Which is Safer: Rental Houses or Stock Investments? (a Case Study)

Another fine day in Retirement

During our recent discussion on Inflation, a Badass reader stopped by and caught my attention by dropping the following block of wisdom into the comments section: 

A final note if you are worried about inflation: sledgehammer the TV and go for a walk in the woods. Trees get bigger every year unless you cut them down.”

That sentence was just one piece of a sizable rant that this gentleman named Aaron contributed at the time, and I applauded him for sharing it. Little did I know he was about to hit me with a case study request that struck home in so many ways that I knew we had to cover it right away. 

At the root of his question is the core of what it means to “Retire”.

According to my own definition, you don’t have to stop working. But you do have to build up a level of freedom and wealth such that the work you do is entirely by choice, rather than something you grit your teeth and crank through just because you need or want the money.

After all, the real purpose of work is to create something that is meaningful to you. Why would you ever want to quit that?

Aaron Writes

Dear MMM,

I’m a 47 year old contractor with a small remodeling business with five employees. My four kids are now grown. We live below our means in a nice house I built 16 years ago on 25 acres we will never leave…we love it.

In addition, we own a beautiful 1860s log cabin/ timber frame home we spent three years and tons of money rescuing/renovating and now rent out on Airbnb.

We are in the process of selling two other houses: one former home that our youngest daughter will be purchasing, and a second one that  my crew and I are almost done fixing up.

Knowing myself, I will likely buy another fixer with the money, or some more land…when the price and condition is correct… but I have also always been fascinated by the stock market.

We do not currently own stocks or index funds, and we have no debt. I recently cut my workdays down to four a week, and am pretty happy with that for now.

But, I did some math and if we sold the Airbnb with the other two houses, we’d have a chunk of cash big enough for me to mostly retire – working only if I really felt like it.

So the stock market is down and it’s time to sell the real estate and throw that into VTI, right?

I’m a hands-on guy so it seems strange to turn three houses I can see, touch and feel into some numbers on a computer screen in the form of VTI. Not sure if I want to do that, even if it makes sense to my math brain.

What else besides stocks or rental real estate could I do with the money to secure a 4% withdrawal rate in retirement?


So you can probably see why I can relate to Aaron’s question. As another 47-year-old carpenter who also values manual labor, peaceful forests and throwing out salty comments in response to the whiny laments of the financial media, I can see exactly where he’s coming from.

On the other hand, I am also very comfortable with stock market investments as a source of long-term wealth and security, and I have more than three quarters of my life savings invested in index funds (the remainder just being my house and other local real estate and very small business ventures with friends).

 So perhaps the main difference between Aaron and myself is that I think of houses and stocks as being two versions of the same thing. They are both real, concrete, productive assets rather than gambling instruments or numbers on a computer screen. If you understand this connection, you will become a better lifetime investor. Meanwhile, people who understand only one side or the other may become blind to what investing really means.

The Real Estate faithful will often talk about the concrete nature of their investments. Their houses and apartments really exist, and they provide the service of housing to their tenants which is an essential human need. In exchange for meeting this need, the investor collects rent which is a genuine and sustainable source of income.

And your ownership of the houses and apartments is guaranteed and protected by our legal system and financial institutions, something which allows trust. And trust is the foundation of a society’s wealth.

But sometimes these people will go too far and insist that real estate is the only true investment – becoming blind to the value of investing in other businesses via stock ownership. This blindness can lead to “crusty multimillionaire landlord syndrome” – the guy who owns 400 rental units and is always looking for the next deal, yet can never truly sit back and feel retired, no matter how big the empire grows. Because for most people, real estate ownership is an active business rather than a truly passive investment.

The Stock Market Faithful may develop a different problem: a focus on stock prices rather than business ownership. When you hear people talk about the “200 day moving average” or “support level” or “death cross pattern”, you can safely assume they suffer from this condition.

And it’s the same thing that powers price speculation on things like cryptocoins, meme stocks and other volatile fads: they are hoping for an outcome (rising asset prices) without considering the thing that actually creates the underlying value (earnings). 

Deluxe Muscle Chest Batman Costume for Men
Meme Stock / Crypto Trader

If there are no earnings, there is no value. Betting otherwise is like trying to get in shape by strapping on a fake Batman-style padded muscle costume instead of doing the actual barbell exercises. 

But equally important, a stock is also a guaranteed slice of ownership of a real business, protected by our legal system and financial institutions just like the deed to your house. Although you can easily buy and sell stocks with a single tap on your phone, the actual meaning of stock ownership is complex and old-fashioned and regulated and that’s a good thing. You are a shareholder, entitled to receive company financial statements, attend shareholder meetings, vote on company initiatives, and even hire and fire board members (or become one yourself) using your voting rights.

With no trust in these institutions, including the democratic election system that allows us to keep everything going, there is no value to the idea of owning anything, and a wealthy society cannot develop. Recording the ownership data onto blockchain won’t make any difference, because accurate recording is not the core issue.

What matters is that humans need to trust each other, and behave in a trustworthy way in order to keep all this prosperity going. If you give up on trust and fuck with democracy and start spreading mental viruses to encourage others to bicker and mistrust each other, all forms of wealth start to crumble.

However, as democracy-loving, enthusiastically-voting-in-every-election-even-the-midterms members of a rich society, you and I Iean firmly towards the side of trust and cooperation, which is why our lives are looking so prosperous these days.

To bring these two philosophies together, I encourage people to think of every investment as just a different type of rental house. What value does the house (or company) deliver to society, and what are its earnings relative to the price you are paying? 

For example, earlier this year some friends and I were discussing Rivian, the hot new electric truck startup as it was about to go public. 

(Fancy electric truck with slide-out camp kitchen. Image credit Rivian)

“Wow, that R1T is an amazing vehicle – every wealthy outdoorsy person wants one and all the reviews are glowing. So the IPO is probably a good investment at $75 per share, right?”, said my friend.

“I agree absolutely”, I replied, “it’s a cool truck and heck if they sell it in the actually-useful format of a VAN someday, I’d even buy one myself!”

But the real question is how much of the company are you getting for that $75, and when will the company have enough profits to justify the price?”

At this point we could have tried to dive deeper into the details: Rivian was issuing about one billion shares, meaning you’re valuing the company at $75 billion. So you could try to take a guess at how long until the company produces enough profit to justify this company value.  Which in turn depends on their gross margins, which depend on quickly and efficiently they can scale up multiple factories and secure a stream of several thousand custom components and batteries…

But, not being blessed with the power of infinite knowledge of Rivian or a psychic ability to foresee the future of the automotive industry. I’m not qualified to speculate on the value of these shares. So instead I just buy the whole index and get the great performance of a wide blend of companies, without suffering the unique risks of concentrating in one individual stock. 

And as it turned out, that was a good philosophy if you look at Rivian’s stock price since that fateful IPO:

Buying a hot stock at IPO can make you look like a genius or a fool – but it’s mostly luck either way.

So what does this have to do with Aaron’s question?

Aaron knows how to spot a good deal on a house (which is like buying shares in a productive company), and he has the incredibly valuable skill of being able to renovate them to create new value (which is like helping his new “company” upgrade its factory to deliver even better earnings.)

But he should also be open to investing in other companies (through stock index funds) because they are just doing the same thing in different ways. They’ll deliver a solid and consistent return over the coming decades. While a well-managed rental house can sometimes deliver higher returns than the stock market, a stock never calls you on a Sunday night to say the water heater is leaking or warn you that they need to break their lease early because they got a new job in another state.

And Aaron is taking it a few staircases further still – actively building new stuff and managing five employees – a meaningful pastime to be sure, but definitely not in line with my own idea of retirement.

