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Strong Fondations

February 19, 20244 min read

"Set it and forget it applies to both stocks and real estate. If you leave capital tied up longer, you can consider investments with cash flow to release gains along the way."

- Rise Capital

Why do we accept certain truths in the stock market that we do not accept in other types of investing such as real estate?

Investing fundamentals do not change from one asset class to another, only the details.

Following are several investing truths that apply not only to stocks where we are used to seeing them, but also to real estate where we may not recognize the universal characteristics.

🟢 Set It and Forget It

--In illiquid investments like real estate we often are worried about tying up capital, if/when we can get our money out early, prefer to leave it locked up shorter term, etc, but in stocks we believe "set it and forget it."

The ability to trade stocks quickly is reactive to emotions, contributING to value volatility when we don't follow our own advice and sell low. Illiquid investments such as real estate are much slower to react to market trends and therefore have more stable values by comparison.

An investment with low volatility, high liquidity, and high returns is pretty much an oxymoron. Set it and forget it applies to both stocks and real estate. If you leave capital tied up longer, you can consider investments with cash flow to release gains along the way.

🟢 Passive/Limited/Silent Partner

--The stock market is a limited partner investment, no decision making, no voting, no ongoing work, no one is inviting us to the shareholder meetings. We are okay with this. Indeed, we love how passive it is!

In real estate people say, "I can't give up control," and end up running real estate businesses renting properties instead of a passive investment portfolio. Trust me, there are people out there who manage properties as owners and management companies who are WAY better at it than we are: we invest passively with them!

The ONLY way to be job optional/financially free/retired is to have OTHER PEOPLE managing the businesses that we invest money into. This is readily understood in stocks, and often doesn't seem to psychologically translate to real estate.

🟢 4% Rule

--We know to retire well we need a PILE of cash invested so we can live off 4% to preserve the nest egg for our lifetimes. In real estate, we also need a pile of money even if the returns are typically higher, roughly double (7-9% for stocks and 10-16% for real estate.) One $50k investment isn't making anyone rich.

In the stock market we need several million dollars invested to retire, same goes with real estate. Real estate returns are typically better than stocks, we may need a less huge of a pile of cash and can live on 8% instead of 4, but not SO much better that $50-100k invested is going to make us rich. This must be repeated 20-30 times by working hard to earn more cash to invest, as well as reinvesting the gains when deals sell until the compounding pile is large enough we can live off the passive cash flow alone.

Invest long term for the long term to be able to retire on any % rule.

🟢 My Portfolio is Down, It'll Recover

--In stocks, we hate when our portfolio is down, but we try not to panic trade and know successful investors go long term when diversified across the index. In real estate, if we lose money on a property, we feel like failures, quit, and avoid the entire sector or even warn our friends away from it.

Dollar cost averaging applies in both asset types, investing in consistent drips whether the market is up or down, hedging at all times. We usually invest substantially more into one deal in real estate than in stocks, which creates terror when that one property is not performing. Spread out your cash more to prevent a disproportionate impact on your portfolio when the market isn't favorable.

Real estate is measurably less risky than stocks. Long-term value investors will not only recover but win, just give it time.

💡Fundamentals

This isn't a battle between stocks and real estate: just remember that investing FOUNDATIONAL fundamentals apply regardless of the asset, and we should be diversified into both plus more!

Multifamily Real EstateInvestmentRisk ManagementTax AdvantagesPassive IncomeHigh ReturnsReal Estate Investingretirement
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Emma Powell

Emma Powell is a seasoned commercial real estate investor specializing in multifamily properties. With a strong belief in the importance of knowledge and risk mitigation in investments, Emma has dedicated their career to mastering the art of passive real estate investing. Leveraging various financial tools, such as self-directed IRAs, 401(k)s, 1031 exchanges, dividend-paying whole life insurance, HELOCs, and discretionary income, Emma has successfully built a diverse portfolio while enjoying passive cash flow, tax advantages, and substantial returns.

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