Consider a very simplistic example, not taking into account a lot of factors, including market downfall or upside, in any year. Say you have $15,000 that you want to invest- either as a portfolio investment or in real estate, both growing at 10% each year. Here are some numbers.
I always recommend investing what money you have left, after making sure you have enough savings.
1. Remember, for simplification, this calculation ignores the rent income, mortgage payments, property taxes and expenses during those years. If you are cashflow positive (i.e. have enough cash left from rent income, after paying off all expenses), that is great. If you are break-even (no profit, no loss), you still make money at the end of the 5 years if you own real estate.
2. You get some tax benefits with real estate. You can deduct most expenses in your Income taxes (depending on whether it is a capital or operating expense). So you may pay very little or no tax on your profits by sale of real estate. Whereas any sale of portfolio is fully taxable. Check the IRS website or your tax attorney/CPA for more details on this.
3. You could have issues with your rental property like late or no rent payments, tenant eviction, possibility vacant property for sometime. Always have some extra cash to allow for unfavorable circumstances.
4. You can invest this extra money to buy another property and over time you can make some good money. You could also decide to keep this investment property and keep earning money through your retired life. Remember, with time, your rents will go up, your mortgage payments down, and you will get to a point where you will get to keep all the rental income from this and other properties (i.e. positive cashflow).
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