Rental Property vs Stocks – Tracking Experiment Continued …

A couple months ago I talked about comparing rental property vs stocks, using 2 of my personal assets as examples we can track over time. One is a personal IRA account (backstory here) which is invested in a total stock market index fund. The other is a duplex rental property located in Texas (backstory here).

On July 1st of this year, both of these assets were worth almost exactly the same amount… ~$109,600. Now, just 60 days later, there’s a huge difference in value between them.

My goal with tracking these two investments side-by-side is to see which one outperforms the other, both short-term and long-term.

I know it’s unfair to compare the growth of a physical rental property vs a stock portfolio because they are contrasting investment strategies. But, I’m gonna compare them anyway because I’m a weirdo and I think it’s fun! This experiment is kind of like racing a dog against a horse. (😂 I just got a funny image in my head). Each has unique strengths and weaknesses so it’ll be interesting to juxtapose them over time and debate about which is the better investment.

Rental property vs stocks: Updates July & Aug 2020

As of September 1, here are the current values for each asset:

IRA account value:  $124,117  (has grown +$14,515 since July 1)

Holy cow! Nobody could have predicted the recent stock market return and sharp bounce back after the crash earlier this year. As a reminder, this account is 100% invested in FSKAX, a Fidelity mutual fund that replicates the Dow Jones U.S. Total Stock Market Index. In March, this account went as low as $77k — what a fascinating recovery.

graph showing 1 year growth of IRA account

While I’d love for this crazy growth to continue, good times like this can’t go on forever. But unless there’s a sudden correction, it’s safe to say this IRA will be worth more than the rental property investment for a long while…

Rental property value:  $111,623  (has grown +$1,997 since July 1)

Buy and hold real estate is a much slower and steadier investing game. I don’t think I’ll ever see a massive sudden surge in value (or dramatic downturn 🤞) for this property. For me, volatility is neither a good thing or a bad thing, because I’m invested for the long term regardless.

Here’s the rental property value breakdown, including the float account and reserve fund:

chart calculating rental property value. Total asset value minus outstanding mortgage

All in all, the value increased $1,997 over 2 months. The outstanding mortgage shrunk by $473 thanks to principal pay down, and the remaining $1,524 came from positive cash flow.

Cash reserves for real estate

I get a lot of questions about my cash reserve or “float account” for this rental property. Feel free to shoot me an email or comment for specifics, and I’ll address a few common questions here:

Why do you have so much cash in the reserve account?… At minimum, I like to keep about 6 month PITI (mortgage payment + tax + insurance) in the reserve account. Also, I pay property taxes (~$5k) and insurance (~$1k) out of this account in a lump sum. Having a large balance also covers expensive emergencies like blown A/C units or sudden loss of rental income.

Is this reserve account separate from your personal bank account?… Yes, I have separate checking accounts for each investment property I own. All mortgage payments are auto-deducted from their respective accounts, and rental income from each place is deposited into them. Although this sounds like a headache (managing multiple checking accounts), it’s actually all on auto-pilot, and it makes calculating individual ROI very easy.

Why do you include cash reserves as part of the asset value?… In my mind, the property can’t exist without the reserve fund. And the reserve wouldn’t exist without the property. So I count them as a single investment asset and count the reserve cash as part of the overall equity. 

Rental property vs stocks: Active management vs. “passive income”!

In addition to looking at the money growth of these assets, I want to also be transparent about the time and energy that goes into maintaining these accounts.

For the IRA, I have spent zero hours managing or even thinking about this account. (OK, that’s a lie – I check the Stocks app on my iPhone about once every 5 minutes – a habit I need to break 🙄). But the point is that as an investor in the overall stock market I don’t need to touch anything to ensure account growth over time. It truly is passive investing.

The rental property, however, is a slightly different story. Some months involve a ton of headaches, others are relatively light. Either way, rental property income is not passive income in my opinion.

I’ve been lucky these past few months, having no major repairs or tenant issues. But, I’ve still spent about 3-4 hours on this investment property. It took about 1-2 hours evaluating refinance options, about 30 mins reviewing monthly P&L statements and talking with my property manager, and maybe 1-2 hours ordering and reviewing a CMA (Comparative Market Analysis) for the property. Not a huge amount of time spent, but time spent nonetheless.

