Is Real Estate Still the Best Asset Class?

[Dave Meyer]

Real estate is harder than it's been in more than a decade -- we all know this. High prices + high mortgage rates + low inventory is making this a challenge. So my question is  -- in an era where you can get a 5% CoCR from bonds, money market accounts, or a high-yield savings account is RE still the best place to put your money? 

I'll give you my opinion below, but curious to hear what you all think. 

Here's my take, and you probably won't find this shocking, but RE is still the best asset class. I am what I would call a 'total return investor' -- which is that I don't care as much about cashflow, or tax benefits, or appreciation in particular -- I'm in it for the whole package. And when you look at it that way, RE is still the clear winner. 

I just put a deal under contract that was on market. It will generate about 4% CoCR, and 2% in amortization. Even with a very modest expectation of 2% annual appreciation, I will earn about 6% there (thanks leverage!), and tax benefits will give me another 1.5%. If I add that all up, I am getting somewhere between a 12-15% annualized return, for an on-market deal that just needs some cosmetic upgrades. 

Compare that to bonds (5%), or the average return in the stock market (8-10% depending on who you ask) and REI is a no-brainer to me. Am I missing something here?!?

Sure you could say that RE is at all-time highs and is going to come down. It's possible, but a big correction in residential RE is not likely, and over a long hold period, RE will appreciate. Plus, I am generating modest cashflow now + amortization and tax benefits.  Also, the same can be said about the stock market. It's also at all-time highs, and its historical far more volatile than RE. 

Now you may be thinking that owning RE is more work than the stock market, and that is undoubtedly true. But the difference between 10% and 12% over a long hold period is enormous. For an investment of $100,000, over a 10 year hold the difference in total return between a 10% annualized rate, and 12% is $51,000. For some that might be worth the work of REI, for others not so much. BUT -- if your hold period is 30 years the difference grows to $1.25M!! Gotta love compounding.

 So, back to my original question. Is RE still the best asset class? For me -- a 36 year old who plans to keep working for the next several decades -- there's no doubt in my mind. I will gladly take on the extra work of owning RE, given that, even with more difficult conditions, RE still has a very high probability of delivering me outsized returns over my investing career. 

What do you all think? 

[Jay Hinrichs]

Quote from @Eric Bilderback:

@Carlos Ptriawan @K S.

More millionaires have been created through real estate by far than anything else.  The crooks on Wall St will ensure people grind their entire life.  Your investing with them is cashflow to Wall st.  If you love your job maybe that works, but for anyone who wants to one day have the opportunity to coach their kids baseball team, spend a significant amount of time on a passion they have that may not be very lucrative real estate can get you their.  Finance it, manage it, hold it, then let the politicians and bankers erode the currency.  I know this works I did this for myself and I have seen other people do it.  

For most people I would argue the risk of not investing in real estate is greater then the risk of investing in real estate.  

I found you dont even have to own rentals real estate .. U just need to be a top producing agent in your given market to have the freedoms you describe.. Or I guess its just building a small business and one that grows over the years and gets more profitable as you create a larger book of clients and do most of your bizz through referrals.. Rentals to me are nice LOOOONG term assets but it takes quite a long time to build a portfolio that will throw off enough cash to replace the income of a high producing agent.  Just one thought on it.

[Jay Hinrichs]

Quote from @Dave Meyer:

Real estate is harder than it's been in more than a decade -- we all know this. High prices + high mortgage rates + low inventory is making this a challenge. So my question is  -- in an era where you can get a 5% CoCR from bonds, money market accounts, or a high-yield savings account is RE still the best place to put your money? 

I'll give you my opinion below, but curious to hear what you all think. 

Here's my take, and you probably won't find this shocking, but RE is still the best asset class. I am what I would call a 'total return investor' -- which is that I don't care as much about cashflow, or tax benefits, or appreciation in particular -- I'm in it for the whole package. And when you look at it that way, RE is still the clear winner. 

I just put a deal under contract that was on market. It will generate about 4% CoCR, and 2% in amortization. Even with a very modest expectation of 2% annual appreciation, I will earn about 6% there (thanks leverage!), and tax benefits will give me another 1.5%. If I add that all up, I am getting somewhere between a 12-15% annualized return, for an on-market deal that just needs some cosmetic upgrades. 

Compare that to bonds (5%), or the average return in the stock market (8-10% depending on who you ask) and REI is a no-brainer to me. Am I missing something here?!?

