Real Returns
Real estate investing offers a unique combination of short-term and long-term earning potential as well as the ability to diversify, not found in other asset classes. It is a more stable and a profitable asset class with low correlation to the stock market.
Growth Potential
Residential real estate investment has a track record of generating both cash flow and long-term appreciation.
According to the American Enterprise Institute (AEI), a public policy think tank, the market value of residential real estate in the US increased by 36% over the ten-year span between 2008 and 2018, and by 173% over the 20-year span between 1998 and 2018.
Cash Flow
One of the most attractive aspects of real estate investing is the ability to create consistent cash flow.
For example, equity ownership in apartment buildings that earn income through rental payments or loans that earn income through interest payments give investors access to larger income-producing assets.
Income And Appreciation
Real estate investments can earn income and appreciate in value simultaneously. The ways in which real estate investments can earn these returns and how investors can receive the returns can vary by investment.
Track Record
You, as the investor, have the potential to earn consistent income.
Real Estate investment has a track record of long-term appreciation and is used by many smart investors to build wealth. Those who diversify a portion of their portfolio in real estate investments have historically outperformed those who haven’t.
Return On Investment
A key finding is that residential real estate, not equity, has been the best long-run investment over the course of modern history.
Although returns on housing and equities (stocks) are similar, the volatility of housing returns is substantially lower. While equities can turn out to be speculative, investing in real estate is more defined and lucrative.
According to "The Rate of Return on Everything, 1870–2015" published by the San Francisco Federal Reserve, Returns on the two asset classes - real estate and equities - are in the same ballpark at around 7%. However, the standard deviation of real estate returns is substantially smaller than that of equities: 10% for Real Estate versus 22% for equities. Predictably, with thinner tails, the compounded return (using the geometric average) is vastly better for real estate than for equities - 6.6% for housing versus 4.7% for equities.
This finding appears to overturn modern valuation models: lower risks also comes with higher rewards.
San Francisco Federal Reserve: https://www.frbsf.org/economic-research/files/wp2017-25.pdf