I buy fixer houses putting as little as 20% down. I usually put about $40,000 in to fix up, cover finance costs and cover selling costs. My typical interest rate is between 7% - 9% on my loans. Since it is short term, interest rate is not important to me really. I am usually able to net about $40,000 after I have sold the house. The $40,000 is taxable.

Without regard to the risk (I am well aware of how risky it is):

1) How do I figure out what a comparable rate of return I would need from stocks?

That is, I get into a house with 20% down (sometimes less) and I control $250,000 worth of investment. I add $40,000 and the value goes up enough to give me $40,000 net when I sell. The length of time on the project can be 4 months. So, I guess one way to look at it is that I net $10,000 per month on the average project.

My understanding is that getting into stocks I have to buy at 100% "down". I can't do anything to improve the value of the stock (or no-load mutual fund), (other than to buy their products) and it seems to be just as risky. (If not more so.)

It seems to me that:

A) Stocks are more liquid than Real Estate
B) Both are equally risky
C) "They aren't making any more land"
D) I control more "product" with Real Estate than I could with Stocks
E) Warren Buffet did "ok" not owning Real Estate
F) If the dollar falls against the Euro and Yen, it doesn't seem to affect my Real Estate but it does affect Stocks.

Are these accurate, and If So, why are not more people "rehabbing" houses?

In your example you are making $10,000/mo on an investment of $50,000. If you can do this consistently you will make far more with your $50K than any passive investment. However, a few things to consider:

1. I disagree that your business is equally risky with the stock market. Owning a diversified portfolio of stocks is easier to do than owning a diversified portfolio of homes. You would have to be in about ten projects at once, in different neighborhoods, to alleviate this risk. Different parts of the country experience different housing market cycles, so your 10 projects should span the country, and ideally the world. If you are only carrying 1 or 2 projects at a time, all it will take is one bad investment to ruin you. With stocks I can buy domestic and foreign holdings, large caps and snall caps, in virtually all industries with just a couple of index funds.

2. I presume that along with the $10K in income you mentioned you are spending a significant amount of your own time on the job, either supervising or repairing the place yourself. I assume this is your day job, compared to an investor who probably has a separate source of income. If you make $10K/mo, that's $120K/year - sounds like a nice salary, but may not make you rich. You will need to find a way to be working many projects simultaneously to make serious money.

3. It is possible to invest in the stock market using leverage. The obvious ways include buying stocks on margin and using options to multiply your gain. I would agree that borrowing to invest in stocks is more risky than borrowing to invest in property, as borrowing terms are usually poor and most investors don't diversify their positions enough to make it work consistently - it takes the deep pockets of a hedge fund to do it right.

4. The issue of foreign exchange rates is both a help and a curse in investing. A bad exchange rate for a country can hurt the results of companies that rely on imports into that country but would help a company that exports from it. You can mitigate almost all foreign exchange rate risk by diverisfying your portfolio.

5. You didn't mention interest rates - if the interest rates on mortgages goes up you have double whammy, in that your expenses go up and the market values are hurt as potential buyers get priced out.

Finally, for most of us stock investors our biggest investent is actually real estate - most people's homes are a significant portion of their net worth. So it's not a matter of real estate versus stocks, but rather real estate versus stocks and real estate.

Real estate VS. Stocks.These days the accepted wisdom says to pick real estate. But is the accepted wisdom right?

Not always.
It is--in the short term. U.S. real estate sale prices increased more than 56% from the beginning of 1999 to the end of 2004, as tracked by the Office of Federal Housing Enterprise Oversight, part of the U.S. Department of Housing and Urban Development. The S&P 500 index dipped nearly 6% during that same period.

But if you take a longer view--say 25 years--you'll find that the S&P 500 has actually stomped the real estate market, from Boston to Detroit to Dallas. From the start of 1980 to the end of 2004, home sale prices increased over 200%. A pretty sweet deal, it would seem. Over the same period, however, the S&P 500 shot up more than 1,000%.

P.S. Ebaines has made very clear about the point, I am just adding two more cents.:)

Real estate is at another disadvantage here, because we're not taking into account potential income tax breaks. And, though dividends aren't included in the S&P 500, look,a house pays a benefit that is not measured in its price. In other words, you can live in it. Rent free.

That's like a big dividend,When you take a look at a stock market index, a lot of the dividends are reinvested by the company. The dividend yield is much lower, but you get it back in capital appreciation!!

I like the analysis from both of you. It would seem that a good approach for me would be to start putting $$ into the S&P 500 as long term money while continuing to do my "day job" of fixing up homes.

Bear Stearns has just become a headline with their hedge funds on sub-prime mortgages. I think that since they are not letting people out of the fund, someone is going to take a bath. It would seem that a 1/2 to 1/2 mix of real estate and stock market would work. I am 53 with no intention of retiring (retirement is for people who aren't doing what they truly love anyway) I love real estate, but I recognize that it has its ups and downs. I lived through the Savings and Loan debacle. But, I'm also aware that my stocks can be "frozen" like at Bear Stearns. I suspect that my real concern would be access to a piece of paper (stocks) that doesn't have tangible value unless someone wants it. As you have rightly said, I can live in one of my houses and possibly rent out the others. I suspect it is difficult to "rent out" stock. :-}