Sure you could say that RE is at all-time highs and is going to come down. It's possible, but a big correction in residential RE is not likely, and over a long hold period, RE will appreciate. Plus, I am generating modest cashflow now + amortization and tax benefits.  Also, the same can be said about the stock market. It's also at all-time highs, and its historical far more volatile than RE. 

Now you may be thinking that owning RE is more work than the stock market, and that is undoubtedly true. But the difference between 10% and 12% over a long hold period is enormous. For an investment of $100,000, over a 10 year hold the difference in total return between a 10% annualized rate, and 12% is $51,000. For some that might be worth the work of REI, for others not so much. BUT -- if your hold period is 30 years the difference grows to $1.25M!! Gotta love compounding.

 So, back to my original question. Is RE still the best asset class? For me -- a 36 year old who plans to keep working for the next several decades -- there's no doubt in my mind. I will gladly take on the extra work of owning RE, given that, even with more difficult conditions, RE still has a very high probability of delivering me outsized returns over my investing career. 

What do you all think? 

Dave.. I think at least as it relates to the extreme bias on BP is folks just think there is only one real estate investment and that is SFR or MF rentals at least that's were most folks have to start based on finances and experience..

When in fact there is a LOT more to Real Estate than that. And many parts that are Far more lucrative and the grind of trying to build a rental portfolio over the decades.

Just to name a few:

1. Land in the path of progress as a set it and forget it investment.
2. land that you work on entitlements to further the value and then sell for a cap gain or 1031.
3. Oil Gas  and leaseholds.
4. Timber long term or short term buy and log ( something I did for many years and extremely profitable if you know what your doing..) 100% OPM and returns in the 6 to 7 figures within a year. Well 7 figures were not common but virtually all our deals hit the high 5s and low 6s per deal and were bought logged and paid out within 6 months.. With the Lumber Mills fronting 100% of the money with no interest on those loans.
5. Small commercial buildings where your tenants are doctors and professionals.
6. New construction this one has done very well for me the last 10 years with 50% to 300% annual return COC if U have the ability to build a team and get construction financing.
7. Be the bank most of the folks that I deal with in Be the bank over the last 40 years are burnt out landlords that want mailbox money but look for someone to structure the loans for them.
8. Self Storage has done well but bigger money and its a small business.
9. Land flipping buy low sell high carry paper or cash out.. much less competition and pretty active I fund a few of these folks that do so much better than cash flow real estate at least earning money day one that you can actually live on .  Not a lot of folks like me that lend to these guys but i enjoy it as I grew up in the land business so I have the necessary skills to vette the projects as they come in.
10. Water rights in the west..
11. Tax sales again advanced strategy for those that really know what they are doing dont recommend it for those just starting out.
12. foreclosures when they start to come back ton of work but if you work a smaller county with less competition there can be some sweet deals.. And one deal can produce as much cash as one rental over say 10 to 20 years.

So on and so forth.

Or we will just do what we always do put the minimum down on a small rental rent it out and try to build your wealth that way.. just choose correctly the asset class and market. And plan on decades to get to financial independence.

[Brandon C.]

Well if you are Warren Buffett and Charlie Munger the answer is no. Berkshire doesn't directly invest in real estate because it is illiquid, mainly. But, Buffett personally invests in REITs.

[Joe S.]

Quote from @Carlos Ptriawan:

Quote from @J. Mitchell Bernier:

Real estate is the most proven asset class in the history of the world. That is true, but is it the best in this current environment? Maybe. If your time horizon is longer than 7 years, then I would say yes to real estate. If you are looking at 7 years or less, I would say that it's not the best investment out there. 

Also, Real estate is such a broad category that at any point in time, one section of real estate will be performing great while others will not. We can all see the issues with Office space right now, but during the 90's to 2000's it was an amazing asset. Residential has been a winner for a while now, but what's to say that demographics cause issues in 15 years, much like with China? So can real estate be the best investment out there, yes some of it can be, but then for others it will be the worse. 

 sometimes, for some of us that has "wild speculator instinct" and good future projection, best business is always what business that we purchased when we got certain discount in relative to valuation.

For example.
In 2009-2012 this is our best party to purchase residential real estate as asset price is falling.
In 2000-2005 was the best time to purchase commodities company/asset
In 2023-2025 could be the best time to purchase hotel or office as asset valuation went down 70-90%. 

Again, not for everyone ;)

How would you suggest someone purchase office or hotels?  As with single-family homes it usually figuring out how to get something financed that is the hurdle.

[Carlos Ptriawan]

Quote from @Joe S.:

Quote from @Carlos Ptriawan:

Quote from @J. Mitchell Bernier:

Real estate is the most proven asset class in the history of the world. That is true, but is it the best in this current environment? Maybe. If your time horizon is longer than 7 years, then I would say yes to real estate. If you are looking at 7 years or less, I would say that it's not the best investment out there. 

