Amazon has become one of the gold standards for the modern stock market investor, who marvels at their retail dominance and future-thinking. But how does Amazon stock actually compare to an investment of the same amount in a mobile home park? Here’s how it stacks up.
First, the assumptions for the comparison
The mobile home park in this scenario will be assumed to be 25 lots at a $300 lot rent, producing a revenue of $90,000 per year, and a net income of $54,000 per year, which is purchased at an 8% cap rate for a price of $675,000. In this example, the buyer puts down 20%, which is $135,000, and the loan is at a 5% interest rate.
The share of Amazon stock is priced at the current price or $3,202, with earnings of $6,12 dollars per share per year, and a dividend yield of -0-. All of the statistics for this share of Amazon come straight from the internet.
How much of each do we get for $135,000?
In this scenario, we were able to buy a mobile home park worth $675,000 with a $135,000 down payment. However, we were only able to buy $135,000 of Amazon stock, as there is no way a normal person can safely leverage stock. $135,000 breaks down into roughly 42 shares of Amazon stock at $3,202 per share. And it should be noted that our $135,000 of down payment bought us 100% of the mobile home park asset, whereas there are around 507 million shares of Amazon stock, so our 42 shares equates to only 0,0000000828% of the ownership of Amazon.
How much did each of these earn over the last twelve months?
The mobile home park in this example has a 60% profit margin. Amazon, however, only has around a 3% profit margin. The net income on the mobile home park over a twelve month period is $54,000. The net income on 42 shares of Amazon stock is $24 per share, or around $1,000 per year. The cash-on-cash rate of return on the mobile home park is around 20% per year, while the Amazon stock has no dividend so its cash-on-cash return is -0-.
Based on this comparison, why would anyone ever want to own Amazon (or any similar stock) when you can own a mobile home park? The answer, of course, is that you’d be an idiot to prefer the Amazon stock. The only reason you’d buy it is “the greater fool theory” that somebody will pay even more per share for it in the future, and that bet has proven very lucrative for a long time now. But the current trend of the stock market would suggest that the steady supply of idiots is coming to an end. But here are some additional reasons that the mobile home park would be a superior choice:
- You get paid twice. Mobile home parks owners receive a monthly dividend from the regular cycle of collection of rent checks minus expenses, while Amazon shareholders receive no dividends at all. Later, mobile home park owners receive a check from the profitable sale of the mobile home park, while the Amazon shareholder has the sale of their shares as their only income.
- A better hedge to inflation/stagflation. In times of inflation, real estate always performs well. While the argument can be made that Amazon stock might also fare well, the big difference is that the leverage (loan) on real estate is where the big money is, as the value of the dollars in the mortgage are being devalued at a rapid pace. Amazon has no mortgage in this example.
- You control all the shots. When you own 100% of the mobile home park, you are in complete control and can sell it any time you want, as well as raise rents and do any other management action you think is smart. With 0,0000000828% of the ownership of Amazon, you have no power whatsoever.
You really can’t compare the ownership of a 25-space mobile home park to the same dollar figure of Amazon stock – the mobile home park wins in every category in a massive fashion. The only reason people buy Amazon stock over a mobile home park is that they have a terrible stigma against “trailer parks” and get thrilled by seeing Jeff Bezos blast into space. When the stock market correction finally occurs, it will be obvious how superior the mobile home park investment is. Until then, let the stigma reduce the competition and let the herd follow a stock that has virtually zero income per share.