Scott and James discuss the tradeoffs between investing in real estate and the stock market.

Listener Question

My wife and I just purchased our first home (30-yr fixed, low interest rate, strong housing market in suburbs of a major city).  As we start a family, we realize we'll likely need a larger home in 5-8 years.  Should we plan to purchase a second, larger home, while maintaining our current home as a rental property (which I assume requires less risky investments today), OR invest more aggressively today and plan to sell our current home when we upgrade (have only one house, no rental).  Hoping you can provide a framework to help think through potential returns/tradeoffs of each scenario.  For example, how to compare the return on a rental property (appreciation of property value and eventual sale) vs returns if the same money was invested in the market.  Also, imagine there is tradeoffs between liquidity of owning a rental vs investing in market.

Our home is worth between $650-700k, interest rate 2.6%.  Unclear what rent we could expect, maybe around $3k/month.

Planning Points Discussed

• Retirement Planning
• Utilizing Time Efficiently
• Capital Appreciation
• Purchasing Power
• Other issues (IRAs, Inflation, Financial Goals, etc.)

Timestamps:

3:07 - Liquidity For a Purchase

6:27 - Multiple Mortgages

9:55 - Tax-Writeoffs

12:05 - Home Prices

16:17 - Comparing Stock Market v. Real Estate

18:22 - Net Worth 

21:08 - Desire For Simplicity

LET'S CONNECT!

James

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Scott

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