Frequently Asked Questions
Stocks or real estate - which is better?
I believe in having a diversified portfolio of stocks and real estate so that all my eggs aren’t in one basket. Real estate doesn’t always move in the same direction as the stock market, and it tends to be much less volatile. But investing in the stock market generally requires less money to get started, compared to traditional buy-and-hold rental properties.
There are many ways to get started in real estate investing that don’t require a lot of cash, so consider investing in both!
How do you decide a property is worth buying?
It’s largely a numbers game. I compare the expenses (mortgage, property taxes, HOA, property management fees, vacancy factor, capital expenditures, etc.) vs the rental income to calculate both cash flow and ROI. I like to calculate ROI so I can compare it against the historical stock market return of 8-10%. If it doesn’t meet or beat the market, why bother?
Use my Real Estate Evaluation Tool to help you simplify the process.
Which stocks should I pick?
I’m not an advocate of stock picking. I’m not good at it, and neither are most people! Why bet the house on one thing when you can diversify by investing in ETFs or index funds?
Some of my top funds include Fidelity’s FZROX, FXAIX, & FSPGX and Vanguard’s VTSAX, VOO, VTI.
If you feel you must pick stocks, consider the 90/10 rule, where only 10% of your investment portfolio is made up of stocks you handpick and the rest is in index funds.
ARM or fixed rate mortgages?
It depends on how long you plan to keep the property. If this is your “forever” home, I’d typically suggest you go with a fixed rate mortgage. If you’re planning on selling the home within the next 10 years or if you’re unsure you’ll be living in the property longer term, it might be worth going with an ARM.
Under current mortgage rate conditions, where ARM and fixed rates are relatively similar, consider locking in a fixed rate at historically-low interest rates.
I have student loans. Should I pay them off before I invest?
Start investing as soon as possible! If your student loans have a high interest rate, consider consolidating your debt by taking out a lower interest rate loan or using a cash-out refi to pay down your high interest rate loan. Then make the minimum payment for your new loan (“slow pay”). This strategy also applies for other high interest debt, like credit card debt.
Remember that if you wait until you’re debt-free to start investing, you’re losing out on years of building wealth! The power of compound interest either works against you or in your favor. Pick the latter option.
How can I get into real estate investing if I don’t have much money?
There are many ways to get into real estate investing beyond the traditional buy-and-hold method. A few options that require little to no cash include wholesaling, REITs, and crowdfunded real estate platforms.