Rental properties excel at generating passive income. In 2018, for example, the S&P 500 paid a dividend yield of around 1.9%. Even then, if the balance of their portfolio falls, they’re subject to a “margin call” – the brokerage can force them to sell their stocks (at a huge loss) to recover the loan.īoth real estate and stocks can appreciate in value over time, and both can generate passive income.īut here’s the thing: most stocks don’t generate much income in the form of dividend yield. When stock investors buy on margin, they can typically borrow up to 50% of the cost to buy new stocks. Stock investors can take advantage of leverage as well, but with far less flexibility. Investors can keep reusing the same $30,000 to build a huge portfolio of rental properties in this way. It stands for buy, renovate, rent, refinance, repeat, and when you refinance, you pull out your original down payment to reuse on the next property.
In fact, savvy investors can use the BRRRR strategy of real estate leverage to recycle the same down payment money over and over again. If they house hack by buying a small multifamily and moving into one of the units, they can borrow up to 96.5% of the purchase price with an FHA loan. In other words, they can buy an asset worth $100,000 with only $20,000, and over time their tenants will pay off the mortgage for them. Real estate investors can typically borrow 80% of the purchase price with a rental property loan. After explaining some of the pros and cons, I’ll break down some sample numbers for how your portfolio might look as you invest for passive income and FIRE.
#Get wealthy faster with small and micro cap stocks series#
To help you decide between real estate or stocks for your early retirement plan, I’ll outline a series of advantages of disadvantages for both real estate investments and stocks. Real Estate or Stocks for FIRE? Invest in Both.
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