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Go to any online investment discussion board and you'll probably encounter the million dollar question - which is better, the stock market or real estate. Of course, the choice isn't exclusive of one another: ideally you have both. But if forced to put your eggs in one basket or another, which should you choose? we have a little bit of a feud going on here at LiveCheap.com on the right answer to that question. In the Real Estate corner is Ahmed Amr, whose real estate investments in Seattle made him a pretty penny. Backing equity investing in good ole' companies via the stock market is Omie Ismail, who has gotten his share of multi-bagger equity returns. Point by point in 12 different aspects, our Cheapsters have at it.
How are Millionaires Made?
Ahmed: I am sure that Omie will tell you wonderful stories about getting 5 times your money by buying and holding a great stock or how investing in Microsoft 25 years ago would have made you a mint. But when it comes to making big money for the average American, nothing beats real estate, no matter what that MBA-laden whipper snapper tells you.
Let’s start with the empirical evidence. Something like 60% of newly minted millionaires made their first million investing in real estate. Read the Millionaire Next Door to verify my stats. Take the current governor of California, actor, and billionaire Arnold Schwarzenegger. Guess how he made his first million? Buying coastal real estate! Now when you consider how the other 40% mint their first million, you will find that a good portion of middle-class Americans manage that feat by starting their own business or landing a great paycheck as doctors and lawyers and such. Now, how many middle-class people manage to save a million by investing in mutual funds or picking stocks? If you want to make a million, it aint gonna happen with stocks.
Omie: Your stats are correct, but you miss something really vitally important. The vast majority of those people who made their million did it because their primary residence was located in high cost areas. They bought a nice place in New York, Los Angeles, San Francisco, or Boston when it cost less than $100,000 and woke up twenty five years later and found out that they could fetch over a million bucks for the place. Unfortunately, that game is over, and the buy-in even in the current weak market is still very high. The one time drivers of house appreciation such as the massive lowering of interest rates, the entrance of women into the workforce, and ever increasing demand created by the Baby Boomers is over. All of these trends will now work in reverse as I discussed in 5 Bulletproof Reasons Real Estate Won't Be Climbing to the Sky High Anytime Soon.