Is Real Estate Still the Best Asset Class?

Is Real Estate Still the Best Asset Class?

Dave MeyerPro Member
Head of Real Estate Investing at BiggerPockets · Seattle, WA · Member since 2015 · 224 posts · 826 votes

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? 

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Chris SeveneyBusiness Member
Moderator
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
2y
Quote from @Russell Brazil:

In investing, there is no such thing as the best, or the worst. There is no such thing as good or bad.

Investing is deploying capital to get a return based on one's risk tolerance. There is merely varying degrees of risk. There is high risk, moderate risk, low risk. Risk is neither good or bad.

Real estate on average tends towards the low end of the spectrum, but of course real estate runs the gamut of risk.


 I could not have said it better myself. It may be best for person A but not for person B. I have been in real estate 25 years, my wife in finance for 25 years. Real Estate is the best for me, because I like to think I know what I am doing and can use my experience and knowledge along with being active in the space to enhance returns. My wife, she cannot - but she can do it with investing in the markets and other areas that there is no way I could do that. 

I met a guy who does selective breeding of snakes. He sells them for tens of thousands a pop and generates revenue of over $1M a year and has no overhead except his electric bill in his basement for the lighting, a part time employee and of course the food. He has someone take care of the snakes which is like an hour a day. He does whatever he wants. I was sitting next to him along with a group of others in real estate and were like - WTF are we doing dealing with people/tenants/borrowers and this guy is traveling the world while he breeds snakes and generates 7 figures with no debt...

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  • Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
    2y

    @K S. here is Nike:

    Return on Assets   9.89%

    Return on Equity 36.38%

  • Member since 2019 · 7k+ posts · 4k+ votes
    2y
    Quote from @Jeff S.:

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

    Return on Assets0.85%
    Return on Equity9.39%

    any banks in US should be in bankruptcy right now if mark-to-market accounting is used as their low-interest-rate bond is crashing in value ...... but this is usa lol ;-)

  • Member since 2019 · 7k+ posts · 4k+ votes
    2y
    Quote from @Jeff S.:

    @K S. here is Nike:

    Return on Assets   9.89%

    Return on Equity 36.38%


    so based on study, only 3-5% S&P company can outperform S&P500 and that top 4 is the one that moves the index.

    Based on that, it is prudent to invest mainly in index only (and to compare with real estate).

    I am OK if Nike can not sell more shoes while Nvidia has backlog order of $9999999 thousands of GPU lol

  • Member since 2019 · 7k+ posts · 4k+ votes
    2y
    Quote from @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.


     He is....

    but the author is trying to emphasize that his main strategy is leveraging low-rate debt which is similar to what most REI does.

    While we are using  house as the vehicle he is using corporation.

    In essence, the method is the same. 

  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    2y

    @K S. is very much correct in his points.

    95% of BP investors would be better going the route he's saying. The 5% that is way more cautious, defensive, and/or successful in other endeavors to where real estate is a different % of their net worth, can operate in a manner where REI is best.

    A great asset will always be primo land that's leveraged. Is it the very best or top 10% or top 25% of the best, that depends on when you're talking but it's always going to be among the best so it's something you should own. 

    Most of my equities I bought in 2008-11 and 2017-2020. Between 2012-2016 it was significantly less, but still a solid chunk. About half it was calls I bought. Those 2008-2011 stocks likely outperform people's RE from 2008-2011 especially if you consider it's been 99% passive. When I look back at 2022-2026 or 27, I will notice I bought a lot of physical RE, private, public debt, small caps and emerging market equities.  What's best when is a hard thing to decipher, so is RE the best asset class? I'd take land with resources & utility as the #1 thing on my list, but if someone said in 2024 that a PML or debt note is superior-- I cannot argue. I don't invest on a 1 year or a short-term horizon, everything I buy I keep. I sell/realize the gains in different forms-- I.E not selling the 2008 equities but loaning against them, not selling a house but getting the mark to market gain via cash re-fi, etc. because fundamentally I really always want to hold the best assets. Diversification comes in asset classes, but not really within the assets. There's very little intra-asset diversity in my holdings. 

  • Member since 2019 · 7k+ posts · 4k+ votes
    2y
    Quote from @V.G Jason:

    @K S. is very much correct in his points.

    95% of BP investors would be better going the route he's saying. The 5% that is way more cautious, defensive, and/or successful in other endeavors to where real estate is a different % of their net worth, can operate in a manner where REI is best.

