Stocks vs Real Estate: Why You Should NOT Buy A House In 2025

What's up, Graham? It's Guys here, and if you've ever wondered how much money I make, here you go. A few weeks ago, Shelby Church posted this video about what does better, 5 years in stocks versus 5 years in real estate. Honestly, after watching her video and seeing some of her really shocking numbers, I was inspired to look through my own portfolio to see exactly how much I've made in stocks versus real estate, how they compare, and what this means for the average person watching. Because I have a feeling it's probably not what you're expecting. And if I could save a few people from making a really big mistake, then this entire video is 100% worth it. Although before we start, as usual, if you appreciate videos like this, all I ask for in return is that you hit the like button or subscribe, plus I'm going to be linking to Shelby's video down below in the description for anyone who wants to follow along. So thanks so much, and also a big thank you to Public.com for sponsoring today's video, but more on that later. Alright, so first, let's talk about how much money I've made from real estate. I hate to say it, but for most people, this is going to be completely dependent on when and where you bought your home. Because as you're about to see, you could either make a ton of money, or you're going to be completely f- In my case, the first property I purchased was back in 2012 as a bank-owned foreclosure in San Bernardino County for $59,500. Yeah, seriously. I bought it outright in cash with money that I had saved up for four years working as a real estate agent. I then spent another $12,000 fixing it up, and it's currently worth about $400,000. While earning about $1,500 in net rental income every single month. From there, there were two other properties that I bought and recently sold with nearly identical returns, and over the years, I just kept saving up my money until 2016, where I bought another property in West Los Angeles for $780,000. In terms of numbers, I was able to buy it with about $150,000 down, and I got a 30-year fixed rate mortgage at 3.375%, and then I spent another $60,000 fixing it up. As a result of that, I made about a 280% return on my money while also earning about $150,000 in rental income over the last five years. From there, though, the returns do get a little bit more difficult to calculate. For instance, in 2017, I purchased a duplex in mid-city Los Angeles for $585,000. I've spent a total of $220,000 fixing up both units, and now I'd say it's currently worth about $1.2 million. But in 2018, I was able to do a cash-out refinance to pull out all of my initial investment while locking in a 30-year mortgage at 3.75%. This means I have none of my own money in the deal, the upside is pure profit, and I've made about $120,000 in rent since 2020. I also did something similar with another duplex that was located down the street. I bought it for $815,000, I put 15% down, and I later rented it out, and now it's worth about $1,150,000. When you add all of this up, purely from an investment standpoint, with properties that were purchased to renovate and later rent out, I have $643,000 of my own money invested for a total value increase of $1,843,000, which equates to a 281% return, not including any rental income. But keep in mind, all of this was over the last 10 years, so how have they done over the last five years? Well, here's where things get interesting. Despite what you might think, my home values in Los Angeles County did not see that much appreciation over the last few years. I mean, sure, values certainly did go a bit higher, but it's probably not as much as you would expect. For instance, my first home was worth roughly $300,000 before COVID, and now it's worth about $400,000 five years later, for a 33% total increase. The second property was worth about $1.2 million before COVID, and now it's worth about $1.4 million, a 16% increase over five years. The third property, a duplex, was worth about $1 million before COVID, and now it's worth about $1.2 million, a 20% return. And the last duplex was worth about $950,000 before COVID, and now it's worth $1,150,000, which is a similar 20% return over five years. Now, sure, I was able to collect rental income on top of this, but I'm also very fortunate to have locked in record low mortgage rates at a record low property tax basis with low down payments. And I'll be honest, if I didn't have all of these factors working in my favor, I just don't think it would have been sustainable. I mean, just consider this, over the last few years, my home insurance rates have gone up about 35 to 40%. My property taxes have gone up about 15%. My labor and material cost has gone up 50 to 100%. And if I were to buy any of these properties today, I would be losing a substantial amount of money. Like, let's take the example of my first property. If you bought that today at $380,000, you'd put 15% down and get a 30-year fixed rate loan at 7%. Your monthly payment would be $2,148 a month, which is already significantly higher than what I'm getting in rent. But on top of that, you would also have property taxes at $375 a month, home insurance at $125 a month, and repairs and maintenance at $150 a month. All of a sudden, you're now spending $2,900 a month for a property that you could rent for $1,950 a month. So even though real estate has been a really good investment, at today's prices, the numbers just don't pencil out. Although with stocks also at record highs, how much would I have made had I just thrown it all in an index fund instead? Although before we go into that, this is a perfect example of why it's so important to have as much information at your disposal as possible. For example, when it comes to building wealth, studies show that lump-sum investing beats