The Story of Mr. Real Estate and Mr. Stock Market

Posted by under Investing . Updated: September 27, 2016

Mr. Real Estate and Mr. Stock Market are brothers and back in 1992, their grandfather died and left each of them one million pesos.

“Invest the money and make it grow,” advised their parents. So that’s what they did.

Mr. Real Estate saw a property for sale right in the heart of Makati’s Central Business District. The 14 square-meter land was selling at P70,000 per square meter, which he considered a bargain because of its premium location.

Meanwhile, Mr. Stock Market went to the Makati Stock Exchange and bought Ayala Land, Inc. (ALI) shares, which at that time was selling at P2.95 per share.

makati-cbd-glorietta

Fast forward twenty years later, in 2012, the two brothers decided that they will travel around the world with their respective families.

To fund the trip, Mr. Real Estate chose to sell his Makati CBD property, which is now priced at P300,000 per square meter.

On the other hand, Mr. Stock Market chose to sell all his Ayala Land, Inc. (ALI) shares at the market price of P26.45 per share.

Who do you think made more money? Let’s see…

real-estate-vs-stock-market

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Is the stock market better than real estate investing?

The answer is NO.

Neither investment is better than the other and both are great investments if you know how to do it properly.

Real estate investments can be turned into rental properties and become a source of passive, monthly income. This is something that stock investments cannot do.

Also, it’s not really a question of which one is the better investment, but which investment can help you achieve your financial goals – and at the end of the day, the best option is to invest in both.

I guess the lesson here is that there are a lot of great investment opportunities out there, and it helps to learn about them instead of just assuming what’s good and what’s not, because you’ll be surprised at what you’ll discover, just like today.

I hope you enjoyed today’s post. Please share it to your friends if you did.

Data Reference: Mr. Edward Lee, COL Financial Chairman

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Photo credit: globalcitizen01




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47 Responses to “The Story of Mr. Real Estate and Mr. Stock Market”


  1. nora says:

    I think real state is better for example you buy a condo for rent but if you buy only one you cannot achieve your target..

  2. alma apon kawagay says:

    Thanks for sharing it’s a big help to a person like me a very good idea

  3. Carol says:

    Really enjoyed this post, I almost thought you were gonna say stock market is better based on the calculations shown above. I love that you have also shown that there is another side of the story which is that rental properties can provide passive monthly income that stocks cannot do. Excellent.

  4. Baby Aquino says:

    I think, the computation failed to show the rental incone strenght of the real-estate product. The fact that this was bought in Makati CBD, the rental income potential is very high.
    That if the real estate product has been rented from 1992 to 2012 and was included in the computation plus the appreciation value….the income of a real-estate could be very much higher than the stock market.

  5. Baby Aquino says:

    For me, this isn’t the whole story for Mr. Real Estate but just a partial of it. I hope next time you may have completed the whole story to show equality on both sides.

  6. Rea says:

    This is very informative. Thank you.

  7. Madel says:

    thank you for this post,very informative.I invest both ,hopefully evryting goes well for the bright future.

  8. Which one is better, Real Estate, Stock Exchange or Network Marketing?
    Answer: NETWORK Marketing

  9. El says:

    I disagree on stocks not being able to give out monthly income. 8M left in stocks will earn yearly interest that if withdrawn, and divided by 12, can be in effect, monthly income.

  10. romar says:

    great article. but i would just like to add, if i were to choose between real estate and stock market, i think it will be safer to choose the real estate because the value of real estates increase over time, while the value of a particular stock has no guarantee of increasing. and we dont know when and how much it will increase if ever it does.

  11. Bel Galencia says:

    This is very informative. You have shown it so simple that a new investor could understand. Galing!
    I think Real Estate stands over Stock Market in this illustration cause mr. Stock Market invested his money with Ayala Land (ALI) which is a Real Estate company as well. 😊
    Cheers!
    Appreciate it much galing! 😉

  12. Mrs. Stock Market says:

    Pls. take note that Mr. Real Estate was only able to buy 14 sqm lot. No structure yet, so if you will consider renting it out, you have to incur costs (construction) and other expenses (maintenance if you put a structure). If you hold the lot only, you still need to pay the real property tax. Further, the rent income may not be significant as the lot is very small and who will rent a 14 sqm space?