    A great asset will always be primo land that's leveraged. Is it the very best or top 10% or top 25% of the best, that depends on when you're talking but it's always going to be among the best so it's something you should own. 

    Most of my equities I bought in 2008-11 and 2017-2020. Between 2012-2016 it was significantly less, but still a solid chunk. About half it was calls I bought. Those 2008-2011 stocks likely outperform people's RE from 2008-2011 especially if you consider it's been 99% passive. When I look back at 2022-2026 or 27, I will notice I bought a lot of physical RE, private, public debt, small caps and emerging market equities.  What's best when is a hard thing to decipher, so is RE the best asset class? I'd take land with resources & utility as the #1 thing on my list, but if someone said in 2024 that a PML or debt note is superior-- I cannot argue. I don't invest on a 1 year or a short-term horizon, everything I buy I keep. I sell/realize the gains in different forms-- I.E not selling the 2008 equities but loaning against them, not selling a house but getting the mark to market gain via cash re-fi, etc. because fundamentally I really always want to hold the best assets. Diversification comes in asset classes, but not really within the assets. There's very little intra-asset diversity in my holdings. 


     it's all about where to invest when money is cheap and when money is expensive, and when to do leverage and not to do leverage.

    reality is most of us investing like the buffet too, it is the same principle. there's no hidden sekret.

    and yea most family office allocated their investment 29% into stock (mainly index) ; and 27% into real estate.

  • Real Estate Agent · Sisters, OR · Member since 2014 · 1k+ posts · 1k+ votes
    2y
    Quote from @Jeff S.:

    @K S. here is Nike:

    Return on Assets   9.89%

    Return on Equity 36.38%

     To be fair if I could use Chinese slave labor, turn a blind eye to forced sterilization, and organ harvesting via the Uygur population, then turnaround to exploit, fund and exacerbate the racial divide in the US for marketing purposes and my bottomline, I could certainly juice my ROE.  

  • Mike ReynoldsPro Member
    construction · Nacogdoches, TX · Member since 2011 · 2k+ posts · 1k+ votes
    2y

    I usually don’t post my personal business in here but RE has put me in a very good spot. I started in Dec. 2019 with an 80k equity loan (thanks to the advice from @Jay Hinrichs) and 500 dollars cash for a survey. Last year I netted over 143k and grossed almost 400k. How’s that for a cash on cash return? The equity property I sold for 250k and had @Dave Foster 1031 the remainder into what has to be the longest cash sale of Dave’s career. I kept my day job throughout but thinking seriously bout going full time. 

    This business is real folks. But you have to treat it as such. You can’t just think everything will work out. Even though I kept my day job, it was not passive at all. You have to want to work late into the night. If you’re not willing to do that then stocks  may be your thing. 

  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    2y

    The Long Game's working well for you @Mike Reynolds.  @Jay Hinrichs doesn't steer wrong.  You're Rocking it like a champ!  Congrats!!

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    2y
    Quote from @Mike Reynolds:

    I usually don’t post my personal business in here but RE has put me in a very good spot. I started in Dec. 2019 with an 80k equity loan (thanks to the advice from @Jay Hinrichs) and 500 dollars cash for a survey. Last year I netted over 143k and grossed almost 400k. How’s that for a cash on cash return? The equity property I sold for 250k and had @Dave Foster 1031 the remainder into what has to be the longest cash sale of Dave’s career. I kept my day job throughout but thinking seriously bout going full time. 

    This business is real folks. But you have to treat it as such. You can’t just think everything will work out. Even though I kept my day job, it was not passive at all. You have to want to work late into the night. If you’re not willing to do that then stocks  may be your thing. 


    Well this makes me proud !!! congrats..  I am always amenable to receiving  a bottle of Screaming Eagle in lu of a mentoring fee like the guru's charge :)  
  • Mike ReynoldsPro Member
    construction · Nacogdoches, TX · Member since 2011 · 2k+ posts · 1k+ votes
    2y
    Quote from @Dave Foster:

    The Long Game's working well for you @Mike Reynolds.  @Jay Hinrichs doesn't steer wrong.  You're Rocking it like a champ!  Congrats!!

     And thank you also Dave. I still can't believe we had to wait so long on the sellers lawyer to close on that house. 

