Stocks Kick Real Estate in the Pants - Huh?

Several blog postings ago, I referred to money flowing out of the stock market as it cools and into real estate. The relative advantage of one form of investment versus the other has been fodder for cocktail party debate for years. My financial planner (Tony) wrote me a P.S. with his autograph in his 2006 book, The Wealth Factor – A Team Approach, that went like this: “P.S. – Stocks kick real estate in the pants over the long term”!! Don’t get me wrong, I have the utmost respect for Tony and what he and his team have accomplished for me as my financial planners over the past 20 years (especially on tech stock IPOs in the ‘80s & ‘90s), but debating is what makes this country great and this is my blog, so I will blog if I want to.

I do not think there is a clear argument against his statement, but if I were to attempt one, I would start with an attention-getting comment like, “Stocks kick real estate in the pants (from an investment standpoint), but I would rather live in a house than an earnings report!” Ah – the debate is on!

Think about it, folks - only in America can you buy an appreciating asset, live in it, get a huge tax break while you live in it and even a bigger tax break when you sell it for a profit. Stick that in your stock-pipe and smoke it! Thanks to the tax law written in 1997, a single person can exclude up to $250,000 (up to $500,000 for a married couple) of profit from income tax on the sale of a primary residence. What would the tax bill be on $250,000 in gain from a stock sale? Not only that, when we buy a house, we create jobs for carpenters, plumbers, electricians, roofers, landscapers . . . well – you get the idea. When we buy stock, hmmmm . . like Enron, well – let’s not go there – like Nike, well – where were those manufacturing jobs created?

Then there is the discussion about real estate as an investment versus a stock as an investment - the argument is similar to above. The stock investment will appreciate over the term of ownership and you pay capital gains tax when the stock is sold. If the stock pays dividends, the owner also pays tax on that dividend each year during the ownership. Logical - pay taxes as you realize gains. How about a rental income property as an investment? Some of your purchase fees are tax deductible on the front end, repairs & maintenance fees are tax deductible during each year of ownership, depreciation is deductible each year, etc. Interesting concept, tax benefits during each year of ownership to offset income from rents collected, reducing the tax burden for the owner - every single year. Then there is the 1031 Exchange strategy option for the sale when you are ready to move on to a new investment. Hmmmm . .

I share these thoughts to fuel the debate, of course, but do so with nothing but respect for all investment strategies and encourage you, my readers, to choose whatever is best for you – real estate, of course! :-) If you are in need of a financial planner, I do refer folks to mine, Tony Parr at Wachovia Securities, www.parrfinancialgroup.wbsec.com. I love Tony, his family and his team (and also his in-laws who were very successfully in real estate!). Tell him I sent you, and something else like, "I understand real estate kicks stock ownership in the pants over the long haul"!