As he and I have both learned at this age, construction is fun but it also places a massive strain on the body. Rental houses are fun, but shit can get old eventually and sometimes you just want to sit back on a Sunday afternoon rather than fielding calls from your tenant or your property manager. 

In contrast, stock investment is a truly passive way to set yourself up for the best kind of retirement: one where you do the work you love, but you really don’t need the money.

So what would I do in Aaron’s shoes?

I’d keep the houses that I love to live in, and sell the rest if I’m only managing them for the money. I would dump a huge chunk of surplus cash into the sensible index funds through the financial firm of my choice, feeling extra good about the fact that stocks are currently on sale. 

And then I’d keep doing construction projects alongside great friends just as I do now, only when it suits me. When evaluating a new project, instead of asking myself about the potential profit, I would ask, “Is this project so worthwhile that I would do it for free?”

If the answer is yes, go ahead and do it and celebrate the profits and use them to facilitate even more generosity. 

If the answer is no, the project is a no – you’d be taking it on just to make money, which is something you no longer need, because you have already arrived at financial independence. Leave the money in index funds and keep searching for work that you really care about. 

From what I’ve seen, valuable, fun, worthwhile work is an infinitely renewable resource and we both have at least another 47 years of it ahead of us.

Good luck Aaron!

In the Comments: Are you a Stock Market or Real Estate Faithful, or Undecided and still figuring it out?

  • Carsick Yankee June 21, 2022, 12:37 pm

    This reminds me of a relatively new neighbor of mine. He told me he keeps all of his money in savings and in his house because he doesn’t believe in the stock market.

    I asked why and he just laughed “because you could lose everything!”

    I said well sure, you could lose everything. Every stock in the S&P500 could go down to zero. But the odds of that were about as low as the value of his house going down to zero.

    He laughed again and said “Land is land. They’re not making that anymore. The stock market is funny money. Look how the stock market has done recently vs the housing market!”

    I attempted to explain that the housing market is very likely in a similar place that the stock market was at the end of 2021. I don’t know when the bottom is going to fall out, but the current annual property appreciation is unsustainable. It’s good to have some money in cash, property and the US stock market (and I would argue in bonds, foreign markets, and commodities but hey, baby steps).

    But as is human nature, he had made his mind up about the stock market years ago and that was that.

    I came to find out that when he bought his house in our neighborhood – at an insanely high price – he put down just 5%. Five percent! I didn’t even know that was possible anymore. Is it 2006 yet?

    • Mr. Money Mustache June 21, 2022, 2:35 pm

      Thanks for sharing this CY – your neighbor’s perspective is exactly what I’m trying to combat with this article.

      Yes, land ownership has historically been a pretty reliable investment in wealthy, stable countries. But things can still change: for example note the decades-long decline of certain Rust Belt cities here in the US as migration and industry patterns changed.

      And, we are in fact “making more land” – whenever a tract of undeveloped land is chopped up into parcels and set up with infrastructure, from an economic perspective more ownable land has been created.

      The net supply of UNdeveloped land has indeed shrunk, but if you have ever flown over or driven through the Western US where I live, you’ll notice that even after 300 years of this process, it’s still mostly empty. At current population growth rates, it will still be mostly empty in another 300 years. Despite the fact that most of it is beautiful, sunny mountains and canyons and forests and rivers and lakes, WAY nicer than the Great Lakes area where I grew up (pretty close to Detroit actually)

      And this is a good thing: our ecosystem is very happy to have lots of open wild spaces rather than grinding it all up to make more KFC drive throughs and Walmart parking lots :-)

      • nostache September 13, 2022, 7:24 am

        You have gone full traitor with that great lakes comment! ;-)

    • Frederik June 22, 2022, 7:03 am

      The stock market is great, but not when you don’t understand it and end up selling when things get painful. If you understand what happened to the stock market in the 20 years between the late sixties and early eighties (hint: look at Shiller’s data on growth, dividends, inflation, P/E ratios), and are fine with that scenario, I think you’re ready to get into stocks.

  • Impersonal Finances June 21, 2022, 1:03 pm

    The biggest advantage for stocks vs. a rental house for beginning investors is that the barrier to entry is much lower (though obviously you can gain exposure to the housing markets in a similar fashion through REITs). More investors can get started with index funds than with a rental property. In Aaron’s case, I would do the same as your recommendation, though I’m also partial to stock ownership to supplement my main source of income: $500 worth of crypto TO THE MOON. Kidding, of course.

  • Clark June 21, 2022, 1:10 pm

    I really wish shareholders would step up and vote more actively. Is that one major downside from the indexing revolution? It seems like shareholders are very disconnected from their role in the companies owned by index funds.

  • Tristan Higginson June 21, 2022, 1:20 pm

    Aaron is a badass!

  • Fred June 21, 2022, 1:22 pm

    One way to think of it: rental real estate can serve as the bond portion of a traditional stock/bond portfolio, but provides better returns than the bonds in exchange for doing the little bit of management work a rental property may require. For a long time I considered our paid-off primary home and rental property to be the bond portion of our investments – basically avoiding a mortgage payment and receiving rent allowed us to plow that much more cash into the stock portfolio. I have since also allocated a portion of the investment portfolio to bonds as I’m getting older and the portfolio has gotten larger, which honestly has made this downturn a little easier on the stomach.

  • BH June 21, 2022, 1:29 pm

    “You are a shareholder, entitled to receive company financial statements, attend shareholder meetings, vote on company initiatives, and even hire and fire board members (or become one yourself) using your voting rights”

    If you own index funds this doesn’t apply though? Was curious on your thoughts on this issue actually…

    • Mr. Money Mustache June 21, 2022, 2:26 pm

      In many cases, you do still have a voice with index funds – although it may be channeled through the company that runs that fund. For example here’s how things work at Vanguard: https://corporate.vanguard.com/content/corporatesite/us/en/corp/how-we-advocate/investment-stewardship/stewardship-in-action.html

      At the next level up, Betterment doesn’t manage its own index funds (I think, although someone correct me if this has changed). But they do create portfolios of index funds that are designed to create influence to meet the values of their customers. I keep tabs on (and chat occasionally with) Boris Khentov, their investing strategy president and I agree strongly with many of his philosophies: https://www.betterment.com/resources/vote-values-shareholder-engagement

      • BH June 21, 2022, 6:18 pm

        Does give an awful lot of power to a small handful of people though! I certainly didn’t think about this when I first started buying index funds. Apparently there’s legislation being drafted to address this:


        Many thanks for the reply

        • KnittingMole June 23, 2022, 12:40 pm

          I’ve been wondering about this myself. This is the first I’ve seen one of the FIRE bloggers give an opinion (granted, I don’t have much time to read blogs these days). Thanks for the info BH!

          • Kyle E June 23, 2022, 12:59 pm

            Stocks have long been held by a small cadre, so index investing hasn’t changed things much. The stability of indexing is worth less control over board votes, I would say. Better to change your personal habits and those around you.

      • Diane Page July 9, 2022, 12:28 pm

        Speaking of influencing corporate activity through shareholder voice, here’s Vanguard founder Jack Bogle’s 2018 warning about market concentration in index funds: https://www.seattletimes.com/business/vanguard-founder-john-bogle-warns-index-funds-becoming-too-big/

    • Chris B June 30, 2022, 6:40 pm

      Maybe this level of detail and control is over-rated. What are you going to do with it? Launch an activist shareholder uprising with your 100 shares that causes the underperforming executives to be fired, attracts dream-team leadership, unlocks massive value, etc? I never vote in corporate elections, because unlike the case with government, the people who do follow such things and vote have the exact same interests as me.

  • dannyboy June 21, 2022, 1:42 pm

    I’ve got a fair chunk of cash in the stock market. It would be enough to get into real estate. But I have a hard time pulling the trigger because the cost of owning vs renting seems to favor renting right now in Denver, at least for my circumstances. I would also rather keep the stock invested and avoid capital gains. And, as MMM points out, it’s low hassle to own VTI.