  • Mike ReynoldsPro Member
    construction · Nacogdoches, TX · Member since 2011 · 2k+ posts · 1k+ votes
    2y
    Quote from @Jay Hinrichs:
    Quote from @Mike Reynolds:

    I usually don’t post my personal business in here but RE has put me in a very good spot. I started in Dec. 2019 with an 80k equity loan (thanks to the advice from @Jay Hinrichs) and 500 dollars cash for a survey. Last year I netted over 143k and grossed almost 400k. How’s that for a cash on cash return? The equity property I sold for 250k and had @Dave Foster 1031 the remainder into what has to be the longest cash sale of Dave’s career. I kept my day job throughout but thinking seriously bout going full time. 

    This business is real folks. But you have to treat it as such. You can’t just think everything will work out. Even though I kept my day job, it was not passive at all. You have to want to work late into the night. If you’re not willing to do that then stocks  may be your thing. 


    Well this makes me proud !!! congrats..  I am always amenable to receiving  a bottle of Screaming Eagle in lu of a mentoring fee like the guru's charge :)  

    If there ever was a guru worth 30k you would be one of those. I might even buy you 2 bottles. I might have to take a shot myself.  

  • Member since 2019 · 7k+ posts · 4k+ votes
    2y
    Quote from @Mike Reynolds:
    Quote from @Jay Hinrichs:
    Quote from @Mike Reynolds:

    I usually don’t post my personal business in here but RE has put me in a very good spot. I started in Dec. 2019 with an 80k equity loan (thanks to the advice from @Jay Hinrichs) and 500 dollars cash for a survey. Last year I netted over 143k and grossed almost 400k. How’s that for a cash on cash return? The equity property I sold for 250k and had @Dave Foster 1031 the remainder into what has to be the longest cash sale of Dave’s career. I kept my day job throughout but thinking seriously bout going full time. 

    This business is real folks. But you have to treat it as such. You can’t just think everything will work out. Even though I kept my day job, it was not passive at all. You have to want to work late into the night. If you’re not willing to do that then stocks  may be your thing. 


    Well this makes me proud !!! congrats..  I am always amenable to receiving  a bottle of Screaming Eagle in lu of a mentoring fee like the guru's charge :)  

    If there ever was a guru worth 30k you would be one of those. I might even buy you 2 bottles. I might have to take a shot myself.  


     Congrats to you, Jay and Dave. Win win for everyone.

  • Investor · Phoenix, AZ · Member since 2018 · 420 posts · 388 votes
    2y

    @Dave Meyer it is hands down still the best asset class. As an investor and an agent I can put 5% down and get 3% (more or less) back in commission. If the property cash flows $0, gives me $0 in tax benefits and appreciates at 3% per year on pace with traditional inflation it’s still a massive winner. Let’s put some numbers to it.

    $500k purchase price. $25k down. $15k in commissions on an 80/20 split yields a $12k commission. $13k net cash out of pocket (plus closing costs if you can’t get a seller credit to cover, I usually can).

    3% appreciation is $15k per year on my original investment of $13k. 

    Show me another asset class where I can make 115% on my money. It simply does not exist. I did this 8 times in the last 8 years. It is simple and repeatable. 


  • Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
    2y
    Quote from @Account Closed:

    @Dave Meyer it is hands down still the best asset class. As an investor and an agent I can put 5% down and get 3% (more or less) back in commission. If the property cash flows $0, gives me $0 in tax benefits and appreciates at 3% per year on pace with traditional inflation it’s still a massive winner. Let’s put some numbers to it.

    $500k purchase price. $25k down. $15k in commissions on an 80/20 split yields a $12k commission. $13k net cash out of pocket (plus closing costs if you can’t get a seller credit to cover, I usually can).

    3% appreciation is $15k per year on my original investment of $13k. 

    Show me another asset class where I can make 115% on my money. It simply does not exist. I did this 8 times in the last 8 years. It is simple and repeatable. 



     So you have a 0% interest rate, no property taxes, no insurance cost, and no maintenance/repairs? 

  • Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
    2y

    The best investment classes are cash-for-gold places, online gambling, and escort services. What is this baloney? Real estate is not even in the legal top ten.

  • Member since 2019 · 7k+ posts · 4k+ votes
    2y
    Quote from @Eric James:
    Quote from @Account Closed:

    @Dave Meyer it is hands down still the best asset class. As an investor and an agent I can put 5% down and get 3% (more or less) back in commission. If the property cash flows $0, gives me $0 in tax benefits and appreciates at 3% per year on pace with traditional inflation it’s still a massive winner. Let’s put some numbers to it.

