Invest Your Money Wisely
I remember studying long term investment alternatives 25 years ago and reading charts that showed stocks returning an average of 9-14% annually. This was far above the return of bonds, REITS (real estate investment trusts) or CDs. About 20 years ago I bought my first REIT thinking real estate was undervalued. Fifteen years ago I bought my first investment property.
I liked the fact that real estate was a tangible asset and felt the owner had more control over the return than a stock that’s value fluctuated at the whim of the market. I’m not surprised real estate has been a good investment since then, but I was a little shocked by how much better the return has been than stocks, bonds & treasuries. The graph below shows an average annual return over 15 years for stocks (NASDAQ) at 5.92%, 10 year treasury bonds at 4.28% and REITs (NAREIT) at 8.78%. The NCREIF Property Index, a measurement of investment real estate managed by professional companies, returned a whopping 9.35%. That represents a real return of almost 7% above the rate of inflation (CPI has been 2.44% over this period).
The declining interest rate environment has certainly been a factor in the success of real estate over the past 20 years, however if the fundamentals are strong on a piece of property, it will continue to be a good investment vehicle. If you purchase and manage your own property, there can be more work than owning a stock, but the returns can be even higher. Everyone has been told by their financial advisor that it is important to diversify your portfolio, but if real estate is not a part of that portfolio, you could be missing out on a large source of investment income.
-Dan Stiebel, CCIM