FSKAX vs. Real Estate: Which one should you invest in?

Someone asks:

If you have just completed a cash out refinance of 200k, would you invest it in FSKAX or buy a rental property? My plan is to take 100k and put it on the rental property and the remaining 100k will be put into FSKAX as a reserve for the rental. What are your thoughts?

Answers:

Richard Y:

Buying rental property really depends on your location, how much you can charge for rent and how much real estate appreciates. There are headaches associated property , cutting grass, landscaping, painting, plumbing, sealing blacktop, just to name a few things. Always made more money over the years in the stock market ,sold my stuff and invested the money I had left after taxes in the stock market . I make more in the market than I ever did with rentals. Just my experience.

David M:

Just sold my rental this spring after 7 years as a landlord. Never again. It sounds appealing at first but easily turns into a money pit, and you are at the mercy of the local market in terms of what you can charge for rent which may not always be enough to cover your costs.

John M:

As mentioned Rental properties have a cost. Why refinance in the first place? Is it your primary? Right now I just do not see any value in the stock market or property prices that would lead me to refinance right now. Rental properties can be a good investment, but like stock it only makes sense if the initial investment, home appreciation and income make sense.

Robert A:

I’m thinking of doing the same thing with one of ours for some of the “hassle” reasons others have mentioned. However, like you, I’m going to roll the money back into real estate, but focus on property that is relatively less work. I want to take advantage of the 1031 exchange and avoid cap gains. Since 2012, real estate has been great. I have REITs too, but I like physical real estate for diversification. That said, without the 1031, I’d be much less inclined to invest in physical real estate versus a REIT. I hope it survives tax reform.

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