Real estate, stocks, and crypto all serve as great stores of wealth. All of them hedge against inflation. Stocks is the easiest one to get into. Crypto has the greatest upside potential (in my opinion). But real estate has an advantage none of the other ones do: income.
Real Estate is the Only One that Gives you Income
For stocks, the general rule is “buy and hold.”
For crypto, the general rule is “buy and hodl.”
Real estate? Buy and improve or at least put it to use. It’s a genuine asset that pays for itself.
You can’t get tenants for your stock. You can’t rent out the backyard of your crypto to someone for a wedding. You can write off office space in your own house on your taxes.
It’s essentially a way more creative world. Bruce Springsteen creatively pays next to no taxes on his ranch property because he does beekeeping on it. You can use an FHA loan to only put 3.5% on a multiplex and essentially have other people pay your mortgage.
There are Entire Industries Around Giving You Money to Buy Real Estate
Banking is built off this. The 2008 financial crisis was (loosely) based around this kind of debt.
People want to give you money. When you realize the equation around real estate—hard asset, insurance protected, will always be in demand (on some level), and income generation on top of it—it makes sense why it’s so expensive.
Most importantly, it has the most important aspect of all—absolute scarcity.
But Stocks have dividends??
Okay fine, some stocks have dividends.
Most don’t.
You could use dividends as income. That’s the classic elder-generation move (those older than boomers). Grandma owns a bunch of shares in AT&T and other blue-chip stocks, they pay her a quarterly dividend, and she uses that as her income.
AT&T’s quarterly dividend will end up being between 7–8% (assuming the stock doesn’t moon or crater between now and the end of the year). Definitely not bad.
I still don’t count this because how many people are talking about a stock are doing so because of its dividend??
But isn’t Staking income?
Some people talk about staking their crypto as a way to generate income. Staking facilitates proof of stake which is an alternative to crypto mining. Staking may have a role in crypto, but for me, I don’t like it as a feature of currency.
The reason is it rewards those who already have a lot. Cool, I guess, if you can swing it. But that takes away the incentive for others to join because your relative wealth will never increase. That’s part of the reason why no other cryptos will ever touch Bitcoin.
The Cash-on-cash Returns >>>
The cap rate is like the ROI on a property. The cap rate on a property may be around 12–14%. A decent return.
However, the cash-on-cash return is what you actually care about. It’s the amount of money you’re getting for putting your own money down.
E.g. if you put 20% down on a property, borrow the rest, and you’re getting a 20% return on it, your actual cash-on-cash return is 100%. Put it back at a more conservative 12%, and that’s still a 60% cash-on-cash return.
That crushes your typical dividend stock or crypto staking reward.
The Trade-Offs of Real Estate
The biggest one for me and my mobile lifestyle: illiquidity.
If I suddenly wanted to live in Azerbaijan, I can’t take my house with me. I can’t take my stocks, but I can watch them remotely.
I can take my crypto literally in my pocket.
So obviously, if you don’t want to pay someone to watch and maintain your property, this one isn’t for you.
This is Financial Advice:
- Buy Bitcoin
- Get an income-generating real estate property (if nothing else, your own house)
- Get a couple stocks of companies you believe in
Don’t sleep on real estate.