Now you could argue that I didn’t need to do these activities. But I would argue right back that if I didn’t constantly look at options to reduce expenses or increase cash flow, I would miss opportunities to boost my returns. For as long as I own this property I will need to continually analyze it as well as stay on top of what’s happening with the local housing market. It’s the burden of being a responsible real estate investor.

*Quick side note: Not ALL real estate investing involves personal management and effort. A publicly traded REIT (real estate investment trust) is a passive investment and can cover both residential real estate as well as commercial real estate. Personally I don’t do any REIT investing – it’s an investment strategy too advanced for my tiny brain :)

Future returns and predictions

As of Sept 1st, my IRA is outpacing the duplex by more than $12k. What will happen in the next few months? I have no clue. I have a feeling this is going to be a tortoise and the hare kind of story. Ultimately, I don’t really care which grows faster or slower, because I own them both already and plan to hold them for a long while.

Would love to hear your thoughts and predictions!

TLDR & summary

  • Since July, my IRA has grown by $14,515. Booyah! 🐇
  • In comparison, my rental property’s value only increased $1,997. 🐢  (no complaints!)
  • The rental had 3-4 hours of management work… The IRA required zero.
  • Nobody knows what the future holds. We’ll check back in and compare these again in a few months. :)
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  1. Dollartrak September 7, 2020 at 6:54 AM

    Congrats on the $14k in 2 months on the IRA! I see what you are doing here. It’s pretty tough to do this without also accounting for the tax ramifications, maintenance, and risk of non paying renters. It is also hard to quantify the liquidity of the stock investment vs a house. Finally you will lost about 5-10% of that house in fees when you sell it. These things are all part of the reality.

    1. Joel September 7, 2020 at 1:26 PM

      Yep, it’s like comparing Apples to Oranges. The IRA has limited flexibility, and the rental has a bunch of different options that are in my control. Great point on selling fees. The potential “cash value” of the rental is much lower, because it’ll prob cost me $20k to liquidate.

  2. matt b September 7, 2020 at 7:30 AM

    You forgot to include the cash flow from the rental property. How much cash are you generating from it each month(may not be consistent).

    1. Joel September 7, 2020 at 1:19 PM

      Hey Matt! $1,524 was the positive cashflow portion of the gains. This is definitely a high couple of months – on average it should e about $265 positive per month. One thing that screws me up each year is paying taxes in a lump sum. I believe my prop taxes are due in October and they are over $5k (TX is expensive!). So that month we’ll take a big hit.

  3. Marie September 7, 2020 at 8:37 AM

    I enjoyed this post very much. You’re doing great in my opinion. Although I think your reserve amount is pretty high for just one property, the right amount is the one that lets you sleep well at night knowing you have a cushion.
    An advantage you have with the property versus the equities is that hopefully in the future, once you get ready to sell, you’ll have appreciation. And since you’re a smart guy, you can educate yourself on how to sell it yourself and not have to pay that pesky commission.
    You’re diversified and that’s so important! It’s wise not to put all your eggs in the one equities basket, IMO.

    1. Joel September 7, 2020 at 1:16 PM

      Thanks for reading Marie. I always felt like I had too much cash, but then 6 months ago when COVID hit my emergency accounts suddenly felt small… I was very glad to have kept so many funds just in reserves. Also thanks for pointing out diversification – I sometimes feel silly having accounts/assets scattered all over the place, but it’s nice to know all the eggs are not in 1 basket. Cheers!

  4. Dividend Diplomats September 7, 2020 at 10:16 AM

    Budgets –

    Very fun experiment. Keep the updates coming, bring in dividend income/rental income into the equation, too, if you can!


    1. Joel September 7, 2020 at 1:11 PM

      Hey DD! Thanks – yes I can drill down into the rental specifics more and stock dividends too over time. For dividends they are all auto re-invested, and I’ve fallen into the habit of ignoring how much and when the dividends pay. I’ll keep a closer eye!

