The Never Ending Fight Round 2- Real Estate vs Stock Market



Round I went to “REAL ESTATE” due to the percentage of blows in the rates of return received on cash invested. Stock could not defend itself. You can see a replay of Round I here.

We are addressing the question of the never ending battle in many peoples minds. Should I pull my money from the stock market and invest in real estate in Colorado Springs or should I sell my Colorado Springs real estate and invest in the stock market?

We are assuming that someone has $50,000 in the stock market and asking that question.


As your money doubles in the stock market there are several tax scenarios in which to choose. Either you can place your money in a qualified plan (traditional IRA, SEP IRA etc.) in which your money grows tax deferred until you start withdrawing at 59 1/2 years old or you can place your money in a plan where you are taxed on the investment first (Roth IRA) and then never pay taxes again on the gains when withdrawing at 59 1/2 years old. Of course, both of these scenarios are not conducive to taking money out of the stock market in which to invest in real estate because they are long term investment plans which are backed by the US government.
The stock in which you can withdraw for real estate investment is “RAW” stock or “Mutual” funds. In these scenarios, you are paying capital gains taxes every year on the gains earned in your portfolio. If we are to use our $50,000 scenario above at 12% returns per year. You will be paying taxes on $6,000 of income in 1 year.





With real estate investing there are several scenarios as well when it comes to taxes. First, you will collect income from tenants which is taxable as income. Now I know what you are thinking, that sounds like an equal blow that compares to stocks when paying taxes on income. However, every time there is a payment made to the mortgage company, you are paying most of it in interest. You will also be paying property taxes, insurance and potential maintenance expenses. All of these are tax deductions. At the end of the year the expenses will practically wipe out the cash flow. It doesn’t normally wipe out all of it, but it will bring the actual cash flow to a level that is similar to the interest that would have been made in the stock market. So, it sounds like a dead heat so far.
In real estate (unlike stock) you also have the debt reduction in which is not taxed and the inflationary growth that is not taxed. If you were to keep that property for its full 30 year term, pay it off and then sell it…there would be a taxable event called capital gains. That would be a big blow. But, after it is paid off in the future (worth a heck of a lot more than you paid) and cash flows at an astronomical future inflationary rate, you can just go to a lender and take out a large loan if you need the cash. There will be no taxes on that loan….WHATSOEVER!

In other words, you will be collecting cash flow from rents that may be taxable, you will have inflationary growth and can take out a loan for most of what it is worth and pay no taxes!

So, given these very basic scenarios, who wins Round 2? Real Estate or Stocks?

How can anyone really debate it? Round 2 goes to Real Estate, it is absolutely clear.

“Own Real Estate”

View The Knockout Round

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