Real estate vs. S&P 500: both can be great investments. But here are pros and cons for each.
Reasons to invest in real estate over S&P 500 Index Funds
First, let's look at ways real estate might beat index fund investing.
Use leverage to create better returns
Think about it this way. It’s much easier to obtain a low down payment loan on real estate, including investment property, than it is to invest in stocks.
For example, you can put $100,000 down on a $400,000 investment property with a steady income and a good credit score. Subsequently, your returns are based on $400,000, not just your down payment of $100,000.
Conversely, if you invest that same $100,000 in the stock market, you only receive returns on your initial investment. You must make a 100% down payment on stock investments, but only around 20-25% down payment on real estate.
With real estate, you automatically 4-5x your leverage. Leverage is not as easy to come by with stocks.
With real estate, you also have the opportunity to take advantage of a home equity loan, home equity line of credit, or a cash-out refinance. These are additional ways to leverage your investment.