  5. stephanie t September 7, 2020 at 11:34 AM

    I LIKE the combo of dog-vs-horse racing! . Well done with that IRA, and the rental property is coming along in its own way. All I heard in the back of my mind when this craziness started earlier this year was…stay the course. I’ve been fortunate enough to still be employed AND able to inch up my savings/investments. This blog today makes me feel rather smart that I’ve not given in to the doomsday rhetoric. Thanks! I needed to hear it.

    1. Joel September 7, 2020 at 1:09 PM

      Hey Steph! I like your mentality. This whole ‘event’ might be far from over, but you’ve already proven that staying the course and thinking long term pays off. So it’s just a matter of sticking with the plan! Have a great week!

  6. lisa September 7, 2020 at 2:24 PM

    Well, my figures are a bit different…. Our stocks/IRA’s/401k’s average 6%. Our rentals are averaging 15% in the last 2 years. Obviously, we haven’t sold the rentals yet, so they’re only worth what someone wants to pay for them. Our home has increased by 10% in the last year and 50% in the last 20 years, according to real estate appraisals.

    1. Joel September 7, 2020 at 3:34 PM

      That’s really interesting Lisa. Location has a lot to do with the real estate performance, and the stock market return varies greatly depending on which year you enter or exit, and which funds of course. Based on your experience, are you planning to put more money into rentals and less into the stock market? Just curious.

  7. Helen September 7, 2020 at 3:18 PM

    Joei, I own a rental, valued at $389,000 according to Zillow.. It’s a three family here in NJ. I think its undervalued but that’s another matter. I had $326,000 prior to the market down turn around March 2020 (may be wrong on the month). In any case my account went down as far as $250,000 before making a comeback to approximately $345,000 ($95,000) on September 2, 2020. There has been a correction on September 3-4, 2020 bringing down my account to $333,000. ($-11000), Based on my assessment and assuming the way the stock market has been doing, I believe that my retirement account will surpass the value of my rental. Even if it takes 6 months, the value of the rental will never surpass my retirement. It’s great, either way – I don’t plan on selling my rental – it provides savings, investing and disposable income while the money in the stock market remains growing and sometimes losing. No plans using any of the money in the stock market. As far as I am concerned it can go up or down, I have fed my accounts with the most being $500-$1000 a month, not every month – but plan to become more aggressive in the future.

    1. Joel September 7, 2020 at 3:41 PM

      I am predicting the same as you. I think (if everything was left untouched) the IRA will outpace my rental. But since I can always refinance and leverage real estate, later in life I might squeeze more profits from the duplex. Just like you, the cool thing is that no matter what happens, I hold both, which gives me the best of both worlds and flexibility when I get closer to retirement. Thanks for reading Helen!

  8. Jordan @ FIRE Your Own Way September 7, 2020 at 5:27 PM

    Thank you! Been wondering about stocks vs real estate. It’s great to see a living breathing example.

    Looking forward to seeing how these investments track over the coming months and years! (Hoping you still keep the updates flowing by then).

    One question – how long are you expecting it to take to pay off the mortgage on the property? The drag of having a mortgage is one thing that deters me from investment properties so wondering how you manage it. Thanks!

    1. Joel September 7, 2020 at 6:16 PM

      The mortgage originated in May 2015, so if I leave everything untouched it will be another 25 years until it’s paid off. But, I don’t know if I’ll leave it that long because as each year goes on, more and more equity accrues in the property and it might be smart to refinance. If I do that, it will be another 30 years from that date.

      If I’m being honest, my wife and I have the money to completely pay off this mortgage right now. We would need to pull funds from our brokerage account and to it off. But, that would be taking away from other investments – ones we anticipate are going to make a higher return in the long run. For us, having this mortgage is “good debt”.

      You are smart to be worried about big debt and long payoff times… There’s no harm in saving money to buy properties in cash (or when you have the ability to pay down the mortgage aggressively). I just read a great article about buying properties in cash from another FIRE walker ( Not sure if this is an option for you. Cheers for reading Jordan!

