Comparing Stock Investing to Real Estate

Investing in private equity real estate and publicly traded stocks are similar. How do I know? I’ve invested in more than 2,000 apartment units following a 25+ year professional career in institutional equities (stocks).  

It turns out, the valuation framework, tools, and basic skills required to analyze businesses apply to stocks and real estate. Experience with accounting, spreadsheets, strategy, and finance certainly come in handy.

This shouldn’t be surprising when we consider first principles. What is any equity investment worth? The present value of the future cash flows of a business, net of any obligations due (debt). That’s true for stocks. That’s also true for apartment buildings. 

But there are some differences..

The language of real estate can be a bit intimidating at first. The seasoned multifamily pros used “cap rates” instead of “PEs” and “Free Cash Flow Yields”. They refer to “effective gross income” which is basically net revenue. I always thought underwriting was something insurance companies did. I built models. You get the idea.

Once you get comfortable with lingo you’ll find a more important difference that really separates real estate from stock investing, simplicity and transparency.. 

For example, when I’m underwriting a 120 unit building in North Carolina I have a lot more confidence in my estimates, and in the range of outcomes, than I did when modeling a complex public company. With an apartment building, you have a manageable number of variables like rent, occupancy, and operating costs. Some of your largest costs, payroll, taxes, and insurance, are fixed.

For the sake of comparison, let’s consider a publicly-traded apartment REIT? Below is a snapshot of the corporate profile from Equity Residential’s own investor website. 


The description reads, “Equity Residential owns or has investments in 304 properties consisting of 77,889 apartment units, primarily located in Boston, New York, Washington, D.C., Seattle, Southern California and Denver.” With no disrespect to the tremendously successful Equity Residential or its founder Sam Zell, what can I do with that? I don’t have access to the financials for each of their 300 buildings across multiple markets. Even if I did, how much would that transparency help me determine Equity Residential’s share price? The added complexity of public market exposure is a separate issue altogether.

I’m not surprised that much of my professional experience in the stock market applies to my real estate investing. I’ve relied heavily on the similarities. However, it’s the big differences, namely the simplicity and transparency of my strategy, that makes me even more comfortable investing in apartment buildings than in the stock market. 

Like me, many Cove investors also built their careers in the public equities market and now appreciate the simplicity, focus, and transparency of buying one single property. They love that you get the many benefits of owning the asset directly, that it’s entirely passive, and that you can find attractive returns that also diversity your exposure to stocks.

If you’d like to learn more about investing in cash-flowing apartment buildings, you’re welcome to begin our onboarding process here. After you fill out a brief form, we’ll arrange a call to learn to see if we’re a good fit for each other.