Also, Real estate is such a broad category that at any point in time, one section of real estate will be performing great while others will not. We can all see the issues with Office space right now, but during the 90's to 2000's it was an amazing asset. Residential has been a winner for a while now, but what's to say that demographics cause issues in 15 years, much like with China? So can real estate be the best investment out there, yes some of it can be, but then for others it will be the worse. 

 sometimes, for some of us that has "wild speculator instinct" and good future projection, best business is always what business that we purchased when we got certain discount in relative to valuation.

For example.
In 2009-2012 this is our best party to purchase residential real estate as asset price is falling.
In 2000-2005 was the best time to purchase commodities company/asset
In 2023-2025 could be the best time to purchase hotel or office as asset valuation went down 70-90%. 

Again, not for everyone ;)

How would you suggest someone purchase office or hotels?  As with single-family homes it usually figuring out how to get something financed that is the hurdle.

Thru Private Equity or Hotel for example, or invest through the lender itself.

[Nicholas L.]

@Jay Hinrichs

agree with you and I think that's an important perspective.  the bias is definitely toward "buy 3 duplexes and quit your job" since 2016 Brandon Turner told us all to do that on the webinars.

i think some of what you said though is actually starting to get recommended to beginners as I think we've talked about on other threads.  someone will say "I have 20K what should I do" and be told "just be a private lender and turn that 20K into 100K."  which is obviously insane.  private lending is an awesome strategy, just not a beginner strategy.

[Joe S.]

@K S.

increase property values that also increase the property taxes because Texas is 2.2% which is raising faster than rents can keep up with..

I tried to explain that taxes were driving up prices faster than the annual rent increase was keeping up with on a post a number of months back and people that were not from Texas were all but calling me out and insinuate and I was lying.  

[Drew Sygit]

Which one does an investor actually have more control over the results?

[Joe S.]

Quote from @Jay Hinrichs:

Quote from @Dave Meyer:

Real estate is harder than it's been in more than a decade -- we all know this. High prices + high mortgage rates + low inventory is making this a challenge. So my question is  -- in an era where you can get a 5% CoCR from bonds, money market accounts, or a high-yield savings account is RE still the best place to put your money? 

I'll give you my opinion below, but curious to hear what you all think. 

Here's my take, and you probably won't find this shocking, but RE is still the best asset class. I am what I would call a 'total return investor' -- which is that I don't care as much about cashflow, or tax benefits, or appreciation in particular -- I'm in it for the whole package. And when you look at it that way, RE is still the clear winner. 

I just put a deal under contract that was on market. It will generate about 4% CoCR, and 2% in amortization. Even with a very modest expectation of 2% annual appreciation, I will earn about 6% there (thanks leverage!), and tax benefits will give me another 1.5%. If I add that all up, I am getting somewhere between a 12-15% annualized return, for an on-market deal that just needs some cosmetic upgrades. 

Compare that to bonds (5%), or the average return in the stock market (8-10% depending on who you ask) and REI is a no-brainer to me. Am I missing something here?!?

Sure you could say that RE is at all-time highs and is going to come down. It's possible, but a big correction in residential RE is not likely, and over a long hold period, RE will appreciate. Plus, I am generating modest cashflow now + amortization and tax benefits.  Also, the same can be said about the stock market. It's also at all-time highs, and its historical far more volatile than RE. 

Now you may be thinking that owning RE is more work than the stock market, and that is undoubtedly true. But the difference between 10% and 12% over a long hold period is enormous. For an investment of $100,000, over a 10 year hold the difference in total return between a 10% annualized rate, and 12% is $51,000. For some that might be worth the work of REI, for others not so much. BUT -- if your hold period is 30 years the difference grows to $1.25M!! Gotta love compounding.

 So, back to my original question. Is RE still the best asset class? For me -- a 36 year old who plans to keep working for the next several decades -- there's no doubt in my mind. I will gladly take on the extra work of owning RE, given that, even with more difficult conditions, RE still has a very high probability of delivering me outsized returns over my investing career. 

What do you all think? 

Dave.. I think at least as it relates to the extreme bias on BP is folks just think there is only one real estate investment and that is SFR or MF rentals at least that's were most folks have to start based on finances and experience..

When in fact there is a LOT more to Real Estate than that. And many parts that are Far more lucrative and the grind of trying to build a rental portfolio over the decades.