    Mr. Stock Market, on the other hand, receives dividends. Since it is ALI, it declares dividends annually. In 2011 alone, it declared PHP 0.1466 per share (times 338k shares = PHP 49k gross of tax).

    And yes — I agree with Romar, real estate is safer, but it is more costly.
    “The higher the risk, the higher the return”.

    The key is choose your investments and stocks wisely.

  13. Angie Oca Pagdanganan says:

    Thankyou for posting

  14. Allan Miranda says:

    In this illustration.. Stocks wins over Real Estate because of Taxes.

    yearly taxes. Local government can easily spot your real estate than you stock/equity/mf holdings.. high rental and/or best properties are usually located in metro areas . Property value here is high, thus tax levied are also high. Local government tax can be easily altered. Look at recent issue sa Manila (V.Mayor Isko hiking RE taxes allegedly going to local officials pocket). Don’t look further, ke Binay na lang ang laki ng tax levied ng local LGU dahil Makati area is one of the highest property valued. We had what we can double trap sa ganong area.. You are paying amilya (living taxes) and pay on estate tax (death taxes) kahit di kumikita property mo.

    Sa paper assets like stocks, either you are purchasing it from a far flung probinsiya or from overseas, flat tax rate .. tax is levied once you sell only, except for dividend tax.. Kung binili mo your stocks, benta mo after 10yrs.. that’s the only time you will be slapped with capital gains tax.. (unless baguhin ni Ate kimmy/BIR ang tax about stocks)

  15. Seff Dela Cuesta says:

    Im a stockbroker and a better investment if done wisely is REAL ESTATE, you cant beat the a land and a business in it. Stock investments are passive income where in the Real estate you can make it an active one.

  16. I say Real Estate is more solid blue chip investment than stock market. I agree with stock broker Steff De La Cuesta. Now adays investing with Real Estate is made affordable and easy on the pocket like terms offered by a prominent Developers like DMCI Homes. Rentals are in demand due to its location and themed resort like development.Resale value is high if you are investing with pre selling and will just flip your investment.

  17. Cindy Marquez says:

    Real estate is a moderate risk investment since it is a tangible item that can be:

    1) rented for passive income
    2) mortgaged while rented out if you need more capital
    3) insured for any unforseen calamities
    4) sold to the highest offer with absolute control on how much profit you want to earn

    These are just a few of the flexibilities that real estate can offer that stocks cannot.

    On the other hand, stock is a high risk investment because of its volatility and can therefore at times can offer higher rewards if the company is well managed. Though it does not offer the flexibility that real estate does..it can also give you instant profit if you know how to sell at the right time.

    HAPPY INVESTING TO ALL

  18. Mf guru says:

    What was failed to be mention is that in stocks not only does it has divedends. But, the potential for the company to keep on growing in terms of its asset size. Using ayala as an example then it would be unfair to say that their asset 10years ago is still the same today. As you all know ayala started with makati only, then there is cebu, then nuvali, now bgc and very recently fti… So you will never know what lies ahead especially with a company like ayala. Remember a company like ayala are growth companies what you are buying in stocks are the assets which ayala buys over time. So for as long as they continue to grow and expand and so will their share price.

  19. Dr Ces says:

    It really depends on how old your are :D. If you’re young and willing to risk 70% stocks (high risk, high yield) 30% real estate (low risk, lower yield) should be good, but for me (I’m 50), the opposite would be more attractive.

  20. Mark Fernandez says:

    How about the dividends received from ALI which can be used to buy more shares of stock?

  21. Cebu Properties says:

    Hi,

    I am a licensed real estate broker and a trader/investor in the financial markets (forex, stocks, commodities, futures etc) so my I have extensive knowledge and experience in both.

    I agree in our post. It is very informative to people who would like to have an overview on investment vehicles to jump in. In my experience, both real estate and stocks are really good investments. If somebody will ask me which is better, my answer is to that it depends on the person who is going to invest, it also depends on how much knowledge and experience that person has, how long he expects to have returns etc.. There is no absolute answer to that because it is subjective.

    If you think about it closely, real estate is the primary driver of the economy. Everyone needs real estate, can you imagine not living in a house? Yes.. we need real estate. But to do we need stocks? No. We can live without stocks. But both vehicles are important to the economy.

    Furthermore, the timing of when you invest is also crucial. Look at the US now, real estate market is still down but somehow recovering while stock market is at all time high (check your S&P 500 charts for the index). All markets have their bust and boom cycle. It will only be a matter of time when you see stocks markets down.