    • barbar June 22, 2022, 7:08 am

      From a purely financial point of view, you could use the 5% rule to determine whether it makes sense to do so. For renters the 5% rule means it’s better to rent a house, if your (yearly) rent is equal or less than 5% of the value of the house. For landlords this of course the reverse, although the number is a little bit lower because you have some tax advantages if you run your real-estate holdings as a business.

      For example we are renting our house. We could easily afford to buy an exact same house in a similar location, even without a mortgage. When we moved here, our rent was 4% of the value of the house, now it 3.2%. Of course this is because our rentcontract only allows limited increases, and the value of the house has gone up. But so have our investments in the stock market. I know we got a good deal on the rent, especially because we have a energy neutral house, meaning we actually get paid because the house generates much more energy than we use, and that’s only increasing as sunny days increase. Another way to look at is that our rent is covered by the 4% rule practically forever, and the amount of investments we need is actually a lot less than what the value of the house is now. Which might also be an indication that the housing prices are way to high right now, or we simply got a really good deal on the rent.

      • RBF February 17, 2023, 4:08 pm

        This is very useful, but I’m curious where the 5% figure comes from? In other words, why 5% as opposed to 3% or 7%?

  • Josh June 21, 2022, 3:01 pm

    I put a high value on diversity in my portfolio, it helps me sleep at night. I’m currently mostly in stocks, but also own 3 single family rental properties and have a small portion of my portfolio in music royalties (which is my passion). When I see the stock market bleeding red, I am happy that I have cash flowing rental property and royalties to balance it all out. Even if the math told me to put it all in VTI I wouldn’t do it, as the peace of mind of diversification beats the market every time for me.

    • Jeff Underwood March 7, 2023, 8:08 am

      Hey Josh! That’s been the case for me, too. Over the last 13 years, I’ve owned a mix of real estate and index funds, and that diversification has helped give me the peace of mind to ride out the highs and lows of the market.

  • Kyle Nash June 21, 2022, 3:16 pm

    Another factor to consider: I think the advantage that Aaron’s current system has over the stock market is that he has direct control over the success or failure of the venture, whereas he has effectively no control over success/failure when it comes to index fund investing. Index fund investing is great, so is real estate, it just depends upon what you feel most comfortable with. Some people would be glad to take a call on a Sunday at 6pm if it meant they wouldn’t have to stomach the potential of losing some % of their wealth based on something they have no control over.

    • Jared June 22, 2022, 10:48 am

      > losing some % of their wealth

      Losing some % of their wealth *on paper* as long as they don’t panic and sell low. Your paper net worth may fluctuate but you still own the same % of the company and their earnings. Now if there is a recession and earnings fall everywhere, even real estate is at risk of losing income streams.

    • Efficiency Hobbyist June 24, 2022, 3:20 pm

      I think Aaron thinks he has control over the success or failure, but he doesn’t. There’s a lot of luck involved and systemic risks are real. In the end, it’s no binary – real estate and stocks have correlations since plenty of stocks are directly in the real estate business.

  • Brandon Bruckman June 21, 2022, 3:35 pm

    Real estate can be passive too through various syndication structures. So the answer is both!

  • Matteus Olmedo June 21, 2022, 3:43 pm

    Another stellar post. As a fellow builder/investor, I would like to add in and even go a step farther. I would argue that investing in index funds is like investing in real estate using a property manager and hiring a construction crew to renovate. That may be very attractive to many people, but for me it leaves out the reward of seeing the fruits of your labor by building and managing your own limited number of projects. I invest the same way. Deeply researching a company gives a lot of insight into future earnings which will, over time, correlate to the share price. There are a select few companies I enjoy reading about every day and I find that investing in those companies rather than an index fund is very rewarding both financially and personally.

  • Erik June 21, 2022, 3:44 pm

    Obviously for the more risk tolerant, you missed the fact that it is easier more common to leverage rental properties and while many don’t want to take that plunge (ear muffs for the Dave Ramsey Fans), you gain appreciation on a much larger number, gather cashflow, and gain a tax advantage. I am real estate all the way, even though I see nothing wrong with index funds for a passive investment where returns are not as critical and your into wealth preservation not creation, or you have other better means of creating wealth ie high income or successful business. People can will forever argue on the use of good debt!

  • Norm June 21, 2022, 3:49 pm

    Perfect timing as I’m in a similar position, kinda. As a side gig, my wife and I have owned two rental properties for 7 and 4 years respectively. They both do well, but with other projects of my own I want to work on, I have less and less tolerance for working on other people’s homes. Since this is more of a hobby than a full-time job, I already see rental homes and index funds pretty equally as investments. It’s just that rental homes give you a greater return, and the margin between the two is what you work is worth.

    Once I saw online estimates for both homes as being 50% more than what we paid for them, the choice to sell one was pretty obvious. We are keeping one for diversity’s sake, but investing equity from the sale should create gains pretty close to what we were making from the work and stress of renting.

  • Matt June 21, 2022, 5:46 pm

    The age-old dilemma. I sit firmly on the shares (EFTs) for building wealth and buying my freedom.

    In the past, I’ve been a landlord and it’s pain in the arse, even if you have a property manager, you are still obligated for the ongoing costs and worries of maintenance, tenants not looking after your investment, and an increasing amount of red tape that penalizes landlords in favor of tenant rights. Not to mention rent controls. All your exposure is limited to one geographical area and in the event of a natural catastrophe all can be lost while you battle with the insurance company for a fair payout.
    Being diversified through worldwide ETF exposure, I truly sleep well at night and can concentrate on my health, fitness, and many other interests, instead of weekends doing up a rental property.

  • Jake June 21, 2022, 5:50 pm

    Mr. Mustache Sir, if you owned a single San Diego rental property that you don’t ever plan to live in again with a 30 year fixed 3% mortgage, would you sell it, take the 300k profit and invest in index funds? Or hold onto it and collect profits monthly as rents continue to rise? This is my current predicament. To add more context, this was my primary residence, if I sell it by 2023 I can avoid capital gains.

    • Mr. Money Mustache June 22, 2022, 9:34 am

      Hey Jake, that’s definitely a great and common question. The real question is:
      – how much is the property worth if you sell it?
      – how much rent are you collecting, after covering things like property taxes, insurance, maintenance, etc?
      – how much do you enjoy or dislike the work of managing it?

      – special situation: that juicy 3% interest rate is no longer available and it is subsidizing your returns, so we will consider that as well. Instead of the selling price, we’ll just consider the fact that you have $300k of equity.

      Then you do some quick rough math.

      San Diego is expensive so perhaps your house is worth $800k for a 2-3 bedroom. So I’m going to assume your mortgage is $500k, leading to a payment of $1300 interest / 800 principal / 300 property taxes / 100 insurance / 200 maintenance.

      Only 1900 of these are true costs to you since principal payment is a form of savings.

      If the rent is $3500/month, your net income is $1600 after subtracting the 1900 of expenses. 1600 x 12 = $19,200 annual income.
      Plus you can assume the house will appreciate with inflation over time conservatively at 3%, which adds $24k to the income (!) – this is the magic of leverage through a mortgage. Total return is thus $43,200

      Is $43,200 annual income a good return for leaving your $300k invested? It’s about a 14% annual return, which is fairly good but not stellar given that you ALSO have some risk and some work to manage the place. Especially given that stocks are on sale, which means higher returns for a while.

      Given the capital gains benefit of selling earlier as well, I’d be tempted to sell it myself. But it’s a solid thing either way, especially if the numbers look better once you substitute my fake estimates with your real ones.

