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What is better - investing in real estate or in mutual funds?

Question:

What is better - investing in real estate or in mutual funds?

Answer:

It depends on when you buy the real estate, and how good the mutual funds is.

Here is my spreadsheet:

Investment_SFR_Purchase.xls

Explanation:

Modify those yellow shaded fields with bold text. This is a real purchase with real numbers, it's still in escrow. I don't remember what that column S was for.

Basically this sheet compares the worth of purchase versus savings in a savings account (CD, conservative mutual funds). I assume that I have $42k cash that I either use for the purchase or in said savings account.

Columns A-J = scenario 'purchase'.

Columns L-N = scenario 'savings account'
In column 'L', I add the interest paid on the savings account and I also subtract the cash flow as shown in column I. The reason is, if the purchase would yield negative cash flow, then I need to be add this amount as an imaginary savings deposit on the savings side.

The real estate side has a 4-week edge, because in theory it's rented from day #1 and the renter pays rent upfront on the 1st of the month while the savings account pays interest after 30 days :-)
Now once the cash flow is positive, this means that a positive number gets subtracted from the imaginary savings account.
Once the mortgage is paid off (row 340), the positive cash flow is bigger than what the savings account would earn, and then column L (savings account balance) looks really bad (it shrinks!).
Even if I rent the property at $995 instead of $1145 - in the long term, I come out ahead.

Or? You be the judge. Your comments are welcome.


Generated 12:00:49 on May 23, 2018