    $500k purchase price. $25k down. $15k in commissions on an 80/20 split yields a $12k commission. $13k net cash out of pocket (plus closing costs if you can’t get a seller credit to cover, I usually can).

    3% appreciation is $15k per year on my original investment of $13k. 

    Show me another asset class where I can make 115% on my money. It simply does not exist. I did this 8 times in the last 8 years. It is simple and repeatable. 



     So you have a 0% interest rate, no property taxes, no insurance cost, and no maintenance/repairs? 


    I re-read his email but I think he indicated his net DSCR is 1.0 after all PITI and maintenance.

    It may worked 160 months ago though LOL, in AZ these days to achieve DSCR 1.0 he has to put 35%, now he would not be able to keep that 115% return.

  • Mike ReynoldsPro Member
    construction · Nacogdoches, TX · Member since 2011 · 2k+ posts · 1k+ votes
    2y
    Quote from @Jim K.:

    The best investment classes are cash-for-gold places, online gambling, and escort services. What is this baloney? Real estate is not even in the legal top ten.


     I wish there was a laugh button instead of just a like. But I can’t find any flaw in that reasoning. 

  • Member since 2021 · 401 posts · 254 votes
    2y
    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.

    I don't understand the statement that the the broad market index fund returns over the last decade or 100 years was luck. You can say the same for the real estate run over the last decade as well.
  • Investor · Phoenix, AZ · Member since 2018 · 420 posts · 388 votes
    2y
    Quote from @Eric James:
    Quote from @Account Closed:

    @Dave Meyer it is hands down still the best asset class. As an investor and an agent I can put 5% down and get 3% (more or less) back in commission. If the property cash flows $0, gives me $0 in tax benefits and appreciates at 3% per year on pace with traditional inflation it’s still a massive winner. Let’s put some numbers to it.

    $500k purchase price. $25k down. $15k in commissions on an 80/20 split yields a $12k commission. $13k net cash out of pocket (plus closing costs if you can’t get a seller credit to cover, I usually can).

    3% appreciation is $15k per year on my original investment of $13k. 

    Show me another asset class where I can make 115% on my money. It simply does not exist. I did this 8 times in the last 8 years. It is simple and repeatable. 



     So you have a 0% interest rate, no property taxes, no insurance cost, and no maintenance/repairs? 

    Did I say that? I said cash flow was $0, so my rental income is equal to my PITI + vacancy & maintenance costs. That’s the basic definition of cash flow after all. 
  • Investor · Phoenix, AZ · Member since 2018 · 420 posts · 388 votes
    2y
    Quote from @Carlos Ptriawan:
    Quote from @Eric James:
    Quote from @Account Closed:

    @Dave Meyer it is hands down still the best asset class. As an investor and an agent I can put 5% down and get 3% (more or less) back in commission. If the property cash flows $0, gives me $0 in tax benefits and appreciates at 3% per year on pace with traditional inflation it’s still a massive winner. Let’s put some numbers to it.

    $500k purchase price. $25k down. $15k in commissions on an 80/20 split yields a $12k commission. $13k net cash out of pocket (plus closing costs if you can’t get a seller credit to cover, I usually can).

    3% appreciation is $15k per year on my original investment of $13k. 

    Show me another asset class where I can make 115% on my money. It simply does not exist. I did this 8 times in the last 8 years. It is simple and repeatable. 



     So you have a 0% interest rate, no property taxes, no insurance cost, and no maintenance/repairs? 


    I re-read his email but I think he indicated his net DSCR is 1.0 after all PITI and maintenance.

    It may worked 160 months ago though LOL, in AZ these days to achieve DSCR 1.0 he has to put 35%, now he would not be able to keep that 115% return.

    It has worked once a year for each of the last 8 years. 
  • Member since 2019 · 7k+ posts · 4k+ votes
    2y
    Quote from @Account Closed:
    Quote from @Carlos Ptriawan:
    Quote from @Eric James:
    Quote from @Account Closed:

    @Dave Meyer it is hands down still the best asset class. As an investor and an agent I can put 5% down and get 3% (more or less) back in commission. If the property cash flows $0, gives me $0 in tax benefits and appreciates at 3% per year on pace with traditional inflation it’s still a massive winner. Let’s put some numbers to it.

