A 33 year old real estate agent and investor with over $120M in residential real estate sales. This is my way of sharing actionable ideas that will make you a smarter and wealthier investor.
Should you buy a house in 2025?
Published about 20 hours ago • 5 min read
What’s up Graham, it’s guys here :-)
I’m now taking consulting calls and offering one-on-one sessions to help with your YouTube channel, Real Estate Deals, Business, or Marketing Strategy (no investment advice).
If you’re interested in booking a call, fill out the form below to see if it’s a good fit. I’ll personally review submissions and select a few people each week for a consultation. These sessions can be held over the phone or via Zoom — your choice.
In 2008, right after the housing bubble burst, millions of Americans saw their home values plunge in just a matter of days. This made many question whether the American dream of property ownership was bulletproof, as they once believed. But then again, the stock market had soared faster than most real estate markets in the two decades starting in the 90s. This generated significant returns for investors brave enough to invest in equities at rock-bottom prices.
S&P 500 vs Real Estate from 1990 to 2015 | Source: Longtermtrends
This left me wondering: What is a truly safe or profitable investment? If you’re looking to build wealth and secure your financial future, should you focus on real estate or on the stock market?
In this article, I’ll break down the pros and cons of both real estate & equities, and how each can fit into your investment strategy. Over the years, I've invested in both asset classes, and the results might not be what you expect.
The Story Behind My Real Estate Investments
Real estate is often seen as something that creates generational wealth, and for good reason.
My journey began in 2012, during a time when the housing market was still recovering from the 2008 financial crisis. My first property was a bank-owned foreclosure which I purchased outright for $60,000 and another $112,000 to renovate the property. Yes, it cost me almost twice the value of the property to renovate it (Talk about sunk cost fallacy). However, today, that property is worth around $400,000 and generates $1,500 per month in rental income.
Since then, I’ve bought, renovated, and rented out multiple properties, including two duplexes and a single-family home in Los Angeles. One of my most profitable investments was a $780,000 home in West Los Angeles, purchased in 2016 with $150,000 down and a 3.4% fixed mortgage. After $60,000 in renovations, the property appreciated in value significantly, and on top of that, it generated $150,000 in rental income over five years.
Another standout deal was a $585,000 duplex in Mid-City Los Angeles, bought in 2017. After extensive renovations, I refinanced the property in 2018, pulling out all of my initial investment while locking in a low 3.75% mortgage rate. These investments are the crown jewels of my portfolio.
Five-Year Returns: Real Estate in Perspective
Despite strong long-term growth, the past five years have been less impressive for my Los Angeles properties. For example:
My first home increased in value by 33%, rising from $300,000 to $400,000.
A second property appreciated by 16%, from $1.2 million to $1.4 million.
Two duplexes each saw gains of about 20%.
While these numbers may show growth, they pale compared to how rapidly equity markets have grown. Additionally, rising costs have put pressure on profitability. Over the last few years, my home insurance rates have increased by 35-40%, property taxes by 15%, and labor and material costs by 50-100%. These expenses, coupled with today’s higher mortgage rates, make it much harder to achieve positive cash flow.
Consider my first property, for instance. If you were to buy it today for $380,000 with a 15% down payment and a 7% mortgage rate, your total monthly expenses – including taxes, insurance, and repairs – would be around $2,900. However, the property rents for only $1,950 per month, resulting in a substantial monthly loss. This is why timing plays a critical role in real estate investing, unlike the stock market.
How Stocks Stack Up Against Real Estate
The stock market has been a standout performer in recent years. Since the start of the pandemic, the S&P 500 has gained an incredible 124%, outpacing the 47% increase in national home prices during the same period. For properties purchased before 2020, leveraging low mortgage rates often resulted in higher returns than the stock market. However, for investments made after 2020, stocks have generally outperformed real estate.
S&P 500 performance adjusted for inflation | Source: Macrotrends
For example, I purchased a home in West Los Angeles in 2020, which underperformed the stock market by 35%. In contrast, another property in Las Vegas overperformed by about 100%, showcasing the variability in real estate returns depending on location and timing.
Historically, the S&P 500 has averaged an annualized return of 10.6% with dividends reinvested. For investors seeking simplicity and diversification, this makes it a more appealing option.
The Real Costs of Real Estate
While real estate offers a steady cash flow, it also comes with hidden costs and challenges. Managing tenants, handling repairs, and dealing with vacancies can quickly erode profits. Over 20 years, even a single month of vacancy every 16 months could result in a $52,000 loss in rental income for a typical property.
Unlike real estate, which requires active management, stocks allow you to build wealth passively with minimal effort.
Real estate is also less liquid than stocks, making it harder to access your money quickly in times of need. Large, unexpected expenses – like a roof replacement or legal disputes with tenants – can further strain your finances.
Real Estate vs. Stock Market: Which is Better for You?
Over the long term, real estate and stocks can both be effective tools for building wealth, but they serve different purposes. Real estate shines when you’re able to buy undervalued properties, secure favorable mortgage rates, and manage them efficiently. Stocks, on the other hand, are ideal for passive investors who want to build wealth steadily without the headaches of property management.
For instance, investing $100,000 in an index fund with a 10.6% annualized return would have grown to $750,000 over 20 years. By comparison, using the same $100,000 as a down payment on a $500,000 property might yield a similar return – but only if you manage the property effectively and avoid significant setbacks.
I have spent countless hours actively ensuring that all of my properties are in great shape – but this requires effort.
The Takeaway
At today’s prices and interest rates, investing in real estate requires careful consideration. For those looking to buy a home to live in, it can be a great decision if you plan to stay for at least a decade. However, as a pure investment, stocks often offer higher returns with less effort.
Personally, I’ve shifted more of my focus to index funds in recent years, finding them to be a simpler and more efficient way to grow wealth. That said, I still believe in the power of real estate when approached with the right strategy. The key is to diversify your investments and tailor them to your specific financial goals and risk tolerance. Consulting a financial advisor can give you more clarity on how to allocate your assets.
Remember, there’s no one-size-fits-all answer. Both real estate and stocks have their pros and cons, and the best choice depends on your goal. Whatever you choose, the most important lesson is to start investing early and consistently.
I’ve had the privilege of working with incredible people through my consulting calls, and the feedback has been amazing. Many have shared how these sessions provided clarity, actionable strategies, and a fresh perspective on their projects — from growing their YouTube channels to figuring out business & real-estate deals.
It’s been incredibly rewarding to see these successes, and I’m excited to continue helping more people achieve their goals. If you’re interested, fill out the Google Form to get started. I look forward to connecting with you!
That's it for this week. I hope you enjoyed this article. Let me know your thoughts by responding to this email - I read every single comment :)
Stay safe, stay invested and I will see you next week – Graham Stephan.
A 33 year old real estate agent and investor with over $120M in residential real estate sales. This is my way of sharing actionable ideas that will make you a smarter and wealthier investor.