      • Jake June 23, 2022, 5:45 pm

        Thank you for the thorough response! Your estimates are very close to reality. I input my actual numbers into your formula resulting in a 17% return (no complaints there).
        Considering all the variables, I’m leaning towards selling the rental in the spring of 2023 and moving that equity into an index fund strategy.

        If my first year of investing is fruitful, I plan to quit my full time job and use an estimated $400k to purchase 10 years of freedom to spend with my wife and 3 kids — ages 7,9,10. While $400k will not be enough to retire on indefinitely in San Diego, I can still reach my goal. Like you, I want the freedom to invest maximum time in my children while I have them under my roof.

        I suspect after a decade of freedom my investments will be spent, my youngest will be 19, but I’ll only be 47 years young. With 10 years of freedom under my belt, i’m betting that I’ll have more than enough time to conjure up a new life plan.

        Mr. Money Mustache, thank you again for this blog and for documenting this great experiment of yours!

        • derbydude June 29, 2022, 11:16 am

          Remember that any amount of part time income you generate has a 25X value toward keeping your funds invested while you are retired. (inverse of the 4% rule). If you earn just $15,000 a year it would be equivalent to $375,000 invested 4% annual withdrawal. You will also likely find work meaningful to you that is revenue generating that you want to do.

  • Skully93 June 21, 2022, 5:52 pm

    Thx for the article!

    We have done a decent bit of investing this year, and some decidedly-unmustachian vacations. Heck, I even purchased a modest motorcycle.

    But I was able to keep some cash on the sides for ‘the dip’. Does it really matter? No. I just put some in when it went down, simple! Striving to keep putting in a little each month, and then MOAR instead of buying crap when there is excess budget.

    Several friends have done very, very well with investment properties. They also have infinitely more patience than I do, skills to renovate, and a love of doing so. I am absolutely sure they’ll do just fine. None of them think that piling money into the stock market is a bad idea either, they just saw opportunities when it was cheap to borrow.

  • Matt Smith June 21, 2022, 6:07 pm

    People getting excited about companies like Rivian and Tesla crack me up a little bit. Sure, these are innovative and enviable companies that are producing something that’s better for the planet than a gas car. But sometimes I think these people need a good ol’ fashioned face punch. If they are really for saving the planet they would be buying an e-bike not an e-car. Down with freeways and up with bike infrastructure!

    • Charlie June 22, 2022, 5:39 pm

      Yes! Cars ruin cities!

    • Vik June 22, 2022, 5:59 pm

      I agree, but just get a bicycle. They work great to get you and some stuff around town without a battery or motor.

    • Chris B June 30, 2022, 6:26 pm

      If you want a green company to be excited about, look at Microsoft, Google, and Salesforce. Our company just went full-remote and eliminated hundreds of daily commutes altogether by using their products. Who needs a Tesla with a $50k cost of ownership over the next 5 years?

  • Ben June 21, 2022, 8:21 pm

    Hey Pete,

    Great post. Especially loved your distinction between hoping for an outcome and investing in something that creates actual value. You can find instances on both sides of that line in both stocks and real estate, so I think it’s brilliant that you have reoriented the discussion to that axis.

    Well done as always,


  • Alex June 21, 2022, 8:33 pm

    Mr. Money Mustache, thanks to your blog I channeled my inner mustachian and worked full-time while grinding through my electrical engineering degree, with the end result being no debt and a surplus of cash. This cash was used to buy both stocks and rental properties with the combination giving me passive income (stocks) as well as learning how to manage a business and use my hands (rentals). Had I just stuck to stocks I would have missed out on amazing learning opportunities, and had I just owned real estate I would’ve missed the insane market since 2018 and all the learning opportunities (ex: MGM @$7 mid Covid ;) ). I believe a key part of mustachianism is the idea of “Moderation in all things”. So to lean all the way towards rentals or all the way towards stocks is missing the point, as you described the clowns who track stock market data or own 300 units and can’t stop. Thanks for another great article and cheers to 47, as my dad too just celebrated his 47th year !

  • Dean June 21, 2022, 8:49 pm

    Recently we sold our house in a sellers market and downscaled enough to buy in a small town for a lot less. We were suddenly in a position for the first time in our lives where we had some money that I needed to do something with. We decided to go the income growth strategy where you invest in solid dividend paying companies with a long track record of paying and growing they’re dividends. Again, I’m new to this, but some of the benefits seem to be that I don’t need to keep up with the daily stock prices, I don’t need to hope that the stock or index has gone up when I need the money, and I can make a pretty accurate estimate of my future income. We’ve looked at maybe getting a rental property, but this strategy, for now, seems to have a lot less potential headaches.

  • George Choy June 21, 2022, 10:25 pm

    Hi MMM
    I have a small holding of index funds, but keep the majority of my wealth in residential and commercial property. We became financially free when my wife was 39, so we were a bit late to the financial freedom game. Should have got focused earlier!

    The thing I love about property investing over shares is leverage. The interest rates on mortgages are so much lower than the returns and inflation. You can take your money and buy four times as much property and then get capital appreciation on the larger sum.

    For example, the UK house price index is 10.5% (May 2022). If you had taken £100k cash and bought 4 houses, worth a total of £400k, then on average you would have gained £40,000 in 12 months, plus all the rent you received. So that is 40% return on your £100k + rent.

    Of course, these past couple of years have seen exceptional growth in house prices. If we took a more average 4% capital appreciation year, then you’d return £16,000 on your £100k, so 16% return plus rent.

    It is possible to make property investing more passive, by purchasing the right types of property in the right areas to reduce tenant voids, and giving management agents more autonomy.

    • Efficiency Hobbyist June 24, 2022, 3:26 pm

      The only pushback with the leverage discussion is everyone knows about it. If everyone knows about leverage, the price of a property increases. Eventually it increases enough so that the spread between property and stock would be the difference in risk.

      • JDM June 27, 2022, 10:47 pm

        This is only hypothetical. In reality, a large segment of the population has no access to leverage on investment-grade properties (note this is not the same as the house you live in).

        So many things were missed in this article. Rental property & the stock market are not the same thing *at all* even though the end goal of producing “passive” income is the same. Smart use of leverage multiplies your efforts in real estate to a degree impossible in index fund investing. Tax codes in the US are explicitly written to give enormous (some would say unfair) advantages to real estate investors; the proper portfolio can produce a tremendous amount of income with no tax liability. Assets are insured in a way that stocks never could be, in that nothing short of the apocalypse could diminish the value of an individual property to zero (there’s always at least value in the land), and catastrophe can be reimbursed through insurance. An individual can force appreciation through improvement, something impossible in stocks if you’re not Warren Buffet. Assets can be structured such that you can leave an impressive legacy to your heirs if you are so inclined with little input from the government.

        The idea that landlords are constantly running out to replace water heaters or fix toilets is laughable. I have a lot of properties and have done this for a long time and have replaced 2 water heaters over the years myself and never replaced a toilet myself. And fixing stuff is what repairmen are for, if you don’t enjoy doing it yourself. Most months I might spend an hour or two on a property. Perhaps that’s slightly more than just dumping it into an index fund, but the returns are oversized ignoring all of the appreciation. I know because I have both – plenty of real estate, and also several Vanguard index funds. My real estate has far outpaced the index funds in the last decade.

        I’m not against index funds, but the dumping on owning real estate is tiresome. The vast majority of people that become rich do so by owning/investing in a business, not by investing in index funds. Owning real estate (not a real estate fund or similar, which is like investing in index funds) is more akin to owning a business than it is owning index funds. Like any business, it requires some inputs (though they don’t have to be you, specifically), but unlike most businesses that can go broke it has some version of a floor but a theoretical infinite ceiling.