Just to name a few:

1. Land in the path of progress as a set it and forget it investment.
2. land that you work on entitlements to further the value and then sell for a cap gain or 1031.
3. Oil Gas  and leaseholds.
4. Timber long term or short term buy and log ( something I did for many years and extremely profitable if you know what your doing..) 100% OPM and returns in the 6 to 7 figures within a year. Well 7 figures were not common but virtually all our deals hit the high 5s and low 6s per deal and were bought logged and paid out within 6 months.. With the Lumber Mills fronting 100% of the money with no interest on those loans.
5. Small commercial buildings where your tenants are doctors and professionals.
6. New construction this one has done very well for me the last 10 years with 50% to 300% annual return COC if U have the ability to build a team and get construction financing.
7. Be the bank most of the folks that I deal with in Be the bank over the last 40 years are burnt out landlords that want mailbox money but look for someone to structure the loans for them.
8. Self Storage has done well but bigger money and its a small business.
9. Land flipping buy low sell high carry paper or cash out.. much less competition and pretty active I fund a few of these folks that do so much better than cash flow real estate at least earning money day one that you can actually live on .  Not a lot of folks like me that lend to these guys but i enjoy it as I grew up in the land business so I have the necessary skills to vette the projects as they come in.
10. Water rights in the west..
11. Tax sales again advanced strategy for those that really know what they are doing dont recommend it for those just starting out.
12. foreclosures when they start to come back ton of work but if you work a smaller county with less competition there can be some sweet deals.. And one deal can produce as much cash as one rental over say 10 to 20 years.

So on and so forth.

Or we will just do what we always do put the minimum down on a small rental rent it out and try to build your wealth that way.. just choose correctly the asset class and market. And plan on decades to get to financial independence.

 On your point number seven. I am definitely interested in that.  I have serval rentals that have good equity positions. if I knew of a lender that did not mind me wrapping the loans I would definitely be open to refinancing them at least for what I owed with such a lender. I would be open to doing a few of these a year as some of my rentals came open and then wrapping them to a deserving family that would like to own a home.

[Raj Patel]

It’s not the best but still worth investing in. Where else can you leverage your position higher? Where else can you invest once, and then starting buying income in other properties? 

Unlike REITs which lose value, RE will never lose enough value where your down payment is lost. Won’t happen. 

[Bradley Buxton]

@Dave Meyer

RE will continue to be a tangible asset and people will always need a place to live. The stock market is getting more volatile as more companies that don't make products continue to dominate the market (Meta, Google, X, etc).  Combined with CEO's that can drop their stock prices when they decide that driving cars in space or publicity mud wrestling is the best way to elevate their companies value. Boomers made money with stocks when they were dominated by manufacturing with consistent returns. There is still money to be made with stocks.  I don't think it should be a big part of a wealth building strategy. Regardless if the numbers the stock market seems to be more of a VC casino than a wealth building strategy.  

[Jay Hinrichs]

Quote from @Raj Patel:

It’s not the best but still worth investing in. Where else can you leverage your position higher? Where else can you invest once, and then starting buying income in other properties? 

Unlike REITs which lose value, RE will never lose enough value where your down payment is lost. Won’t happen. 

this is simply NOT TRUE.. people/investors lose their down payments frequently when they chose to abandon a position in a particular property.. Or the property gets trashed . or many other things that can cause property to drop enough in value to lose the down payment.

[Rodney Sums]

Quote from @Dave Meyer:

Real estate is harder than it's been in more than a decade -- we all know this. High prices + high mortgage rates + low inventory is making this a challenge. So my question is  -- in an era where you can get a 5% CoCR from bonds, money market accounts, or a high-yield savings account is RE still the best place to put your money? 

I'll give you my opinion below, but curious to hear what you all think. 

Here's my take, and you probably won't find this shocking, but RE is still the best asset class. I am what I would call a 'total return investor' -- which is that I don't care as much about cashflow, or tax benefits, or appreciation in particular -- I'm in it for the whole package. And when you look at it that way, RE is still the clear winner. 

I just put a deal under contract that was on market. It will generate about 4% CoCR, and 2% in amortization. Even with a very modest expectation of 2% annual appreciation, I will earn about 6% there (thanks leverage!), and tax benefits will give me another 1.5%. If I add that all up, I am getting somewhere between a 12-15% annualized return, for an on-market deal that just needs some cosmetic upgrades. 

Compare that to bonds (5%), or the average return in the stock market (8-10% depending on who you ask) and REI is a no-brainer to me. Am I missing something here?!?

