Should You Invest in Real Estate or the Stock Market?

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Should You Invest in Real Estate or the Stock Market?

 

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Should I invest in Real Estate or the Stock Market is a question that I am asked all the time as an advisor. This is a complex question, and both have their advantages and disadvantages, but here are some things to think about….

 

Historically, over long periods of time, the stock market has had a better return than real estate and is much easier to invest in….

 

In 1970 the average home price in the United States was $23,600. Today it is right at $200K. That’s an average return of 4.36% over almost 50 years and doesn’t take into account any of the costs to own the home over that period of time.

 

Even if this home was an investment property, and you had someone renting that covered the entire mortgage for the first 30 years and then had the rent as cash flow, you would still only end up with around $300K more in cash flow from the rent, bringing your total return to around $475K.

 

If you had put that same $23,600 into the stock market, which I denominate as the S&P 500, back in 1970, it would be worth about $3.1M today. It would also be completely liquid and have no real costs associated with owning or selling. You definitely wouldn’t have had to put a new roof on your mutual fund or ETF along the way!

 

I am not suggesting that real estate can’t be a good investment!

It can be for some people and it definitely offers diversification to an investment portfolio. REITS or Real Estate Investment Trusts are another way to own real estate these days that offer liquidity and diversification as well as access to commercial and large real estate projects that would normally be out of reach to the average investor.

 

If you would like to learn more about these types of real estate investments within the context of an overall financial plan from a fiduciary financial advisor who cares, shoot me an email or give me a call to have a friendly chat.

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