1.23.2007

Ben Stein is wrong about Real Estate Investing

Ben Stein is an incredibly smart guy. You might know him by any one of these titles: actor (he was the boring economics teacher in Ferris Bueller's Day Off), host of Comedy Central's show "Win Ben Stein's Money", author of 16 books, speech writer for presidents Richard Nixon and Gerald Ford, or university law professor.

Ben also writes a financial column every other Monday at Yahoo! Finance, and it's usually full of sage advice. This week's article "A Home Truth about Real Estate Investing" was an exception.

As a part time real estate investor, the title of this week's column caught my attention. I was teased by the short description which reads, "Owning real estate brings great joy and even makes a good investment. For long-term gains, though, stocks are better." I was dumbfounded. I've owned stocks & mutual funds for 15 years, but the returns on my investments in several single-family rental properties have beaten my returns in the stock market, hands down. Could I be a smarter real estate investor than Ben Stein? This fleeting thought was unfathomable, so I read on.

It was only after completely reading his column that I realized the source of my disconnect: I can't recall ever hearing an economist, particularly one who is a "commentator on finance", consider the purchase of one's own domicile to be real estate investing. Mr. Stein's article does a disservice to the practice of real estate investing, which most consider to be the act of acquiring real estate for purposes of generating rental income or profit from resale after capital appreciation (my definition). My own real estate investing has delivered consistent positive cash returns each year, not to mention the huge tax benefit in being able to offset rental income with that most wonderful non-cash expense, depreciation. Once rented, without exception, each property has been cash flow positive while consistently showing a tax loss because of depreciation and section 179 expenses.

Considering his argument for a moment, however, I would challenge Mr. Stein to look at the alternative to purchasing a house/condo. I see a flaw in his logic because buying stocks on broad indexes isn't the alternative to purchasing a house/condo to live in; renting a house/condo is the alternative! I'm fortunate that I don't live in an expensive real estate market (metro Atlanta), but even still, I can't see how, with tax considerations, buying a house is less "profitable" than renting.

And on the topic of real estate, today I learned that Zillow has just begun providing Zestimates for many homes in metro Atlanta!