    $500k purchase price. $25k down. $15k in commissions on an 80/20 split yields a $12k commission. $13k net cash out of pocket (plus closing costs if you can’t get a seller credit to cover, I usually can).

    3% appreciation is $15k per year on my original investment of $13k. 

    Show me another asset class where I can make 115% on my money. It simply does not exist. I did this 8 times in the last 8 years. It is simple and repeatable. 



     So you have a 0% interest rate, no property taxes, no insurance cost, and no maintenance/repairs? 


    I re-read his email but I think he indicated his net DSCR is 1.0 after all PITI and maintenance.

    It may worked 160 months ago though LOL, in AZ these days to achieve DSCR 1.0 he has to put 35%, now he would not be able to keep that 115% return.

    It has worked once a year for each of the last 8 years. 

    5% down for DSCR 1.0 investment ;-) oh well....I've been dreaming about that too ;-) I am sure it worked in December 2012

  • Investor · Phoenix, AZ · Member since 2018 · 420 posts · 388 votes
    2y
    Quote from @Carlos Ptriawan:
    Quote from @Account Closed:
    Quote from @Carlos Ptriawan:
    Quote from @Eric James:
    Quote from @Account Closed:

    @Dave Meyer it is hands down still the best asset class. As an investor and an agent I can put 5% down and get 3% (more or less) back in commission. If the property cash flows $0, gives me $0 in tax benefits and appreciates at 3% per year on pace with traditional inflation it’s still a massive winner. Let’s put some numbers to it.

    $500k purchase price. $25k down. $15k in commissions on an 80/20 split yields a $12k commission. $13k net cash out of pocket (plus closing costs if you can’t get a seller credit to cover, I usually can).

    3% appreciation is $15k per year on my original investment of $13k. 

    Show me another asset class where I can make 115% on my money. It simply does not exist. I did this 8 times in the last 8 years. It is simple and repeatable. 



     So you have a 0% interest rate, no property taxes, no insurance cost, and no maintenance/repairs? 


    I re-read his email but I think he indicated his net DSCR is 1.0 after all PITI and maintenance.

    It may worked 160 months ago though LOL, in AZ these days to achieve DSCR 1.0 he has to put 35%, now he would not be able to keep that 115% return.

    It has worked once a year for each of the last 8 years. 

    5% down for DSCR 1.0 investment ;-) oh well....I've been dreaming about that too ;-) I am sure it worked in December 2012

    It worked as recently as September 2023 on a wraparound mortgage with a 3.5% rate. 

    It works today on seller finance deals, wraps, assumptions, and off market deals. 

    You don’t need a Time Machine to 2012, but you may need a library card. To be transparent, it’s much harder now…but if it were easy everyone would do it.
  • Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
    2y

    @K S.
    I don't understand the statement that the the broad market index fund returns over the last decade or 100 years was luck. You can say the same for the real estate run over the last decade as well.

    Yes I admit being extremely lucky in RE the last 30 years and having been unlucky in the stock market. I think the stock market is fascinating but I am too slow on the uptake getting in on the big winners. There are no guarantees going forward. To me RE is a hands on business where stock investing is just that investing in someone else's businesses. My base is RE and cash and stocks are my speculation. I am more interested in return of capital than return on capital.

  • Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
    2y
    Quote from @Account Closed:
    Quote from @Eric James:
    Quote from @Account Closed:

    @Dave Meyer it is hands down still the best asset class. As an investor and an agent I can put 5% down and get 3% (more or less) back in commission. If the property cash flows $0, gives me $0 in tax benefits and appreciates at 3% per year on pace with traditional inflation it’s still a massive winner. Let’s put some numbers to it.

    $500k purchase price. $25k down. $15k in commissions on an 80/20 split yields a $12k commission. $13k net cash out of pocket (plus closing costs if you can’t get a seller credit to cover, I usually can).

    3% appreciation is $15k per year on my original investment of $13k. 

    Show me another asset class where I can make 115% on my money. It simply does not exist. I did this 8 times in the last 8 years. It is simple and repeatable. 



     So you have a 0% interest rate, no property taxes, no insurance cost, and no maintenance/repairs? 

    Did I say that? I said cash flow was $0, so my rental income is equal to my PITI + vacancy & maintenance costs. That’s the basic definition of cash flow after all. 

     Yes. You wrote $15k appreciation on your $13k investment gives you a 115% return. That is only the case if there are no other expenses. And you're not getting 5% down on a rental property. That would be a primary residence.

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