Is real estate really the the best investment?
March 15th, 2010 | by admin |For a $100,000 investment money and 8 to10 year time horizon, is it better to buy 2 houses in Houston (each at 20% down) or a S&P index fund is a better alternative?
The gain from the investmnet will be needed for children’s college education after 10 years.
After what happened in the stock market, it makes most people wonder if they can count on the money to grow even in a 8 to10 year period. I know that managing rental investment is no fun but one would make money (at least won’t lose principal) over 8-10 year time horizon.
I know there are tons of books that say real estate is the best investment. But is it really? specially for the middle class.
Are there any other investments (passive) ideas to get 8-10 % annual return over a 10 year period?
8-10% is a difficult compounded return to earn. Real Estate is one of the most overrated investments available. The commonly quoted claims about RE prices never having a losing year are grossly misleading.
1. They have a HUGE survivorship bias in that the houses that don’t sell are not figured into the median price. So, if 5 houses are for sale and only one sells, only that price is used.
2. They do not factor in quality. The typical new home is 25% bigger and has more amenities than a home 20 years ago, yet the prices are compared without adjustment.
3. They do not factor in inflation.
Housing prices have risen sharply over the past decade, but adjusted for inflation and quality, home prices barely moved between the 1890’s and the 1990’s.
People also forget, when bragging on how much they made on a home, improvements, fees, financing, upkeep, property tax, etc.
ssb
7 Responses to “Is real estate really the the best investment?”
By NC on Mar 15, 2010 | Reply
Stop thinking about alternatives. Real estate and stocks (and bonds, I might add) work best TOGETHER.
References :
By Wibble on Mar 15, 2010 | Reply
It’s so har dot predict what will happen to real estate and the stock market over a 8-10 year period so I’m not even going to attempt to answer that quesiton for you. However, one thing I can say is that If you decide to invest in real estate and rent out the condo’s/room/or house. Make sure that your rental income can cover all of your expenses (monthly mortgage payments). Otherwise I would not think it is a wise investment.
The stock market is toppy right now so 1 could say it’s due a retracement but who knows in 8-10 years time where the DJIA would be.
References :
By reallyno on Mar 15, 2010 | Reply
For $100,000 you would be better off diversifying a portfolio using ETF’s, Mutual Funds or even assorted Trusts (Real estate, Oil, etc…).
An 8 to 10% return is not unheard of just do your homework on what you think the future holds for the markets.
References :
By prince47 on Mar 15, 2010 | Reply
land better.
References :
By Scot B on Mar 15, 2010 | Reply
8-10% is a difficult compounded return to earn. Real Estate is one of the most overrated investments available. The commonly quoted claims about RE prices never having a losing year are grossly misleading.
1. They have a HUGE survivorship bias in that the houses that don’t sell are not figured into the median price. So, if 5 houses are for sale and only one sells, only that price is used.
2. They do not factor in quality. The typical new home is 25% bigger and has more amenities than a home 20 years ago, yet the prices are compared without adjustment.
3. They do not factor in inflation.
Housing prices have risen sharply over the past decade, but adjusted for inflation and quality, home prices barely moved between the 1890’s and the 1990’s.
People also forget, when bragging on how much they made on a home, improvements, fees, financing, upkeep, property tax, etc.
ssb
References :
By Tom D on Mar 15, 2010 | Reply
Real Estate can be a better investment when it is your primary residence. Other than that, I think a divesified portfolio of stocks, bonds, and some alternative investments (hedge funds, REITs, etc…) beats real estate. When you add together interest, upkeep, property taxes, improvements, etc… you’re putting a lot more into the real estate than the $100,000 that you think you are.
References :
By vegas_iwish on Mar 15, 2010 | Reply
"Won’t lose principal"? Don’t bet on it. Houston has been through jingle mail in the past & could come again. Tons of books say stocks are best too. Can have a good reit section in your portfolio if like RE but stocks more likely to come through if portfolio done right. Market was 700 in 1981. Don’t forget how much that market has made as well as RE. Both can go down from time to time. RE could be very illiquid at the time you need to sell. That would be the worst -case scenario.
References :
degree in Finance+ 27 yrs investing