00:00What it's like to invest $100,000 in stocks versus real estate, I'm going to break down the actual...
00:05math. First off, we're going to assume that we invest in the S&P 500 and we get an 8% return on the stocks.
00:10And on the real estate side, we're going to assume that we're buying $100,000 properties that go...
00:15up 3% on average. And also we find a property that cash flows about...
00:208%. So in year one, you're starting off with $100,000...
00:25invested in the S&P 500. With an 8% return at the end of year one, you'll make...
00:30$108,000. So your total invested will be $108,000. On the real estate side...
00:35If you have $100,000 and you need to put 20% to 25% down on a...
00:40property, you could actually buy $300,000 houses. So you buy 300...
00:45$100,000 houses and you have some money in reserves. And so we're assuming that these...
00:50properties will make you about an 8% return on investment. So...
00:55So if you have, let's say $30,000 invested per property to make an...
01:008% return on that. That means at the end of the year in cash flow, we'll have...
01:05made $7,200 in cash flow. While at the same time, the properties went up...
01:10about 3% each. So we gained $9,000 in appreciation.
01:15And then we also paid down some of our mortgages. Let's assume we paid about $1,000...
01:20per property on that. So we paid $3,000 in equity. So we gained $12,000...
01:25$7,200. That's $19,200 is what we made. So automatic...
01:30in year one, we're ready doing this. And the best part is, is we're not going to pay any taxes on the $7,200...
01:35because of all the tax benefits of real estate. Now let's jump up to year three.
01:39So now our stock...
01:40stocks are $125,971.20.
01:45So in three years, we've made about a 25% return. Well, what about the real estate? If rents...
01:50continue to go up about 3% with the cost, we're just going to assume that our cash flow stays the same.
01:55So we're going to assume that we're still making $7,200 on the cash flow, but now we've made $7,200 from...
02:00year one, $7,200 in year two, $7,200 in year three. Cash flow is $21...
02:05$1,600. So now the homes were worth $103,000...
02:10at the end of year one, times 1.03. So now each house has gone up $9,200...
02:15$72.70. We multiply that by three. So we've made appreciation gains...
02:20of $27,818.10. And then also let's assume...
02:25that we paid down the same amount, even though that number definitely goes up...
02:29$9,000 here.
02:30So at the end of this, we've made $58,418...
02:35on the cash flow, whereas we've only made $25,000 on the stock.
02:39Now I'm going to...
02:40skip to year 30 because I've already done a lot of this math, but I'm going to try to show you what it's like...
02:45over year 30. So please bear with us as we do that math. So for the stocks, we end up...
02:50with a portfolio of $1,620...
02:55and $65.69, which we all know is not even enough to...
03:00retire. Now let's look at the real estate side of things. First off, you have three houses that are fully...
03:05paid off, but have also gone up 3% every single year. At this point in time, each house...
03:10it's worth $242,765...
03:15So you have that times three. So that means you have $728,000...
03:20$2,295.75 in equity. So I'm...
03:25going to assume that our cash flow will go up 3% every year to keep up with depreciation. And so...
03:30I'm going to total up what it is every single year. And so I total up our cash flow from all...
03:35all the years assuming a 3% increase in cash flow, which is normal. And that's...
03:40$352,101.48. So when I add these two together, that's...
03:45$1,080,397.23
03:50Now you're probably like, yeah, you make like $70,000 more, but you have to do so much more work.
03:55Over the 30 years. Let me explain why real estate ends up being more powerful.
04:00In this cash flow, you're probably paying $0 in taxes. Why? Because of something known as depreciation.
04:05Now the appreciation, when you sell these houses, you can use a 1031 exchange to then put the...
04:10into a new property without paying any taxes on those gains. So you get to defer those...
04:15taxes and pay these taxes never. Now this is an increase in your net worth by...
04:20this much. But when you sell a million dollars worth of stocks, if you sell them, let's say...
04:25$250,000 a year, you're going to pay $50,000 every single time you do that. You do that...
04:30four times. You've lost $200,000 off of this.
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