dollar-cost averaging 68% of the time and holding cash underperforms investing 69% of the time. That's why our sponsor, Public, wants to help you start the new year with your best foot forward. For those unaware, Public.com is a platform that helps you build a multi-asset investment portfolio of stocks, bonds, options, treasuries, crypto, ETFs, and more all in one place. With their seamlessly designed interface, Public also makes it extremely easy to research more information than you ever thought was possible while making decisions about your investments. Personally, I love their Key Moments feature that gives you specific insights into major news, plans, or earnings throughout various price movements. This way, you can understand why a stock is moving up or down and not just that it is. You can also get quick access to earnings calls, reports, income statements, and balance sheets on one page so you don't have to spend hours searching for them individually. They also offer a feature where you could set a recurring buy to dollar-cost average into the markets on a regular basis, creating a seamless, set-it-and-forget-it approach to investing. Or if you're the type of person who likes watching dividends, they have a dedicated income hub where you could view a monthly breakdown of your earnings like dividends to give you an idea of how much you're actively earning from your investments. To me, I absolutely love simplicity, and Public makes it easy to see everything on one page, it's intuitive to navigate, their layout is seamless, and with a wide variety of options to choose from, it's not a surprise why they've gained such a significant market share over these last few years. So if you're interested in checking them out for free, go to public.com slash graham or use the link down below in the description to sign up and make an account today. Again, you could sign up at public.com slash graham and fund your account in less than five minutes. Thank you so much, and now let's get back to the video. Alright, so in terms of how much money I made in stocks versus real estate, here's what you came for. Overall, on any deals that were purchased on or before 2018, the real estate investments actually outperformed the stock market by about 20 to 50%, not including rents. Normally, I'd just go over each of these one by one, but because I'm really worried it's going to be a long-winded analysis and some people are going to get bored and click off, I'm just going to put it on the screen here and you could pause the video if you want to break it down. Anyway, for anything purchased on or after 2020, things are a bit mixed. For example, I bought a home in West Los Angeles that underperformed the stock market by about 35%, but my purchase in Las Vegas overperformed the markets by about a hundred percent. Basically, the stock market has been on an absolute tear since COVID, and even when you account for low down payments and low mortgage rates, stocks overall still did better, although for anything purchased on or after 2021, the real estate winner effect tends to make a lot less sense. Look, as someone who's worked full-time in real estate since 2008, I'm the type to carefully look over the numbers, look at the risk of any deal, and then compare that to every other investment that I could possibly make. And even though real estate made a lot of sense when interest rates were low, once prices started skyrocketing and interest rates rose, I started pulling back and invested my money in index funds instead. The reality is, nationally, home prices have risen 47% since the start of the pandemic during a time when the stock market has risen 124%. So is this then confirmed that stocks have been better? Well, it really just depends on how you look at the data. In this case, most people aren't buying their homes outright in cash, and instead they're getting a loan from the bank for the difference, meaning for every $20,000 they put down, they could get a loan for $80,000. This is why for the average person who bought their home in 2020 with 20% down, their initial down payment has increased in value by 235%. And if that sounds confusing, just consider this. Let's just say you buy a $100,000 home with an $80,000 loan for $20,000 down. Now five years later, the home is worth $147,000. This means your $20,000 investment is now worth $67,000, allowing you to have tripled your down payment. Of course, there are other aspects to consider, like the interest rate on the $80,000 loan, property taxes, insurance, and repairs, which probably amount to an additional 7-8% a year of total value, but the point still remains. Leveraged real estate at a sub-4% interest rate purchased before 2020 has so far outperformed the stock market by a very wide margin in most areas. However, more recently, things aren't looking as good. For example, if you bought a home in 2022 with a 6.5% interest rate, the cost of borrowing money just becomes too high to offset the benefits of leverage. Just take this as an example. You buy a $100,000 home at $20,000 down with an $80,000 loan at 6.5%. Even though the market has gone up by an average of 5% a year during that time frame, you're paying 6.5% for the cost of keeping a mortgage, completely wiping out nearly all of the benefit of home appreciation. So unless your area sees home appreciation above 8% a year, your best case scenario is simply a break-even from an investment standpoint. On the other side of the coin, you have index funds. Over the last 100 years, the S&P 500 has averaged a 10.6% annualized return with dividends reinvested, which is pretty good for basically no work. This means instead of putting 20% down on a property with a 6.5% mortgage rate that historically appreciates 4% a year, you could potentially make an average of 10% with just a click of a button. As an example of