    If I really have to give a detailed answer and explanation it will take a long post but I’m sure you guys understand my point.

    PS:
    If you really want to have a solid investment, I suggest you follow Robert Kiyosaki’s 3 steps to financial freedom based from his book Rich Dad, Poor Dad.

    1. Have a business – develop a system which gives you passive income and by leveraging people.
    2. invest in real estate – once your business is doing good you buy real estate properties, develop them and have it rented to have a passive/residual income.
    3. invest in the stock market – once your business and properties are giving you passive income you invest in the stock market. Regardless of whether you win or lose in your stock market investments your 1st 2 income generating assets will still provide you money.

    WHY?

    If your business will be down, your rentals will give you money w/o you doing any hard work.
    If your rentals are slow, your business and stock market investments will still provide you money.
    If there is a financial crisis and you lose your stocks, people will still need a place to live therefore your rental properties will still give you money.

    That is how you create a recession-proof investment assets.

  22. tg says:

    seriously? place the whole stock market investment bankroll on just 1 stock(ALI)? you better know how to predict the future if that’s your investment strategy. This article can be misleading to people with no experience in the stock exchange IMHO.

  23. Bee says:

    for the example above I will believe stock market is better…

    My reasoning is simple, although you have a real estate for God’s sake its only 14 square meter!!! kasing size lang siya ng 2 parking slot sa isang mall, its not enough para magpatayo ng tindahan. yeah probably push cart pero kung wala siya sa loob ng mall wala naman siguro magrerent ng ganyan kaliit na pwesto sa Makati para magtayo ng push cart

    how can you build a house or apartment for that sa 14 sqm? okay sana kung sa loob ng mall.

    Stocks is more liquid than real estate

  24. Josefina Legaspi says:

    Stocks managed by Mutual Fund , TAX EXEMPT, Real Estate nosebleed to make it liquid, You cannot avoid the TAX annually, renting will need another liquid to construct and renovate to make it competitive to rent and not sure the renter is a consistent payer without hassles. Stock money has annual dividends , putting it in Mutual fund will create LIVING ON INTEREST , as PASSIVE INCOME w/o headache of collecting rental income from lessee. Once the owner or real property dies, huge estate tax will be implemented plus a lot of law bla blas. In mutual fund/ stock funds are 100% hUGE money to be given to your children n love ones plusplus diversifying it with Money Tree Elite of Philamlife. May GOD bless you more of HIS wisdom everyone!

  25. michael says:

    In terms of the final selling price its look like that stock market is better but considering the one that you said that it can be converted to a rental property generating a passive income and in terms of security base on its physical state your right when you said that it depends on the investors plan how hw will manage it and the right timing of when its going to sell.

  26. michael says:

    the example of this is for example you have it rented for P50,000 per because its located in makati central bussiness district P50,000 x 12 x 20= Pits an additional P12,000,000 income from that property.this is the good thing about Real Estate that most of us dont see.meaning that if the investor has a plan he was able to profit a total of P16,200,000.A diffirence of P7,259,900 to be exact.That is why as a broker I always advice my client to always have an insurance or other investment to support them and protect their Real Estate Investment in times of crisis that needs cash or liquididy

  27. jydz says:

    if I could only choose one, I think I would go for the stock investment. There are a lot of reasons why a real estate investment would be better but let’s be realistic. The moment you need that money. The day that you find out that a family member has cancer or some other disease, try selling that property for the fair market price. chances you’re not going to get it. Because then it becomes an issue of who wants it more the buyer or the seller. Many here have pointed out that 14 square meters is not that big a deal. no real estate magnate will be beating down your door trying to get you to sell them the land. The only person who’d be interested would be the owner of the adjacent lot. A stock market investment is a little bit more straightforward. Whatever the market value is it’s pretty much what you’re going to get. The only reason people say that real estate is a safer investment is that when prices drop people are much less inclined to dispose of their properties. And are willing to wait it out till prices start to rise again.realestate does fluctuate just speak to all of those people who bought homes in Detroit.

  28. Mark says:

    Stock market investment is better than real property because it is easy to buy and sell. If you entered PSE in early 2009 and still holding that portfolio up to now by just by piggy backing with professional day traders and listening to tips from serious players, then you know that PHP8m plus is a bit low. 🙂 This is aside from the stock and cash dividends that you get annully and the lower tax for stock investments.

