Mutual fund or real estate investment

[financepro]

Originally Posted by starshard0

So does that mean mutual funds are a good investment or not?

IMO, we can not say whether which one is good or bad. It depends on the requirement of investors. Hence, better to consult a finance professional before investing.

[mike313t]

I currently own some real estate (6 units), I got into it about 3 years ago. If you buy nicer places in nice areas and screen your renters, it isn't as bad as it sounds. The key is to have a good emergency fund reserve for people missing rent and repairs. Most people use up all their savings to purchase real estate, then end up with a bad renter who doesn't pay, which makes them miss mortgage payments. The eviction process can take months, so you have to have enough reserve to cover your payments in case that happens.

On a positive end, the real estate is a safe investment which will most likely go up in value.

[rabidpotatochip]

Looks like I'm about a week late coming into this, but....

Have you considered ETFs (exchange traded funds)? Mutual funds are actively managed (costs money) and most of them (approx. 80%) don't manage to beat the market, no pun intended. An ETF is bought and sold like a share, but each share in an ETF is actually a share in many companies, similar to how a mutual fund works. The key differences are that ETFs are passively managed, can be bought or sold instantly, and have a much lower MER (management expense ratio) than mutual funds.

Further to that, there are some real estate ETFs out there on the stock market, so you can get the best of both worlds.

[KevinW]

There are many styles of real estate investments and many kinds of mutual fund strategy, so it really depends.

I've read up a lot on both and crunched a lot of numbers, and my conclusion is that if you want a "hands-off" investment, mutual funds win hands down. You can get into real estate with minimal work by picking high gross-rent-multiplier units in rentable condition, buying and selling through retail agents, financing through retail banks, hiring out all the tenant management and maintenance to a property management company, and hiring renovations out to general contractors, but every one of those expenses cut into the profit margins and I think you'd be lucky to be cash flow positive. By comparison a sensible mutual fund will have higher average returns, take less work to set up, be completely liquid, won't tie you to one region, and won't create anxiety about deadbeat tenants or lawsuits if someone thinks you're breaking an equal housing or other law.

I think a real estate operation can generate higher average returns than mutual funds when you crank up the profit margin by buying wholesale/REO, focusing on low-GRM units ("rough neighborhoods"), rehabbing trashed properties, dealing with subcontractors and tenants directly, doing maintenance and paint yourself, etc. However I think this has more in common with starting a small business than it does with a passive investment. As small businesses go it is a relatively safe choice since financing and clients are easy to come by, and most people will have a lot of the relevant skills already due to general life experience.

If you want a diversified passive investment I would go with mutual funds. If you want to work in a stable small business to supplement or replace your salary, real estate is a reasonable choice. My preference has been to get side jobs and invest the wages in mutual funds.

[efolgate]

i think a mixture of both is good for long-term investing. Remember, you must be in it for the long-term if you are investing in real estate and/or the stock market. Just like you've heard all of the stories of people losing 30 to 40% of their 401k value, 2 years ago you were hearing real estate investors losing their shirts.

There will always be short term dips in the stock market and housing market. The people that stick with it and don't get scared about the dips in the market are the ones that end up very wealthy in their 50s and 60s.

[MoneyTrev]

Real Estate if you can BUY the house.

Mutual Funds if you can't.

Housing can potentially be a huge money earner.

[mike313t]

Buying a house for personal residance is a good start...

[Philip Brewer]

Like all investments, buying a house is a good or bad investment depending mainly on what price you pay. Get a house at a good price and it'll be worth more in the future. Overpay and it might be years (or decades) before you can get your money back.

If you're buying a house to live in, that doesn't matter nearly so much. Then what you care about is whether you want to live there and whether you can afford it, not whether it'll be worth more in a few years.

In general, real estate investing tends to be a lot more like a second job than other kinds kinds of investing (such as mutual funds). If you like the work, it can be very rewarding, but if you don't it can be quite burdensome.

[wildgift]

I can see real estate being a good investment if you want to be a landlord and property manager. This can work well if you're already involved in light construction work or have the skills to repair things, install flooring, paint, etc. It's also a good second job if you don't have steady work and could use steadier income.

[khorrell]

There are so many variations to real estate that I think it is hard to answer the basic question with a single answer.

We have mutual funds, as well as own a rental property (which we lived in when we first purchased it.) Both have done well for us, but in different ways. It costs us money each month to purchase into our mutual fund. We are accumulating wealth, and there are some tax benefits because they are within IRAs. In addition, we are able to stop contributing to our IRAs if our circumstances require us to.

Our rental real estate actually makes us money each month, has appreciated (overall, though it has depreciated recently), and also provides some tax benefits. We pay a professional property manager to take care of our property, and we do have to be disciplined enough to spend the necessary money on upkeep and improvements. Also, our tenant is a real estate agent and has had a rough time this year. I do not want to evict her because she is otherwise a fantastic tenant, but there were several times last year that she was unable to pay her rent on time, or even near to on time. If we had been living paycheck-to-paycheck, her late rent would have been a huge problem for us. It's not like we can stop paying the mortgage just because she isn't paying her rent.

I know that our real estate and mutual funds are pretty simple forms of each, but I see the value in having both sort of investments.