Is the author attempting to say stock investors don't benefit from write-offs and depreciation? Ridiculous.
He's saying you can't depreciate the cost basis of your stock purchase against the income it generates. Imagine if you were allowed to buy a stock for $5,000, that stock paid a $250 dividend ever year, and you weren't taxed on that dividend because you were able to depreciate $300 of your cost basis each year against that income. In fact, you can likely take a $50 loss against ordinary income while receiving $250 in cash. That's the equivalent of what real estate depreciation does for you.
Eventually the depreciation will be recaptured, but it's a very nice deferral feature.
But I'M saying the company already depreciates the cost basis of the assets IT buys against the income it generates. And since corporate tax rates are generally higher than individual tax rates, if anything, you get MORE depreciation benefit from owning stocks. The depreciation happens on the company's tax form instead of your personal tax form, but that doesn't mean it isn't real.
I agree it's a very nice deferral feature, but it isn't a feature only available to real estate investors. The IRS didn't write special tax laws for real estate investors, so it only stands to reason they receive the same tax benefits as any other business owner. In reality, the sources of return for real estate and stock investors are identical.
And the topic of the article is patently false to begin with: long-term returns of stocks and real estate are roughly equivalent with roughly equivalent levels of risk (controlling for differences in leverage). To expect it to be any other way is a bit naive.
"Real estate" is not all the same.
When you look at long-term returns of a primary residence which is protected from capital gains but generates no income and is simply paid off over time, you are likely correct that you will match the stock market.
That is not what we are talking about here.
When you compare well chosen, leveraged rental properties that pay all their own costs and generate cash flow and which you hold until the market favours selling you are incorrect.
Best to do the math yourself rather than rely on something you read somewhere. There are many calculators and links on biggerpockets.
No, I'm explicitly talking about leveraged rental properties: the long-term studies show they provide roughly the same return with roughly the same risk as stocks.
First of all, citation needed, and second of all, you're still missing his point. The overall market may, but carefully selected ones done well should be able to beat that.
While beating the average is really tough in stock market picking (nigh impossible), in rental real estate it's much more possible. Not simply from picking a certain property type, but based on the procedures and how you handle it.
Hell, even if you cash flow
nothing and appreciate at the rate of inflation (i.e. 0% real appreciation), you should still earn a real return of 6-7% just based on the leverage and principal pay down.
That will match stocks. (If that's what you meant by the studies showing they match stocks over time, no citation needed. If you cash flow $0, are leveraged at 6%, and see appreciation matching inflation, you should match stocks in real return.)
Now add on the cash flow if you've done it right, and you blow it away (we.. several percent higher, which is nice).
EDIT: I'd guess most rentals are around break-even (no cash flow) and the negative cash flow ones offset positive cash flow ones. So perhaps long term the average leveraged rental does match stocks. But again, a good investor who buys right should cash flow quite well (10%+ cash on cash return) and if they are using prudent, low-cost leverage, they should do quite well and be able to beat that average (something that isn't really possible with stocks, IMO).