Sure you could say that RE is at all-time highs and is going to come down. It's possible, but a big correction in residential RE is not likely, and over a long hold period, RE will appreciate. Plus, I am generating modest cashflow now + amortization and tax benefits.  Also, the same can be said about the stock market. It's also at all-time highs, and its historical far more volatile than RE. 

Now you may be thinking that owning RE is more work than the stock market, and that is undoubtedly true. But the difference between 10% and 12% over a long hold period is enormous. For an investment of $100,000, over a 10 year hold the difference in total return between a 10% annualized rate, and 12% is $51,000. For some that might be worth the work of REI, for others not so much. BUT -- if your hold period is 30 years the difference grows to $1.25M!! Gotta love compounding.

 So, back to my original question. Is RE still the best asset class? For me -- a 36 year old who plans to keep working for the next several decades -- there's no doubt in my mind. I will gladly take on the extra work of owning RE, given that, even with more difficult conditions, RE still has a very high probability of delivering me outsized returns over my investing career. 

What do you all think? 

 If you do both then there doesn't have to be much of an inward argument

[Paul Azad]

Quote from @Raj Patel:

It’s not the best but still worth investing in. Where else can you leverage your position higher? Where else can you invest once, and then starting buying income in other properties? 

Unlike REITs which lose value, RE will never lose enough value where your down payment is lost. Won’t happen. 

 Say Waaaaht? there are many formerly Hot markets now in correction, like Austin, TX, down about 13% since summer '22, and other towns, where many people bought with 5-10% down and now under-water. And millions lost homes and all equity from 7/2006 peak until bottom of market in 2012-2013 where many areas of country lost 30-40%, my neighborhood lost nearly 50% in home values. 

Real Estate goes up and goes down too, with supply/demand. 

Has been a great investment for me and family, but you and I and everyone on Bigger Pockets are just insignificant Anecdotes and the plural of that is not AnectData. Most of the investors here are very knowledgeable and experienced and very good at what they do, but they are still a tiny sub-set of all real estate owners on Earth (billions), for those answers you have to look at larger Data sets, which academicians try to collate, but even then, still just an educated guess:

This table above shows publicly traded Equity REITs outperforming private Real Estate NCREIF property Index by 13.74% to 9.1% from 2000-2021, almost 4.6% better. The next study below from Cambridge associates looked at 942 funds from 1986-2016 data and showed around 3.9% outperformance of equity REITs over private real estate with median leverage between 54%-60% so not as high as individual house flippers but still with significant leverage:

There are many other studies in US and also by EPRA out of Europe in developed countries as well as many academic studies, https://www.nareitphotolibrary.com/m/750b587aba063147/origin...

and they mostly all agree that on the whole, on average, for the Average investor, that private Real Estate investing is statistically worse than stock market in US by about 2% and worse than buying equity REITs by around 4%, over last 20/30/50 years. 

Obviously this does not apply to everyone, but are you an outlier, or are you in the middle 87% of the one standard deviation of the curve like most of us mortals?

And what does any of the Data matter, just do what you like and enjoy, you have one life to live. I like to research and pick individual stocks to add to my portfolio, despite my knowing all the academic research that says only 3.9% of all stocks in US history produced 100% of the stock markets gain since 1801 (Hendrik Bessimbinder Arizona State 2016) and what are the odds that I can pick those few stocks in advance? I know >98% of smartest IVY League MBA money managers and Hedge Fund managers can't beat a brain damaged Chimp throwing darts at a board ie buying the index fund of the whole market, VTI, over a greater than 15 year period, (Standard and Poor's Spiva reports last 50 years) but I still pick my companies that I think can beat the market. 

Remember, we are a billion times more likely to be living in a simulation of a universe on some alien teenager's computer than living in an actual universe anyways, per the academic philosophers, (Nick Bostrom in his 2003 paper, “Are You Living in a Computer Simulation?) so just let it rip and buy that 100 unit complex in Nashville at a 3% cap rate, what could possibly go wrong? :)

[Carlos Ptriawan]

Quote from @Paul Azad:

Quote from @Raj Patel:

It’s not the best but still worth investing in. Where else can you leverage your position higher? Where else can you invest once, and then starting buying income in other properties? 

Unlike REITs which lose value, RE will never lose enough value where your down payment is lost. Won’t happen. 

 Say Waaaaht? there are many formerly Hot markets now in correction, like Austin, TX, down about 13% since summer '22, and other towns, where many people bought with 5-10% down and now under-water. And millions lost homes and all equity from 7/2006 peak until bottom of market in 2012-2013 where many areas of country lost 30-40%, my neighborhood lost nearly 50% in home values. 