        • SteveA July 11, 2022, 4:08 pm

          Yes the markets are not quite efficient and the real estate market is even less efficient then stocks.

        • GreenNewDeal July 25, 2022, 8:57 pm

          Does it matter if most people aren’t able to leverage? You only need two people to bid up a property to a point when the advantage disappears.

  • roguengineer June 21, 2022, 11:29 pm

    I’m a mix of both stocks and real estate. At one time (about 8 years ago), it was probably about an even 50/50 split… But in the last 4, the real estate net values have far outpaced the stock values. What I believe to be the two major values in real estate that stocks don’t provide, are the generous tax shelters, and the ability to leverage your initial investments. On the tax side, I can 1031 my investments into other properties indefinitely, while continuously earning rental income for life. When my time comes, my son will inherit these properties at a stepped up basis, and neither he nor my estate will ever have to pay capital gains on that value. I’m not at all leveraged in any of my properties, but it’s nice to know that I could access more capital if I ever needed any.

  • Matt June 21, 2022, 11:35 pm

    Very interesting article! Why not the best of both worlds, stock index funds, and funds that specialize in real estate, like T. Rowe Price Real Estate Fund? This combination has grown consistently for me, with the advantage of free weekends and much better liquidity.

  • Matt June 22, 2022, 2:39 am


    Pay attention to your *risk-adjusted* return ;) Leverage cuts both ways. Additionally, you can invest in index funds with leverage all the same if your goal is take on risk for higher return – so I believe the point is moot all the same.

    • Kohei June 22, 2022, 3:34 am


      It should come as no surprise that the returns of REIT index funds and of broad index funds are very similar, at least over long time frames. Institutional players just take the less volatile asset (real estate), apply leverage, and then obtain roughly the same returns as one would with unlevered stocks. Basically, the risk-adjusted return of these asset classes is pretty similar.

  • Ian June 22, 2022, 5:24 am

    “Recording the ownership data onto blockchain won’t make any difference, because accurate recording is not the core issue.”

    Agreed, it is not the “core” issue, but legal title of shares is actually a legit issue. See NYT article on how Dole Foods had a large mismatch between shareholder claims and actual shares. This info only came out because of legal battle. https://www.nytimes.com/2017/03/21/business/dealbook/dole-case-illustrates-problems-in-shareholder-system.html

  • smoghat June 22, 2022, 6:04 am

    I’ve been FIRE’d since 2017. I also managed/owned an apartment building for twenty years. My observations, based on years of experience follow.

    The real estate market is vastly overpriced. The traditional metric was 8X earnings. I sold the building for around 40x earnings. I invested the money in the market. Although I made some hedges—and would have done better if I hadn’t—the majority was in ^VTI. I’ve made between 2 X and 3X what I made from the building in the market. Even with the market downturn, even with a greedy, piggish withdrawal rate, I have more now than I did when I started. The main difference, however, is that I can sleep at night more easily. The only plus to owning the building was easier tax deductions. Otherwise, it makes little sense for someone who has FIRE’d.

    Cities hate apartment building owners. There are few of us. There are many homeowners. So the taxman targets us. Or at least they do in Chicago. Taxes, taxes, taxes. And then there are more tenants than landlords so the endless tenants rights’ lawyers promote laws to screw over landlords and drive money into their greedy hands. I was always fair to my tenants. I still got sued. We rented an apartment to a guy who was out of his mind and has a history of suing people. He is so crazy that one of the courts (alas not the one he sued us in) has a restraining order on him. Too bad we only found this out after he sued us. He won. My lawyer said it was completely unjust, but he won. His lawyer collected $50,000, he collected $8,000. I spent $20,000 on my lawyer. Other fees meant it added up to around $100,000. How does that sound? You don’t think you can be sued? I didn’t either and I wasn’t until literally a year after I sold the building. There are countless loopholes and simply no way to avoid everything.

    Fire. We never had one. I was always afraid of fire. Anything could happen. Aging infrastructure, a gas company that decides that 80 year old pipes buried in a 30′ long 3′ x 3′ tunnel can handle twice the amount of gas pressure that they were designed for, crazy tenants, a slumlord next door, gang members in the alley where the trash is. Anything can happen. Anything. Make one mistake and you’ve lost your insurance payout yourself. Did you wire that ceiling light yourself? You did a good job. Great. Your tenant redid the wiring and now you have a fire. How do you prove it was the tenant? I never had one, but I heard stories.

    You think eviction is fun? How do you feel putting someone on the streets? Not good, right? Unfortunately there are also people who make terrible decisions and there are people who are scammers. Both wind up needing to be evicted. There are tons of laws making it very difficult. Also, if you aren’t there when the police come to do the eviction, they will break down the door to the apartment. They enjoy doing it. You will not enjoy repairing it.

    Tenants disappear. Don’t ask me where to. But they do. Out of 32 apartments, one would go missing every year. We’d find out after a couple of months of non-payment and a whole bunch of five-day notices. You can’t, by law, go into the apartment. You ask the other tenants. Eventually you have to go to court. Then you can clear out the apartment and only the gods know what you will see.

    Bedbugs. You didn’t put them there, but you will be blamed. You will have an uprising on your hands. Remember, you didn’t put them there.

    COVID. My building was in another city. My janitor died of COVID. Luckily, I was long gone by then. I’d rather the building be in another city so that crazy tenants are far from me. But in this case, I would have been screwed. I would have had to go to the building and deal with the trash. It would’ve been fun to risk my life, right? Oh yeah, most places had provisions for tenants allowing them not to pay the rent during the first year or more of the pandemic. But guess what, gas, electric, water, and tax bills kept coming. How many months have I said to myself, geez, ^VTI not only isn’t giving me any profits, I have to put money into it!

    Crazy tenants. Did I mention crazy tenants? I had two who kept writing me letters telling me how each was bothering the other. WTH am I supposed to do. Am I an AR in a dorm? One kept claiming the other was racist and hated him. In turn, the other one said that the former had loud parties that prevented her from sleeping. Who to believe? I asked them to go to arbitration. They laughed at me. Another tenant painted his whole apartment black (yes, there was a clause saying that you had to get approval for painting your apartment, but anybody who does that isn’t sane, so he didn’t ask). Do you know how many coats of primer you need to cover over black paint?

    Suicide. A boyfriend of a tenant’s daughter blew his brains out in the stairwell. The cops don’t clean up for you.

    Death. Don’t get me wrong, our apartment building had lovely tenants and we had fair rents. People stayed a long time. People liked it. People cried when they heard I sold the building (sorry, I’m not a charity). One lady had lived there since the early 1960s. She loved it. She lived a good life, into her late 90s and died in her bed. Her kids’ contact info wasn’t up to date and they didn’t. bother to say they hadn’t heard from her. When the police did a welfare check at our request (we were there so that again, they didn’t break down the door), she was in her bed. Luckily she’d cracked a window. It took two months to get the smell out. How do you feel renting an apartment whose previous owner was mummified in? You won’t mention it? How do you feel renting an apartment to somebody who will find that out within the first week from other tenants. “Oh, you’re in the mummy’s room.. Ohhh!!!”

    There is much more. None of it is rewarding.

    If you think you are impervious to any of this, you are wrong. If you think modern management techniques can make it all better, you are wrong. The people who make bank in this market today are cutting corners and being unethical. Rest assured of that.

    I realize that I have exposure to tobacco stocks, that I own stocks in companies that make toxic chemicals, that do bad things, and so on. I made a lot of money owning that building, but mainly by selling it into a massively overpriced market. Ownership is not for the faint of heart.

    • Mr. Money Mustache June 22, 2022, 9:16 am

      Wow, fascinating stories and thanks for sharing them! Also, congrats on selling the building for such a high price, it sounds like a great decision.

