[Matt Flynn]

pretty clear 10% is a bad return in real estate.

e.g., assume in 24 years you have paid off a 30-year loan by spending some of the excess cash flow. you bought the 100K house for 5K down with 5K in additional costs put in before positive cash flow overwhelmed expenses. 10K down. it rents for $750 in Raleigh. rents and property values go up 3% per year. by rule of 72 your house is now worth 200K and you are getting 1500/month in rent of which about 1100 is gross income after all expenses including insurance, roofs, etc.. you may take 100K out at will and still get 600/month in cash.

suppose instead you took that 10K (which remember in the house example you really put 5K up front and then 5 K over 3-4 years) and invested it in a 10% fund. by the rule of 72 you get around 3.3 doublings, which puts you right at 100K.

stocks give you 100K. house gives you 100K plus 600/month in perpetuity that will rise with inflation and once the house has been paid off again rise to 1100/month AND you get another 6K/year in capital gains, which also continues to index with inflation. assuming inflation is 3% (it may drop, but who knows), that's 7,200/year rent plus 3% (because your rents keep pace with inflation), plus 6% on the 100K or 16% beyond the 100K you already took out. so even doing it the worst way you not only get the same amount in cash but you earn an additional 16% in perpetuity. actually it works out to be more. plus your downside risk is lower. realistically you will pay it off in 22 years, which only enhances your earn. if you instead take positive cash flow out and buy other properties, then on that one house you are cleanly beating the 10%, plus you get the added income, plsu you have other houses that are over water and climbing to being free and clear and generating cash.

so, assuming rents and housing prices rise 3%/year (very fair compared to a 10% stock market), real estate crushes stock indices due to the leveraged purchase. if you buy with 1-2% down you really crush the market. even at 10% you win. keep in mind that you cannot convert stocks to an annuity that pays decently, whereas real estate gives you an annuity that pays well and is more reliable. plus annuities only work if the company selling them stays in business! if they go broke, you just lose it all. whereas if your house caves in or gets hit by a meteorite, you have insurance to replace it for you, and that insurance would only be with currently good companies.

the stock/bond/bank industry exists to separate you from you money. nothing I do, except for the hedge money we put in stocks and whole life, yields under 20% long term.

matt