Real Estate goes up and goes down too, with supply/demand. 

Has been a great investment for me and family, but you and I and everyone on Bigger Pockets are just insignificant Anecdotes and the plural of that is not AnectData. Most of the investors here are very knowledgeable and experienced and very good at what they do, but they are still a tiny sub-set of all real estate owners on Earth (billions), for those answers you have to look at larger Data sets, which academicians try to collate, but even then, still just an educated guess:

This table above shows publicly traded Equity REITs outperforming private Real Estate NCREIF property Index by 13.74% to 9.1% from 2000-2021, almost 4.6% better. The next study below from Cambridge associates looked at 942 funds from 1986-2016 data and showed around 3.9% outperformance of equity REITs over private real estate with median leverage between 54%-60% so not as high as individual house flippers but still with significant leverage:

There are many other studies in US and also by EPRA out of Europe in developed countries as well as many academic studies, https://www.nareitphotolibrary.com/m/750b587aba063147/origin...

and they mostly all agree that on the whole, on average, for the Average investor, that private Real Estate investing is statistically worse than stock market in US by about 2% and worse than buying equity REITs by around 4%, over last 20/30/50 years. 

Obviously this does not apply to everyone, but are you an outlier, or are you in the middle 87% of the one standard deviation of the curve like most of us mortals?

And what does any of the Data matter, just do what you like and enjoy, you have one life to live. I like to research and pick individual stocks to add to my portfolio, despite my knowing all the academic research that says only 3.9% of all stocks in US history produced 100% of the stock markets gain since 1801 (Hendrik Bessimbinder Arizona State 2016) and what are the odds that I can pick those few stocks in advance? I know >98% of smartest IVY League MBA money managers and Hedge Fund managers can't beat a brain damaged Chimp throwing darts at a board ie buying the index fund of the whole market, VTI, over a greater than 15 year period, (Standard and Poor's Spiva reports last 50 years) but I still pick my companies that I think can beat the market. 

Remember, we are a billion times more likely to be living in a simulation of a universe on some alien teenager's computer than living in an actual universe anyways, per the academic philosophers, (Nick Bostrom in his 2003 paper, “Are You Living in a Computer Simulation?) so just let it rip and buy that 100 unit complex in Nashville at a 3% cap rate, what could possibly go wrong? :)

and more elaboration ....

 The fundamental aspect why stock market index can outperform real estate is because
(1) with stock market index you invest along with other people in planet, as long as there're more buyer than seller price would just go up
(2) is using statistical average, eventually stock market index would perform better than aggregated real estate, that's why a cap rate 3 private REIT can't mathmatically speaking outperform stock index.

But then how about all these "Real Estate Active investors" ?
Then the key is that :
1) you do active participation and not passive investment (eg: flip, rehab to rent and so on)
2) leverage, but here is the key to do able to leverage there's time constrain, that time constrain is spread between notes/Fed Rate with cap rate ; that "window" create sizeable future appreciation of property.
3) buy in good location, for example, buy only in DOM market where DOM is less than 5.

by doing these three combined then we can always beat the stock market index.

This is why if we're using statistical average as passive investment,stock market would better perform than real estate.

But when we're the developer or active owners, then we could beat the stock market index. 

...Also what's funny about stock market index is that the index is being helped by the top 4% that produces return (in today's example is the magnificent 7), as the number of top 4% keeps changing every decade or so, it creates a phenomenon as well that the best passive investment is always stock market index.

[Alex NA]

I'm relatively new to REI, but I'll chime in with a thought. Seems to me a key factor is the kind of RE investing one chooses to do. The traditional way of buying on-market properties and renting them out clearly isn't very lucrative right now. Preliminary calculations in my area (major Canadian city) with this approach consistently give me IRR of sub 10%. Canadian price bubble, high IR, stagnant rents due to controls all have to do with it.

But if one is willing to go the off-market, distressed property and rehab route (BRRRR, etc) the potential seems real even in this market. What attracts me about this approach is the ability of the investor to add meaningful equity through judicious deal selection and repairs, the leverage possibilities and the ability to put your capital to work over and over (high velocity).

Secondary benefits are worth mentioning too. Real estate investing is a business in its own right, which stimulates you to develop a whole range of business and personal skills like planning, project management, communication, admin, self-discipline, action orientation, etc. Contrast with stocks or mutual funds where you more or less park your money and wait (unless you're a day trader). Part of the attraction to REI for me is reaping these knowledge and character benefits (plus continuing a family legacy).

