Regardless of where you are with respect to your financial goals right now, exploring real estate investing as an alternative to the stock market is more attractive than ever before, thanks in large part to the growing number of income producing properties that also serve as luxury condos and vacation homes. Here’s a quick look at how you can invest in real estate and how this alternative investment measures up against the stock market over time.
Whether you’re investing money in stocks and mutual funds or using it to buy real estate, it’s essential to analyze the potential risks versus the expected return on investment. To evaluate stocks, consider the historical data and how it fits into your overall portfolio allocation. For real estate, look at comparable home prices in the area and average rents, as well as the overall health of the local property market.
“Once you calculate your operating costs, taxes and maintenance, how much can you expect to earn in net rental income?” wrote U.S. News & World Report.
When it comes to risk assessment, it’s also important to note that real estate offers an added level of security because it is a tangible asset, whereas stocks, bonds and mutual funds are intangible and much more susceptible to the ups and downs of global markets and even current events.
Return on Investment
As for return on investment, while it may not seem like much to expect a mere five percent return from your portfolio, but in reality, traditional investments like the stock market have a hard time delivering even that bare minimum, thanks in large part to the evils of inflation. Add to this the fact that Bloomberg has predicted the next 10 years will be ugly for 401(k)s and it’s easy to see why alternative investments like real estate are gaining major ground.
Here’s how it works: According to investment advisory firm Research Affiliates, the average annualized long-term expected returns for 401(k)s are expected to come in at about 6.2 percent over the next ten years or so, but after factoring in a decade of inflation (-1.6 percent) that number drops to just 4.6 percent… Which most firms opt to round up to a cool 5 percent for the portfolio’s annualized long-term ROI.
Sadly, most people are hoping to retire at 65 based on receiving at least six or seven percent returns (not that long ago, it was supposed to be 10 percent), but that number is going to be at least 30 percent less, and in some cases, will be at least 50 percent less than expected. Of course, it’s not just retirement accounts that will suffer from stock market volatility – a quick look back at the 10-year performance of the Dow Jones Industrial Average (DJIA) market index between 2005-2015 will show only a 4.61 percent return, while the S&P 500 has only realized a return of 4.71 percent annual profit over the same time period.
Advantages of Real Estate Investment
Fortunately, there are plenty of alternative investments available today, including the option to buy real estate with IRA accounts, or to own income producing property outright, such as a luxury condo or vacation home that offers ongoing rental income as well as a fantastic place to unwind and enjoy with friends and family. What’s more, buying real estate as an alternative investment offers greater return on investment while also exhibiting a great deal less volatility than stocks, bonds and mutual funds.
Here’s how it works: Between 2005-2015 real estate averaged 10 percent returns – more than double the DJIA and the S&P 500! And compounding this number will give you around 50 percent more income, as well as a much-needed hedge against inflation.
The real key to success is to invest in a strong rental market with rapid appreciation, such as the current real estate investment boom that’s happening in downtown Playa del Carmen, Puerto Aventuras and Tulum along the Mexican Caribbean Sea in the Riviera Maya. Here, buyers are getting (conservative) returns of 8-13 percent in one of the world’s strongest markets… With the added bonus of gaining a luxurious vacation home in the process.
What’s your best-performing asset this fiscal year? Let us kown what’s been working for you in the comments!
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