  9. Paul @ The Income Finder September 8, 2020 at 7:36 AM

    Enjoy the updates and experiment. The RE you’d hope is a nice steady appreciation while the market investments will appreciate but with fluctuations. Either way it’s great to diversify and have different asset classes.

    1. Joel September 8, 2020 at 10:02 AM

      Cheers Paul. It’s definitely easier to stomach the fluctuation when your wealth is spread across multiple asset classes.

  10. mobilehomegurl September 13, 2020 at 3:48 PM

    Interesting to see the comparisons. Yes, real estate is definitely slower paced. Steady, but slow. I think having both real estate and paper assets like stocks are good just in case you have issues with one or the other. Unfortunately, right now things are a little rocky on the real estate side for landlords due to the national eviction moratorium. Time will only tell when things will change and when courts will start hearing eviction cases. With this scenario, it’s best to have a back up plan just in case things go sour on the real estate side. Thanks for sharing!

    1. Joel September 14, 2020 at 7:43 PM

      Thanks MHG! Yes I’m glad I have both asset classes, and it sucks that real estate is taking a beating right now. But… it could provide a great deal of opportunity in the future for people wanting to buy cheap housing investments? (I’m trying to look on the bright side!)

  11. Shake theMoneyTree September 13, 2020 at 8:22 PM

    Great post Joel/Budget…As I am climbing up the investment pyramid for ShaketheMoneyTree, real estate is gaining some traction. Not sure how to go about it because there are plenty of options out there but this article was very helpful…any other resources/blog posts that you can point me towards to help my due diligence?

    1. Joel September 14, 2020 at 7:47 PM

      Hmmm… My fav real estate resources are Bigger Pockets and Coach Carson. BiggerPockets (podcast) covers a massive variety of real estate subjects that I listened to and learned from while figuring out my own strategy. Coach Carson is just a wholesome and modest guy that aligns with my philosophies and has a conservative approach to rental properties. I did a crap ton of research and invested a lot of time to learn before jumping into real estate. There is no rush – that’s the advice i’d give a beginner in today’s landscape! Good luck and thanks for reading!

  12. Debt Free in RVA September 17, 2020 at 1:50 PM

    I have really enjoyed reading this. Would love to see an update in October as stocks have not been doing so well recently.

    Question: instead of investing in individual homes or properties what do you think of sites like Roofstock or RealtyMogul? They seem to offer nice opportunities without the hassle of property management.

    1. Joel September 17, 2020 at 3:31 PM

      Oooh that would make a fun blog post about those crowdsource sites. Personally, I vetted some out and chose not to invest in any of them. It’s not because they were bad or don’t make good money… It’s more that it didn’t fit my investment style (which is more based on personal relationships). I will add this to my list of things to cover in a future post. Have you invested in any of those platforms? Curious to hear your results and experience.

  13. Chuck October 7, 2020 at 12:32 PM

    New to the site and the blog, so this may have been mentioned. Are you factoring in the tax benefits? You will have some mortgage interest and depreciation – even though it shows up in a lump at tax time. Also, are your calculations based on the $ put in ? If you used a 20% down payment, then your increase is based off a $20K investment, not the $100K of your IRA. Things to think about.

    The stock market has certainly done well the past few months. Did you have both investments at the start of the year? How would that comparison turn out. Thanks for posting,

    1. Joel October 9, 2020 at 11:14 AM

      Hey Chuck! Thanks for reading! Some of this info is in the backstories – but in short:

      – Yes, the mortgage interest is included as an expense, so it’s deducted from the rental income. I only pay taxes on the small positive profit I make.
      – As for depreciation, since it all has to be re-captured anyway at some point I thought I’d leave it out. I realize this skews the numbers slightly, but not a huge amount.
      – The $ put in is hard to compare, because the IRA had some company matching capabilities, and it was all pre-tax. The rental was all post-tax savings, and there were major opportunity costs lost during the saving phase because I was an idiot and just kept everything in a checking account while the market was roaring. This is explained a bit in the backstories too.
      – So for this “comparison”, i just thought it would be interesting to see which one grows faster organically from this year going forward. Forgetting the past 5 years of ownership, I’m more concerned with what happens from here on out with the assets I currently own.



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