this, let's just say you have $100,000 to invest, and you want to know what's going to make you more money over 20 years, housing or an index fund. Well, an index fund is going to be really easy. At a compound annual growth rate of 10.6%, after 20 years, your $100,000 is going to be worth $750,000 with dividends reinvested. But with real estate, you could use that $100,000 as a down payment on a $500,000 property at a 6.5% mortgage rate. This means your overhead cost is going to be $2,550 a month for a mortgage, $500 a month for property tax, $200 a month for insurance, and another $300 a month for miscellaneous repairs and maintenance, for a total cost of $3,550 a month. In my market, a home like this would probably rent for around $3,500 a month, which means you're going to be losing about $50 a month in cash flow, but you would be paying down the mortgage by an average of $375 a month in the first year, giving you a total profit of $325 a month, plus home appreciation. But it doesn't quite end there. According to the National Association of Realtors, the median single family home appreciated by an average of 3.92% a year, meaning over 20 years, your $500,000 home is going to be worth $1,078,000. So housing wins, right? Ah, not so fast. Over 20 years, you will have paid down your mortgage balance to $206,000. If rents stay consistent with the increases in property taxes, insurance, and repairs, your net amount will stay the same. And when all is said and done, your $100,000 investment over 20 years will have grown to $872,000. Although in order to do this, you're required to keep a tenant at all times, keep all repairs and maintenance under $300 a month, and literally have zero downtime whatsoever for any vacancy, which I gotta say, is literally impossible. More than likely, over the long term, you're going to have an average of one month of vacancy every 16 months for a time where a tenant moves out and you have to get it re-rented. This means you're going to lose out on $52,000 worth of rental income over 20 years, bringing your total return down to $820,000. Then subtract any large one-time costs from non-paying tenants, large repairs, or any renovations you have to do, and all of a sudden, leverage for real estate is pretty much the exact same return you would have made in the stock market, except with a lot more work. However, let's be real, from an investment standpoint, unless you're specifically out there trying to find undervalued real estate that you could fix up at a favorable mortgage rate in a landlord-friendly city, at best, most homes are simply just a hedge against inflation and a roof over your head. That's it. The way I see it, if you're looking for a place that you could move into yourself that you love, that you intend on living in for at least a decade, then yes, buying a house could be a great financial decision. But in the short term, at least at today's prices and mortgage rates, investing in other assets like stocks seems like it'll make you more money, even though it can be more volatile. But besides that, on a human level, I will admit that there is something to be said about owning a property that is completely yours, where no one can tell you what to do, and no one's going to be jacking up your prices the next year. Even though that's what insurance companies and county assessors love doing, but that's besides the point. This is why it's really hard to compare a home that you'll live in with the opportunity cost of investing in anything else, because at the end of the day, you're going to need a place to live. At that point, it's really just a matter of crunching the numbers to determine if it's better to rent or buy right now, and I've made quite a few videos on this already that I'll link to down below in the description. Although, in terms of buying rental properties versus investing in the stock market, for me, I just haven't seen many opportunities after 2020, and I'm much happier just throwing it all in an index fund and letting it do the heavy lifting for me. Look, what I'm really trying to get at here is that I'm only able to run a profitable rental business because a lot of these properties were purchased at a fairly low price almost a decade ago, financed with really cheap debt that's locked in over the next 30 years. At today's prices, none of this would be feasible. Nothing would cash flow, and when the conditions aren't right, it's just I wouldn't be able to do it today. Yes, I'm sure deals still exist in certain markets, but they require a lot of work to find, renovate, and manage. And when I look at all the work involved in that, index funds, dollar for dollar, just seem like a better option. Housing can be a good investment, but it's not automatically an investment by default, unless you go into it intentionally trying to make money. But even then, it's difficult to compare one to one because you've got to live somewhere. There's also a chance that your market where you buy real estate appreciates faster than the national average, which is the case for about 50% of properties, so you could make a lot more money than what I outlined here. Personally, I tend to believe that when it comes to real estate, you make the majority of your money when you buy, not necessarily when you sell. And you can't quite make a dollar to dollar comparison because there is an emotional aspect to owning real estate that you can't put a price on. But it is worth saying that housing isn't always a good investment. It's worth diversifying into other assets just so you don't go all in on one thing. Real estate can be a lot of work compared to other options like owning an index fund, and no matter what. If you found this helpful, make sure to hit the like button and subscribe if you haven't done that already. Thank you so much for watching, and until next time.