      40x earnings!? Does that mean the new buyer was settling for only a 2.5% cap rate to use the traditional term? (And I agree that if you’re buying a commercial building which takes work to manage, you want a 10%+ cap rate, not two percent)

      Your stories remind me of something that I have learned the hard way in both business and friendships and government: as nice as we can be, human beings are chaotic and messy creatures. So, be sure to design your life such that you can enjoy the best of humanity, without having your ability to sleep at night being subject to the whims of the worst of it. When you run a business with 100 tenants, partners, employees or whatever, you are multiplying the chance of trouble by 100 times.

      Of course, more people in your life also brings more joy, but why not focus that emotional mojo on building 10 great friendships instead of maintaining 100 tenants, which is generally a less friendly arrangement?

      • nice joy June 22, 2022, 10:30 pm

        WOW, Thanks for this comment. Rental properties are not for me for sure .

      • Jennifer October 9, 2022, 5:56 pm

        Based on his previous 2 sentences, I believe he meant to write 4X.
        I agree with you both. It’s not for the faint of heart, and often very debatable if it’s worth it. I have 2 apartment buildings (8&12). I manage one remotely and the other has management. The goal was to acquire more over time, but I’m not sure if I’m interested anymore. The nicest people end up being the shadiest all too often, and it only takes the smallest thing to send people who you have done so much to make happy into a meltdown. 2am foul mouthed phone calls because the neighbor upstairs is being too loud, and drunk adult kids passing out on neighbor’s couches! Ugh! Some of my tenants are wonderful, don’t get me wrong, but it only takes one to make your life very stressful.

    • ecogeer June 23, 2022, 5:55 pm

      Yes… I had two bad tenants in a row on my little rental property that got me out of landlording. I prefer to spend my time enjoying inspirational folks rather than those subject to poor choices and situations. I can empathize with their plight, but don’t need it to be front and center in my world. REITS have been a great substiture investment.

    • Chris B June 30, 2022, 3:50 pm

      40X earnings and a 2.5% cap rate?

      How do people argue there is not a housing bubble?

      • SteveA July 11, 2022, 4:14 pm

        A 2.5% cap is very uncommon. In the hundreds of properties I have looked at in the last five years I have seen none at that level – maybe prime land in San Fran or Chicago – but across the US it is a selective subset at 2.5%. A building we just bought had an appraisal with eight regional comps all between 8 aand 10% cap rates.

    • Richard July 8, 2022, 11:45 pm

      Thanks for the effort of writing so much, I am only a small time landlord but your comments had me laughing out loud with what can happen. I am always worried about something happening that harms the tenants like a fire or something similar. I do take joy in knowing I am putting a roof over someone’s head.

  • Gerard June 22, 2022, 7:20 am

    The way I try to explain it to my house-coveting stock-averse relatives is that a house is like buying one giant share of a company with one industry (housing), one location (the house/city), and amateur management (you). I’m not sure I’ve yet convinced anyone!

    • Nora June 22, 2022, 10:44 am

      You’ve convinced me!

    • Aaron Hemry June 22, 2022, 11:34 am

      Wow! That one rings true. Hence, my original question to MMM. Thanks for sharing that, Gerard.

      • Gerard June 27, 2022, 8:57 am

        I actually wrote a blog post about this! I suspect the site wouldn’t like me posting links, but if you googled “optimacheap” and “risky investment” you might find something… :-)

    • Richard July 8, 2022, 11:39 pm

      I like your slant on this, whilst I see my real estate as being part of diversification with my shares, each is bigger than any one share investment so lots of eggs in one basket. Thanks for your input as I am currently weighing up how to set up my portfolio for the future.

  • TheLazylonewolf June 22, 2022, 7:29 am

    I’m still sticking to index funds and a microscopic amount of BTC and ETH since it’s less work… not that I can afford property yet. Would still love to get one rental as a safety net though even if I’m worried about the rental freeze during the lockdowns.

  • dan.johnston June 22, 2022, 9:43 am

    My wife and I started along the path to mustachianism in 2012, and have built up a nice real estate empire since then with about 10 rental properties. We haven’t dipped our toes into stocks yet as the numbers have absolutely nothing on the returns we’re currently getting.

    As a general contractor, buying distressed properties, remodeling them, and renting them out not only gives a 12-17% return after all expenses, but just fixing them up raises or even doubles their value on paper. Housing values generally rise to at least match inflation, and we raise the rents regularly as well.

    On average I spend maybe 4-6 hours a month taking care of issues, and my wife spends a similar amount of time managing them. Not a bad trade off for that kind of return.

  • SDW June 22, 2022, 10:47 am

    No such thing as zero risk. Land has risk, tenants are risky AF, stocks have risk, even crypto has a little risk. Pick an investment vehicle that helps you sleep best at night.

    I prefer stocks as real-estate can be a time sink, real estate agents make me gag and tenants seem like dice roller.

  • Helen June 22, 2022, 12:27 pm

    I would love to have my own condo but I live in Seattle and real estate prices here are crazy. Plus on top of that neither my husband nor me are handymen. We do not have skills to remodel. And handymen here charge as much as my husband in IT earns, ha-ha! So due to this we do not have mortgage and thus we accumulate some extra cash. Mr. Money Mustache, I recently opened Vanguard account and purchased index fund called VTSAX using that extra cash. What are other index funds that you personally enjoy? I will appreciate your advise. Thank you!

  • Aaron Hemry June 22, 2022, 12:50 pm

    Reading all these great comments after yet another awesome MMM article has me pumped!
    Pete expanded my own little unique situation into a broader discussion that will undoubtedly help others think through their own circumstances and preferences.
    As I crunch the numbers and meditate on what’s best for our own family going forward, I’ll be sure to stop back and give an update.
    It’s a great feeling knowing that I can scale back my work to whatever level I want. That knowledge alone has reduced my stress levels so all the financial pulls on my time feel less urgent and other aspects of life more interesting.

    Some initial thoughts on the article:

    If the main reason to achieve financial independence is to not worry about or actively manage your accumulated wealth in order to reap the ongoing benefits then passive stock investing seems like the best way forward.

    If, on the other hand, a person enjoys managing some things in retirement (rentals, businesses) then financial independence becomes a means of eliminating other unnecessary drains on time, such as working simply because you need the money.

    Since I have many interests, I am not concerned with finding plenty to do as I approach financial independence so a bit of truly passive income would be a great addition to my more active investments.

    When I was twenty I read “Your Money or Your Life” and that was instrumental in me choosing the rewarding work and frugal lifestyle that I still have.
    When Vicki Robin and Joe Dominguez first wrote their book, however, they recommended treasuries as the best safest investment option… Obviously that is not now or in the last thirty years…
    Will index funds will be this next FI generation’s version of treasuries?
    They are great if you rode them up this far, but will they still be great in the next ten to thirty years?
    What about house prices?
    Rental rates? Similar problems?

    I don’t know.
    But I guess we will all find out.

    To my original question:

    Does anybody out there have any third or fourth pillar of achieving or maintaining financial independence they’ve personally used?
    Private lending?
    Small Business investments?
    Something else?

    If so, I’d love to hear more about it.

    Thanks to MMM and all the great commenters on all his articles. I love reading and absorbing all the wisdom!

    • ChrisD June 23, 2022, 11:17 am

      Have children. Not a guarantee, not the only reason to have them, but one more plank in a well diversified portfolio. ;-) Then maybe grants and mentoring to help disadvantaged young people up the ladder. Then investment in building a healthy community. Start up a small business for fun, then when you get bored, pass it on to someone else who couldn’t otherwise get started but who can keep it going. Promote co-operatives e.g. financially support and mentor a staff buy-out of a small business.