[V.G Jason]

Depends on time horizon, right now the best short/mid term is probably notes locking in 8-12% for the next 3-5 years. 

Real estate is a long, long play. The investment is still fundamentally a scarcity play, so for that I tip the scale there.

[Eric Bilderback]

Quote from @Jay Hinrichs:

Quote from @Eric Bilderback:

@Carlos Ptriawan @K S.

 I agree, it's not as simple as I tried to make it sound.  But when you feel you have a decent net worth and a some money coming in you have the confidence to take a chance and be an agent, builder etc.  And I think you would agree someone with a little cushion has a much longer runway and chance for success.  But yes your point taken.

[V.G Jason]

Quote from @James De Stefano:

Quote from @Eric Bilderback:

Real estate is still the best investment for normal people to remove or at least cushion themselves against the rat race and build wealth.  I don't invest in the stock market (and suspect it is more BS then the real estate market) but from my experience real estate is the only asset that pays you to own it in a meaningful way.  Even with real estate as unaffordable as it has ever been I would encourage young people or anyone to buy good real estate, manage it well and wait.

Pretty much 100%.   SNP 500 is super consistent and does well over time, but unless you are a lunatic who's using options ( playing with HOT fire ), you really can't leverage. 

It's a huge tool and benefit to RE.  Because RE has plenty of other time sucks and costs involved, it's far from passive. 
I'm doing well recently with a conservative dividend focused ETF that's giving 10%,  with very little price growth or decrease.  Good liqudity too for when/ if RE presents for reasonable opportunities!

Using options is not playing with hot fire. Playing with margin is.

[V.G Jason]

Quote from @Jay Hinrichs:

Quote from @Dave Meyer:

Real estate is harder than it's been in more than a decade -- we all know this. High prices + high mortgage rates + low inventory is making this a challenge. So my question is  -- in an era where you can get a 5% CoCR from bonds, money market accounts, or a high-yield savings account is RE still the best place to put your money? 

I'll give you my opinion below, but curious to hear what you all think. 

Here's my take, and you probably won't find this shocking, but RE is still the best asset class. I am what I would call a 'total return investor' -- which is that I don't care as much about cashflow, or tax benefits, or appreciation in particular -- I'm in it for the whole package. And when you look at it that way, RE is still the clear winner. 

I just put a deal under contract that was on market. It will generate about 4% CoCR, and 2% in amortization. Even with a very modest expectation of 2% annual appreciation, I will earn about 6% there (thanks leverage!), and tax benefits will give me another 1.5%. If I add that all up, I am getting somewhere between a 12-15% annualized return, for an on-market deal that just needs some cosmetic upgrades. 

Compare that to bonds (5%), or the average return in the stock market (8-10% depending on who you ask) and REI is a no-brainer to me. Am I missing something here?!?

Sure you could say that RE is at all-time highs and is going to come down. It's possible, but a big correction in residential RE is not likely, and over a long hold period, RE will appreciate. Plus, I am generating modest cashflow now + amortization and tax benefits.  Also, the same can be said about the stock market. It's also at all-time highs, and its historical far more volatile than RE. 

Now you may be thinking that owning RE is more work than the stock market, and that is undoubtedly true. But the difference between 10% and 12% over a long hold period is enormous. For an investment of $100,000, over a 10 year hold the difference in total return between a 10% annualized rate, and 12% is $51,000. For some that might be worth the work of REI, for others not so much. BUT -- if your hold period is 30 years the difference grows to $1.25M!! Gotta love compounding.

 So, back to my original question. Is RE still the best asset class? For me -- a 36 year old who plans to keep working for the next several decades -- there's no doubt in my mind. I will gladly take on the extra work of owning RE, given that, even with more difficult conditions, RE still has a very high probability of delivering me outsized returns over my investing career. 

What do you all think? 

Dave.. I think at least as it relates to the extreme bias on BP is folks just think there is only one real estate investment and that is SFR or MF rentals at least that's were most folks have to start based on finances and experience..

When in fact there is a LOT more to Real Estate than that. And many parts that are Far more lucrative and the grind of trying to build a rental portfolio over the decades.

