Ten years ago was an interesting time in the US economy. Several large institutions most of us had thought were timeless and solid collapsed right before our eyes. People lost their jobs. People lost their homes. However, in the wake of the recession, people were able to come together and slowly pick up and move on.
For many of us, investing in anything at that time was probably one of the furthest things from our minds. However, even in times of darkness, there’s always another side of the coin.
In times of recession, there are massive opportunities and fortunes to be made. – Sir Richard Branson
What if, on this day, 10 years ago, you decided to invest your money. Let’s say that you had $200,000 to invest at that time.
Taking a look around at the burgeoning tech companies, you decide that Google looks pretty promising, so you invest $100,000 in Google.
With the other $100,000, you invest passively in a real estate syndication that purchases a value-add apartment complex. The business plan is to renovate the majority of the apartments within the first 18 months, then get a supplemental loan to return 40% of investor capital by year 2, while still holding the asset through year 5.
Okay. Now the fun part.
Let’s fast forward to present day and see how your theoretical portfolio is doing, shall we?
Google Returns
Ten years ago, with $100,000, you were able to able to purchase 424 shares of GOOG stock at $236 per share.
Today, each share is worth $1,149, making your total investment value $487,869, a profit of $387,869 in 10 years.
Not too shabby.
Real Estate Returns
Now let’s take a look at the real estate investment. Like many real estate syndications, the projections included an equity multiple of around 2x. In other words, the plan is to double your money during the hold time of 5 years.
Let’s say the group does hold the apartment complex for 5 years. During that time, you receive quarterly cashflow distributions of 8%, or about $8,000 per year. Because of depreciation and other tax benefits, you owe no taxes on those payouts.
The team is also able to execute on the business plan and returns $40,000 of your original capital by year 2. In year 5, they decide to sell the apartment building at a modest cap rate. Upon sale, you receive $147,800, which includes your original $100,000 investment.
Altogether, including your original investment, the profit from your real estate investment is $127,800.
I know what you’re thinking. Well that was easy, Google wins!
But remember, we’re only in year 5.
Now you take your $227,800 and reinvest in another real estate syndication, via a 1031 exchange, so you don’t have to pay capital gains taxes.
By the 10-year mark, assuming similar returns on your second real estate syndication, you would have grown your original $100,000 to roughly $518,928.
But that’s not all.
Because if you’ll remember, the real estate investments returned a good chunk of your capital in year 2 of each investment (about $40,000 each time, or $80,000 total). If you had invested those payouts when you received them, we’d be looking at over $600,000 in total value.
So Which Should You Invest In?
This is just one example, using part historical and part theoretical numbers.
And of course, Google isn’t the only, or even the strongest growing, stock out there. There are certainly others that could have netted higher returns during the same period of time. For example, if you’d invested $100,000 in Netflix 10 years ago, you’d now have $7,367,040.
But remember, Netflix was in the dark ages 10 years ago, still battling with Blockbuster and still shipping DVDs (remember those?). You would have had to have Warren Buffett-level vision to see back then where Netflix would be today.
And that’s the challenge, right? It’s always easy to look backward. But looking forward? Suddenly, not so easy. If you were to invest $100,000 today in a company, which would you choose? How confident are you that the company will be around in 10 years, and that it will be more profitable than it is today?
Because after all, if you pick a company that doesn’t do so well, you might end up losing money, ending up with $80,000, $50,000, or worse, in 10 years time.
The Case for Investing in Real Estate
With real estate, you might not be able to turn $100,000 into $7 million in 10 years, but you are investing in stable physical assets that will still be around in 10, 20, 30 years, and when you invest in value-add real estate, you are taking your investment in your own hands, rather than speculating on the markets.
There is no right or wrong. People have been making great money in the stock market for ages. I’m only presenting an alternative option that has been shown to yield similar or better returns over time. An investment option that, frankly, is one of the best kept secrets in the investing world, and that offers stronger benefits and lower risks as compared with the stock market.
The choice is entirely up to you and your family, as to what fits best with your financial goals. Our Goodegg promise is that we will help you along the way however we can. And if that means buying Google stocks, we’ll be in the virtual line right there with you. 🙂