    All the best!

  29. Mark says:

    ALI is now at 35 and bought at 5.50 in February 2009

    Cheers!

  30. J says:

    this part i think made it to seeing both objectively: “both are great investments if you know how to do it properly.” informative still. 🙂

  31. Lauren says:

    How does a newbie invest in stocks? What is the best place to learn about investing in stocks and how can a person do that without being fooled by brokers to invest in stocks that aren’t that profitable? Stocks is actually very interesting but very complicated compared to Real Estate investing. More brokers can make money out of people who want to get rich investing in stocks rather than them getting any money at all. I’m not saying that it’s better to invest in Real Estate, but for a newbie, it’s easier. There are a lot of risks in stocks. But with great risk also comes great possibility for a higher profit. Not for the faint-hearted though.

  32. Helbert says:

    Both real estate and stock investing have pros and cons. The stock market I think have more pros than real estate. The given example above is considering you bought a property in Makati. However, not everyone can do that. At the time the property was bought, it was too expensive already. Other parts of the Philippines will not be as lucrative as Makati either. Stocks on the other hand can be bought with a small fund. They appreciate over time especially the stable stocks like SM, ALI, and JFC. Also, the example did not factor in the possible dividends given every year by the companies listed in the stock market.

  33. Lennon says:

    Both options are great nor any investments that could potentially encourage passive income. Its only a matter of taking the risk, coz if you don’t, someone will! (To die poor its your mistake, to die rich its your choice! “Bill Gates”) have a blessed day everyone!

  34. roberto pilosopo says:

    Stocks and Properties are good investment.. Networking? Is it an investment? if you know how to recruit and give false hope to other people maybe it is.

  35. Gani Boi says:

    I think you missed to consider the dividend income generated by stock.

  36. Javi says:

    Please account for stock dividends and cash dividends for the period given.
    338k shares would be close to 6.2M shares by 2012.
    Dividend schedule of Ayala Land can be found here.
    http://www.ayala.com.ph/investor_relations/page/dividends

  37. max says:

    what is the comparison for if you’re just going to say invest in them both?

    you didn’t account for:
    1. revaluation of real estate when you actually develop it
    2. rental income wasnt even calculated
    3. the peace of in real estate when you get monthly rental income and the emotional stress of a market collapse.
    4. real estate can be a collateral for debt to fund further ventures
    5. difference in taxes in real estate and stock (WHICH IS THE BIGGEST FACTOR)

    sorry, but this is useless. too simplistic to the point that it’s a crime to post this shit, knowing that there’s going to be a lot of uninformed people that will believe you.

  38. Lois says:

    Was watching CNN Quest the other day re the volatility in the stock market experienced in the past weeks, and one of their resource person remarked that the West fell in love with the financial market and failed to create real growth model over the years… I’m not financial/ economics savvy but I have a quaint idea of what he meant. IBON foundation claims that the Philippines cannot reach 7% GDP because we lack the real infrastructures to make our economy grow that big… Anyway, I admire you and your team for encouraging and teaching your subscribers not only about the stock market but everything they need to know, not just to be financially free and secure, but to be potential contributors to our economy no matter how small it may be. Keep it up!

  39. russel says:

    Right now ALI ‘s equity is expensive 37-40 pesos/ shares,I bet on FLI Filinvest equity 1.80 pesos/ shares.

  40. russel says:

    Or megaworld with 4.29 pesos/ shares

  41. july says:

    meg now is 4.00 and ali is 32.40

  42. Robert says:

    Of course it did not consider any rental income the property might have made over 20 years, which I think is substantial

  43. Great post, real estate , the rental one, is good for passive income, stock maket investing is good for growing money. It depends on your goal. Thanks for this

  44. Who would sell and buy a measly 14 sq m?

  45. Macario P. Coronado says:

    Great post, at the end of the day, it depends on the financial goal of the investor. I will go for the real estate given the constraints of the illustration. Not considered is the potential lease/rental income of the real property considering its prime location, this will add to the value of the real estate while there is none for the investment in stock.

  46. If you factor in rental income and him having reinvested the income into more real estate then Real estate brother should have about the same amount of equity and much higher cashflow.

  47. but isn’t that you can gain income from the investment you got from stocks? when you withdraw it and use it to buy a bigger a home with 8M, ready to move in! and the remaining you put up a business.

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