of our basic needs, among food, water, and clothes. Shelter was needed in the 1720s, 1820s, 1920s, and 2020s, and will continue to be needed in the future. No technology can destroy it. Besides, real estate also holds multiple purposes; it can be used for mining and drilling, as well as industrial, warehouse, retail, and office space.
If you can predict a home’s desirability, you can almost certainly predict its return. A single-family rental home, for example, will have a predictable return because it will always have predictable demand. Whatever it rents for today is likely what it will rent for 100 years from now, adjusted for inflation, of course. If anything is predictable, it is the ability for real estate to appreciate with inflation. It has done so for almost 200 years.
Stocks, on the other hand, are far from predictable.
There is 24-hour market coverage, where the greatest economic minds from M.I.T, Yale, and Princeton argue over the direction of the market. Remember the 1990s? No one could have imagined that Walmart would ever have to bend a knee to any other retailer. But then Amazon showed up. And Amazon wasn’t the first disruptor. Walmart did it to K-Mart, Netflix did it to Blockbuster, Google did it to yahoo, Yahoo did it to AOL, and so on. The fact is, when there is high competition, long-term returns are impossible to predict. This is why stock prices go up and down more than your favorite roller coaster. If volatility makes your stomach hurt, stocks or equities are not for you.
In Demand
The third characteristic of a good investment is long and predictable demand.
What can be more desirable than land? Real estate will forever be in demand because it is literally part of everything you do in everyday life. Need to go to the grocery store? Someone owns the piece of land that business is on. Going to work? Someone owns the building at which you work. Going to your favorite destination? Someone owns that too. Land or real estate is literally part of every business or place you most desire. That is why real estate will forever be in demand.
Stocks, on the other hand, have high demand whenever that product or service is sexy and in demand. Sure, Tesla has high demand and is hotter than Turbo Man at Christmas. But, believe me, eventually that demand will fade.
Remember the Ford Motor Company? It was the hottest automotive stock to own in the 1960s. They had just introduced that hot, sexy sports car called the Mustang, and had just come back from winning multiple 24-hour Le Mans wins over the Italians with their prestigious Ferraris. Then, in the mid-70s, they changed the look of the Mustangs, and the Mustang went from hot to not. It’s difficult to imagine Tesla not being the be-all or end-all, but eventually, Teslas will stop being hot. You will stop thinking of Elon’s dance moves as funny, and they will become just plain lame.
There is no question that real estate wins this one too! But go ahead, buy that Tesla you always wanted, because even if you do, you’re still going to need a nice winding road on a piece of land to enjoy it on.
Consistent Earnings or Payout
The fourth characteristic of a good investment is consistent earnings or payout.
For real estate, this is probably its strongest point. Most real estate investors invest in residential property. The difference between the rent paid and property expenses like property tax, insurance, and maintenance is free cash flow or earnings. As long as you bought right and can keep the property desirable, you are likely going to benefit from positive cash flow and earnings. Most importantly, by having control of the asset, you will have input on the earnings of the investment and what payout it will give.
Most stocks, on the other hand, don’t even give shareholders payout or what is called a dividend. And of those that do offer dividends, only thirteen US stocks have paid a consistent dividend to its shareholders for over 100 years. So, if you own stock with a nice dividend, don’t be surprised if the board decides to lower or even eliminate the dividend payout next year.
They will blame it on the virus; however, the truth is, it doesn’t matter what you want. You’re not in control. Regarding earnings, sure, high earnings will increase the value of your stock, but you don’t have a say in what they do with the cash flow. This goes back to control; if you can’t control the asset, you’re just along for the ride.
Real estate wins this one hands down!
Easy to Buy or Sell
The fifth characteristic of a good investment is the ability to easily buy or sell.
I know what you are thinking… Ha! Yeah, try to fix this one Ralphy! No way is real estate better than equities in this aspect. I mean, it takes some houses years to sell, right? Well, in my opinion, this one is kind of a tie. Let me explain.
Sure, there is no doubt you can much more easily click a few buttons in your investment account and sell your stocks much quicker and easier than selling a piece of land. But that is only half of the battle. I’d like to argue that it is even easier to buy real estate than stocks.
Sure, it might be faster to buy stocks, but is it really easier? I don’t know about that. Keep in mind, when you are buying real estate, you are usually buying with a professional called a real estate broker. He or she can walk you through the process and will prevent you from making critical mistakes during the process. This likely makes it easier than most people randomly picking their favorite hot ticker.
Separately, the US government will aid most families or individuals with first-time homeowner programs, down payment assistance, and government-guaranteed FHA loans. Imagine walking into a bank and asking them for a 30-year loan to buy $250,000 dollars worth of Tesla stock, with a 3.5 percent interest rate and a 3 percent down payment. The banker would laugh at you and likely proceed to walk you to the door. He would think you are delusional!
I would like to call this one a tie, but to give stocks one and not call this contest a complete shutout, I’m going to give this one to stocks. It’s close in my opinion, but stocks squeak out the win.
Undervalued
The sixth and final characteristic of a good investment is buying the asset when it is undervalued.
This characteristic once again highlights yet another aspect of real estate that is a much better investment than equities. The real estate market is called an inefficient market, meaning that a transaction can be completed with only two people: the buyer and seller.
During the negotiation process, for what’s called the meeting of the minds, either the buyer or seller might know something about the property that the other is not aware of, or might just simply be better positioned. This would cause either of the two parties to have an upper hand. This is primarily the reason why you are more likely to be able to buy undervalued real estate than undervalued stocks. This gives some people the ability to buy undervalued real estate and resell it for a profit almost immediately to another buyer.
The stock market is the total opposite. It is what is called informational efficient markets. This means every buyer or seller has the same information as everyone else, thus making the chances of finding undervalued stocks almost impossible. If anyone has information on a company that affects the price of its stock and you buy or sell on the fact alone, you could go to jail for what is called insider trading. That’s what Martha Steward got popped for. She spent two years in the slammer for it.
That aside, stocks are valued all over the place and for different reasons. The scariest detail is that no one can really tell you what’s built into the price. Some stocks don’t even have earnings to reflect its value. These stocks are valued with the expectation that earnings long in the future will eventually meet and match the price of the stock. But expecting is not investing. Nothing in the future is guaranteed, right? Speculation is also not investing. It’s more like what happens in Vegas, only they call it gambling.
Real estate wins this category too. Keep in mind, I’m not saying I don’t play the markets too. I like the thrill of it. However, I don’t really consider it my most secure investment. That’s what I have real estate for.
Real Estate Wins This Challenge 5-1
At this point, you are probably thinking that this is just another realtor trying to convince you to buy a house so he can cash in on a commission, right?
Well, would you feel better if you had the opinion of one of the greatest equities investors still alive? Would you be interested in hearing what Warren Buffet—the third-richest person in the United States, with a net worth of over 80 billion dollars—thinks of the subject? Well, you are in luck. Warren has input if you dare listen.
I hope this blog has given you information on why I believe real estate is the greatest investment in the world. If this was not enough, I would like to leave you with one last point to hopefully help push you over the edge.
The company stock you are purchasing is headquartered on a piece of land. Its manufacturing plant is sitting on a piece of land, as are the materials used to manufacture that Tesla, iPhone, and everything else in your possession. They all came from minerals mined from a piece of land. And the power to fuel all those gadgets? Yes, that comes from the earth, too. Literally, everything we buy and sell needs land to create it. That is why I believe real estate is the greatest investment in the world!
