Compounding Stock Market Returns VS Real Estate Returns
I read the Introduction to Real Estate Investment Deal Analysis featured on BiggerPockets, which I found to be an insightful read, but left me with some unanswered questions, which I was hoping you gurus here could help answer.
Link: http://www.biggerpockets.com/renewsblog/2010/06/30/introduction-to-real-estate-analysis-investing/[1]
In the author's example, the total return on investment (after tax benefits, appreciation, and equity) = 23.71%/year, which sounds amazing. However, it looks like this % is only based off of the initial investment basis: the down payment.
On the other hand, even though the stock market only returns 8%/year on average in the long run, that 8% you earn is then re-invested into your investment basis each year. Therefore, your returns from previous years contribute cumulatively toward your investment basis, which the 8%/year for the subsequent years is based off of. This illustrates the power of compounding.
It is compounding like this that I didn't see him touch on in his real estate investment deal analysis. Am I missing something here, does compounding exist in real estate? And if not, why is real estate investing superior?