Just to name a few:

1. Land in the path of progress as a set it and forget it investment.
2. land that you work on entitlements to further the value and then sell for a cap gain or 1031.
3. Oil Gas  and leaseholds.
4. Timber long term or short term buy and log ( something I did for many years and extremely profitable if you know what your doing..) 100% OPM and returns in the 6 to 7 figures within a year. Well 7 figures were not common but virtually all our deals hit the high 5s and low 6s per deal and were bought logged and paid out within 6 months.. With the Lumber Mills fronting 100% of the money with no interest on those loans.
5. Small commercial buildings where your tenants are doctors and professionals.
6. New construction this one has done very well for me the last 10 years with 50% to 300% annual return COC if U have the ability to build a team and get construction financing.
7. Be the bank most of the folks that I deal with in Be the bank over the last 40 years are burnt out landlords that want mailbox money but look for someone to structure the loans for them.
8. Self Storage has done well but bigger money and its a small business.
9. Land flipping buy low sell high carry paper or cash out.. much less competition and pretty active I fund a few of these folks that do so much better than cash flow real estate at least earning money day one that you can actually live on .  Not a lot of folks like me that lend to these guys but i enjoy it as I grew up in the land business so I have the necessary skills to vette the projects as they come in.
10. Water rights in the west..
11. Tax sales again advanced strategy for those that really know what they are doing dont recommend it for those just starting out.
12. foreclosures when they start to come back ton of work but if you work a smaller county with less competition there can be some sweet deals.. And one deal can produce as much cash as one rental over say 10 to 20 years.

So on and so forth.

Or we will just do what we always do put the minimum down on a small rental rent it out and try to build your wealth that way.. just choose correctly the asset class and market. And plan on decades to get to financial independence.

 Not sure if that list is in order, but the best investments will always be the land that has the resources & utility. And the next best is the land that can provide the resource, then the land that can provide the utility. 

Ags, o&g, water, timber are always going to be the best. Timber with wetland credits really, really are incredible. The chickens took time to roost, but those are some of the best investments.

The last sentence is true-- plan on decades to get financial independence. Most of BP needs to sign off on this comment before posting. 

[K S.]

Quote from @Bradley Buxton:

@Dave MeyerRegardless if the numbers the stock market seems to be more of a VC casino than a wealth building strategy.  

Same can be said for the real estate market, the billion dollar industry of forums, books and training has propped up real estate by investors and institutions that resemble an overvalued stock that is not inline with incomes.

250k in the S&P 500 10 years ago would be 900k today with no effort. But a 250k house 10 yeras ago might be worth 500k-700k today. And today, you won't be leveraging yourself with the prices and interest rates we're seeing yet the S&P 500 still made 30% gains last year I believe.

[Jeff S.]

@K S. you are assuming you are investing 100% cash into the stock market not diversified at all and just happened to get lucky with index funds.

Most investors overall compare equity return and not total return on the asset as you are doing. ROE is what most talk about.

I have never had $250k cash to invest in the market not that rich or high income but have accumulated with effort much more equity and then cash flow from years of ownership. For those that are rolling in cash as such high income earners the market has historically done well. No guarantees going forward.

One way to own RE is by buying stocks that own lots of RE. Warren Buffet owns Pilot Service stations and he mentioned all the prime RE they own across the country. Another is McDonalds who is a RE company that happens to sell hamburgers. Yes buy a good stock and hold forever a good thing, Has never worked for me.

[Carlos Ptriawan]

Quote from @Jeff S.:

@K S. you are assuming you are investing 100% cash into the stock market not diversified at all and just happened to get lucky with index funds.

Most investors overall compare equity return and not total return on the asset as you are doing. ROE is what most talk about.

I have never had $250k cash to invest in the market not that rich or high income but have accumulated with effort much more equity and then cash flow from years of ownership. For those that are rolling in cash as such high income earners the market has historically done well. No guarantees going forward.

One way to own RE is by buying stocks that own lots of RE. Warren Buffet owns Pilot Service stations and he mentioned all the prime RE they own across the country. Another is McDonalds who is a RE company that happens to sell hamburgers. Yes buy a good stock and hold forever a good thing, Has never worked for me.

 The article that I mentioned actually mentioned how actually Buffet makes money, he mentioned main Buffet strategy is  actually utilizing the low-interest rate for the corporate company that he owned, so he uses the near zero rate debt and then re-invested that debt into company activity that generates sizeable return. Kinda  like RE investor that use the spread during low cheap money era to generate profit.

That's why he's raising cash right now and stopped making more investments as cash now generates return as well. Kinda similar to some of us too in RE world.

[Jeff S.]

@Carlos Ptriawan it is thought he may be selling some Apple because he thinks if Biden is elected capital gains tax will go up and he can take advantage of lower gains now. He is taking profits too as Apple is softening a bit. With 200 billion in cash he is not capitalizing on treasuries but not sad to get some income from them.

[Jeff S.]

@K S. here is Bank of America stats. Terrible return on assets.

Return on Assets	0.85%
Return on Equity	9.39%