  • zeltcm June 22, 2022, 1:06 pm

    I personally cannot support real estate investment – I find the idea of high property values to be antithetical to my goal of affordable housing for people. I’ve had to do a lot of arguing at city halls (current town and previous) to support getting necessary housing built, and some of the reticence I see from folks is trying to preserve their home values. I don’t know why owning a home should be considered an investment any more than car ownership should, and why the former (often) appreciates while the latter depreciates.

  • Kelly Monaghan June 22, 2022, 1:52 pm

    For the benefit of dummies like me, what does VTI stand for?

  • Tyler June 22, 2022, 2:42 pm

    Vanguard Total Stock Market Index Fund

  • Annika June 22, 2022, 3:49 pm

    Lol, sounds like a regular evening on the couch in my marriage:

    Me: I just bought some ETFs for my portfolio and it’s growing, that’s so exciting!!!
    My husband (still at the stage of stockpicking): naaaw, look how my commodities are coming along. And we still need to talk about that rental house thing..
    Me (still at the stage of hating rentals): naaaaw, look that’s too much effort and not really passive income…
    .. and so it continues..

    TBH I feel quite disconnected from the badass crowd here when reading how everybody has rentals, super high stock investments and we just started after paying off debt (mortgage still going). We learned finances the hard way, but now (35 and 40) we hit our first REALLY major breakthrough and set up ETF portfolios for all of our 5 kids (still little) to give them a better start to finances than we had.

    Reading here has taught me so much about responsible financial decisions and that knowledge is getting passed straight to our kids. how do calculate the return on investment for this one? Thanks MMM!

  • James June 22, 2022, 4:33 pm

    I have a mixture of investments in stocks/401k etc and real estate. Heavily weighted in real estate.

    What I like best about real estate is I – like me personally – take something nearly valueless (and ramshackle property) and force appreciation through renovating/improving it. I’m by no means against index funds and investing in the market, I just feel like I have a lot more control in real estate.

  • pdiddy June 23, 2022, 6:02 am

    This is your most important post yet. An economy can’t function without a base level of civic trust in our institutions. And Trump and his supporters have very cynically attacked that trust for the crassest of reasons.

    • Mr A July 4, 2022, 6:53 am

      Whats your take on this MMM? I share pdiddys fears here, and it makes me hesitant to continue to invest in
      index funds (or anything else for that matters…). But what else is there?

      I know you are positive as fuck and thing usually work out, but a lot on the line these day. And it gets me worried.

      • Mr. Money Mustache July 4, 2022, 1:47 pm

        I remain optimistic – democracy has been attacked in the past (some of the stuff in the Nixon era seems just as severe to me, plus remember all of our close calls with nuclear war?) and the US seems to scrape through.

        Also, remember that even if we did end up with a sham democracy that is really a disguised autocracy, it would still probably be a relatively subtle change. After all, right now we have a *fairly* legitimate democracy that still has a lot of cheating around the edges – gerrymandering, lobbying, plenty of crappy politicians mixed in with the good ones, etc. And while I don’t like it, I have still been amazed at how well the country and business world manage to function despite ourselves. The limited scope and power of the US government over its own citizens is probably a good thing here.

        Still, there are a few win/win things we can do to help us sleep better regardless of what happens in the political world: Work on your physical and mental health, build lots of friendships and sharing relationships with people you like, strive to be more helpful to others and less dependent and others every day, and learn skills in all areas – including maintaining your house and fixing things. Also, get yourself a good house with some space for yourself and your family as well as some space to share with guests, make it energy-independent (solar power and heat pump, with optional battery storage at some point) and pay it off.

  • John Clark June 23, 2022, 10:26 am

    Hey MMM. I’m pretty new to the game, with one rental property, one paid-off house, and a just-sold house in an expensive neighborhood. I made a really good chunk from the house sale, and my plan (after becoming a big fan of your blog) was to invest in VTI and let it ride while I continue to work for a few more years.

    My question comes from a little stock that Robinhood game me for signing up two years ago called PSEC which pays dividends (.06 cents a share per month) at the moment. I never paid any attention to it, since I only owned one share at $6. But then I was just curious about the percent they were distributing and it blew me away! It’s a 10 percent annual return right now at .6 cents a share monthly! I was about to jump right into VTI and instead I went down a rabbit hole of research on Dividend companies and Dividend Index funds. PSEC seems like a very solid company that is positioned well, but there are many other huge companies that also pay substantial dividends.

    Do you own any dividend index funds? Or do you have any thoughts on going down that road instead of just relying on the trends of the 500?


    • Brian L June 26, 2022, 9:04 pm

      Great point John. I just sold a rental house in April (never looking back at managing property again!) and was looking for investment options. I think MMM is brilliant on the ‘demand’ side of things (reducing expenses), but on the ‘supply’ side (income generation), I think plunking all your $ into VTI might overlook the world of dividend ETF’s, CEF’s, preferred stocks and traditional & baby bonds. Going 100% VTI is certainly simple. But I’d encourage you to check out relevant newsletters on Seeking Alpha, I subscribed to one and it really opened my eyes. I’m cautiously optimistic that 6-7%+ returns are realistic through diversified dividend investing, vs the 4% withdraw rate counseled here on VTI.

    • Chris B June 30, 2022, 3:39 pm

      There is no such thing as a well-positioned, very solid company with a 10% dividend yield. Hundreds of thousands of analysts around the world are looking at the details of PSEC right now and deciding not to buy because the price is too high. That’s true for any stock, which is why the price is always fair.

      You are not going to find information on Robinhood or SeekingAlpha that the rest of the market somehow overlooked and retire with a one-stock portfolio at a 10% withdraw rate. Get that idea out of your head or it’ll cost you dearly!

  • Big John the Real Deal June 23, 2022, 11:27 am

    Land. Something other than crops on top of it has it’s benefits and drawbacks. Ultimately housing holds value long term. I don’t think the markets are done correcting yet. Still plenty of warning signs. Then there are the upcoming elections, which will be super noisy and contentious. Political instability is real now. That’s always bad for markets; freaks people out. I’d bet rental housing, assuming it’s in a place that isn’t strife with lawyers, prog activists, and bureaucrats who have the power to mess with you and your investment. That rules out IL, MN, and WI. Lol.

  • Burt June 23, 2022, 1:16 pm

    I think it prudent to own both asset classes. Rental houses with a good property manager are a nearly total passive investment. There’s certainly more effort up front identifying and analyzing the investment (compared to buying VTI) and finding the property manager, but the cash flow and tax advantages are worth it.

  • Rum Tum Tugger June 23, 2022, 4:43 pm

    I guess I’d consider myself property curious. We put 40-50% of our income into index funds, mostly tax deferred. I’ve often thought of getting into the rental game, but it seems to have high barriers to entry and neither one of us is handy, which appears to be a common characteristic in those who’ve done really well with rentals. I also think the days of sub-5% interest rates are over for a while. So I’m staying with the stock approach for now!

  • Ann June 25, 2022, 1:33 am

    ‘I think of houses and stocks as being two versions of the same thing.’
    and ‘What matters is that humans need to trust each other…’
    You’re a genius, MMM. The logical thinking of an engineer, the prose of a literary writer, and the wisdom of a philosopher all combined in one mind. Where did you come from? (Don’t say Canada!)

  • Kyle June 29, 2022, 12:42 pm

    >> “The Real Estate faithful will often talk about the concrete nature of their investments. Their houses and apartments really exist, and they provide the service of housing to their tenants which is an essential human need. In exchange for meeting this need, the investor collects rent which is a genuine and sustainable source of income.”

    Have to disagree here. Unless they actually developed the building the landlord has provided nothing at all. What they have actually done is used their access to capital (quite the privilege) to insert themselves as a pointless middleman. The landlord has created no value, they simply use their control of a limited resource (as you point out, one that is an essential human need) to extract additional wealth from the renting class.

    The unrelenting “investment” in real estate has led to a massive misallocation of resources, particularly in Canada where literal trillions of dollars are tied up in non-productive real estate instead of being used to actually make things.

    • Mr. Money Mustache June 29, 2022, 1:54 pm

      So you’re proposing that the general contractor should be obliged to stop after the construction is complete and put on his marketing hat in order to attract tenants for the new building, and then switch over to become the property manager henceforth, settling down to maintain the tenants for the next 100 years? And I assume that this would be done at a “fair” rental rate and operated as a nonprofit, rather than one based on supply and demand, right? ;-)

      I’d prefer that people are allowed to specialize and use our skills as we see fit. In the case of a property investor, these are people or companies that specialize in saving or raising money, selecting a good apartment building, and then buying and managing it.

      When there are more of these entities, competition increases for buildings which means prices rise, which spurs construction of more buildings. This increases the supply of available rental units, which DROP IN PRICE as landlords are forced to compete with each other.

      Canada (my homeland) is different: Supply is partially restricted by zoning laws. Rapid immigration of relatively wealthy people has increased demand in bigger cities. Some of these people believe real estate is a “store of value” rather than a productive asset like an apartment, so they buy units juts to hold rather than renting them out. Other people see the rising prices and get dollar signs in their eyes, bidding up housing either to avoid missing out or in the hopes of flipping it for a profit.

      The solution? Open the taps to building even wider, and add a very high tax on unoccupied housing (if you can devise a fair policy to detect speculative purchases), while making it easier to rent out units which helps lower rents.

      While you’re add it, eliminate minimum parking requirements and car-centric design, repurpose roads and parking lots for more housing, and make every road a toll road, billed automatically based on demand pricing and vehicle size. Better cities for all!

      • Cam July 13, 2022, 4:32 pm

        Sounds like someone may have read some Strong Towns literature, haha. Land tax + universal tax abatement is often the solution for non-productive land. This includes useless parking lots, speculative holdings on empty apartments, and in-fill lots that could be developed.

        Property taxes makes little sense. Under the traditional property tax, a responsible owner of a well-maintained home pays more tax than the owner of an adjacent vacant lot or boarded-up building. Yet, the cost of maintaining streets, sidewalks and utility pipes adjacent to these properties is the same. The snowplow doesn’t lift its blade as it passes the vacant lot. All these properties are receiving the same infrastructure benefits.

        A land tax avoids punishing people improving their community while reducing the reward of speculators.

        The overlying complexity of these systems on top of supply/demand is fascinating.

    • JDM July 5, 2022, 9:13 pm

      I have bought plenty of slum houses, usually from homeowners, who collectively let their properties dissolve into trash, fixed and cleaned them up with my own funds and provided clean, modern housing for people who otherwise would be living in worse conditions or not having their own home at all. A lot of these people couldn’t afford to fix a heating unit or a water heater when it breaks, which is why they rent so that their landlord has to absorb the cost.

      In a capitalist society no one gets paid for long for being a “pointless middleman”, as you so declared. Either real value is added or workarounds and process changes are discovered or designed. In the US at least (I won’t purport to understand the Canadian or European model enough to comment), you only remain a renter as long as you want to remain one. There are more programs and models for being a homeowner in the US than anywhere else in the world, even for those of severely limited means. FHA 3.5% loans. VA loans. Rural Development loans. Forgivable grant programs. ETC.

      In fact, the entire point of the MMM website is that opportunity is everywhere if you just open your eyes, get off your ass and get out of your own way. His entire lesson is that a guy who wasn’t born a millionaire became one without winning the lottery by simply employing opportunities that are provided here. He’s also (or at least was) a landlord – do you suspect he adds no value but simply sucks the life out of his serfs?

  • Chris B June 30, 2022, 3:25 pm

    I’ve looked at Real Estate and run the numbers over and over again for many years, because there are plenty of very wealthy people who compounded their leveraged money that way and made it to FI in a small number of years. However I never got into the landlord business.

    It was just too hard to “buy a job” when the thing I wanted most was to “not need a job”! If I arrived at a FIRE number of wealth and had built a massive RE business, I would just have to suffer extraordinary tax, brokerage, bid-ask, and closing costs selling it to arrive at a passively-funded retirement.

    I see this scenario playing out with entire RE portfolios listed on Zillow. Usually the houses are dilapidated because the owner became physically unable to keep up with all the work that needed to be done. Trying to sell one’s problems is not negotiation from a position of strength.

    Why buy a job managing an apartment complex when AVB, EQR, and MAA each have a >10% return on equity and actual liquidity?

  • Bod July 1, 2022, 4:54 am

    I’ve done well out of real estate. Yes, tenants can be demanding, but no pain no gain.
    Real estate is a long-term proposition, so no quick buck to be made.
    But my assessment is that I would have done better investing in indexed funds over the same period I have had the rental property (15 years as I write).
    The one thing in favour of my rental for me is that I had a forced saving plan. Doubt I would have been as disciplined investing the equivalent in equities. So because of that, I am probably better off (non-scientific gut-feel conclusion).
    I plan to start reducing my real estate holding in a few years time and move the funds into superannuation, which is a no-brainer at my age for tax benefits and income generation.

  • Julie July 4, 2022, 12:46 am

    First…the arm…I’m contemplating hang a plant off the thumb, tickling it with a feather or bubble wrap it to the point that it is too big for the hole in the ceiling and is stuck. Think the bubble wrap wins. Ha ha.

    Rebalanced some funds to a real estate index fund (along with materials, energy, utilities, consumables, health care, etc.) to my portfolio at the end of last year. Wanted to be well balanced before more inflation hit. It just felt more safe and stable. Real estate seems a bit more complex and risky with lots of strange region-specific anomalies to take into consideration.

  • Kristen July 5, 2022, 8:22 pm

    I’ve only been investing for 2 years now but I’m stock market faithful! It is so, so painful right now!! Luckily I’ve learned enough from you and others in the FI community to know that I just have to stay the course and wait patiently.

    Wondering though if I should put some or all of the 50k I have saved for a house in the stock market since it’s a good deal right now? House prices just seem to keep rising. Maybe just stick with renting for a while longer. Thoughts?

  • Fabbio Areche July 6, 2022, 3:58 pm

    Another great post, and very timely indeed. It would seem as I am at a crossroads as well. I have a three family house in northern New Jersey that I bought five years ago. I thought I would be the next big real estate investor inspired by Rich Dad Poor Dad! I was sorely mistaken! What came was a rough patch in my life where I struggled to figure out how to be a landlord, keep a full time job, work on developing my mental health counselor practice, and somehow keep a social life. The upside to all that struggle was it forced me to seek a better way to invest that would not cause me to lose my sanity. That’s when I found this blog and the VTI. It has been a literal life saver (and sanity saver to boot!) I first seriously considered selling last summer, but thought let me try a property manager first. I realized that even with a manager I was still getting calls and texts from tenants and had to manage the manager. And here I am debating whether to push through or sell it and dump the proceeds into the VTI. My gut is telling me to let it go and move on while my stubborn side tells me to struggle on. Any feedback would be greatly appreciated!

  • Richard July 9, 2022, 1:53 am

    Loved the article, I have great debates with my eldest son (on the mustatian path) about real estate v’s shares. I have always liked real estate ( ability to add value and see something) he has always liked shares, (buy a bit every week with no physical input). I have convinced him to own some realestate (which has made him heaps thanks to leveraging) and I now have a small share portfolio. Now that I have left paid work I am thinking more about getting out of real estate (after all I will always have some exposure to realestate in the home I live in) and investing in shares and the like within superannuation as a no input, no work, tax free environment. And yes shares are on sale so I have bought more in the past week.


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