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What Average Annual Return Can You Get from Real Estate Investing?

05 June, 2018

What Average Annual Return Can You Get from Real Estate Investing?

Although brokerage firms will tell you to expect average annualized long-term returns of 6.2 percent, most investment advisors probably won’t mention that when inflation is factored in, that number drops to 4.6 percent, which is hardly enough to provide for a stable retirement and definitely won’t provide enough investment income for most of us to really get ahead. That’s where real estate investment comes into the picture and – when you buy smart – can really make a difference in your long-term financial success. Read on to see why real estate investing remains one of the safest, tried-and-true options for investors of all ages and learn how to spot a great investment property for sale on the market today! 

Average Annual Return on Investment: Real Estate vs. Stocks

The old saying, “numbers don’t lie” is definitely true when comparing average annual returns of real estate vs. the stock market. During the 25-year time span between 1987 and 2012, the Dow Jones Industrial Average (DJIA) only delivered returns of 7.55 before inflation. Looking back even farther, the compounded annual return for the Dow over the 91 years prior to 1987? Around 4.3 percent… As for the S&P 500, 20 years of performance has delivered almost 10 percent returns, but again, that’s before inflation, so the real number is actually several points lower than that. Looking back over the last 10 years, the DJIA only delivered 4.61 percent return on investment, while the S&P 500 realized returns of around 4.71 percent over the same time period.

Average Annual Return on Investment: Real Estate vs. Stocks

“Stocks can be very volatile, especially when the economy or the company is facing challenges”, wrote Investopedia. “Also, stocks are often emotional investments. Finally, bankruptcy is always in the back of the active stock investor’s mind – as it should be, as your investment will be dissolved in this instance”.

Comparatively, certain real estate investments have consistently delivered returns of at least 10 percent, as demonstrated by analyzing the time frame between 2005 and 2015, which includes some really tough years for all types of investments. Some of the most lucrative investment properties are rentals located in high-demand that will generate proven ongoing investment income, as well as buying land in the path of growth to sell when the time is right. As a result, serious real estate investors must be prepared to look outside of their local market and understand how to find profitable, well-managed turnkey rental properties and/or raw land that is poised to provide large returns in an up-and-coming real estate market.

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What is a Real Estate Investment Trust?

Residential and Commercial Real Estate Investing

Generally speaking, the real estate market is divided into two main areas of concentration: residential and commercial investment properties. Within both categories, the opportunities for long term real estate investment can include raw land in the path of growth, luxury condos, individual properties, apartment buildings and larger commercial spaces like office buildings and shopping complexes. There are many advantages to investing in real estate, including tax write offs like depreciation and expenses, as well as predictable ongoing investment income from rentals and the chance to make substantial gains when you buy ahead of growth in a popular locale. 

“For many decades [real estate] investment has generated consistent wealth and long-term appreciation for millions of people”, wrote Investopedia. “Depending on the location, you can enjoy sizable returns on your investment”. 

What is a Real Estate Investment Trust? 

Finally, we can’t talk about real estate without mentioning REIT investing. A REIT is a Real Estate Investment Trust that can provide portfolio diversification and trade on exchanges, just like stocks, so they offer a greater level of liquidity – and risk – than brick-and-mortar real estate investments. A REIT can be invested in properties, real estate, mortgages and/or property management companies, and can also be made up of virtually any combination of these.

Are you satisfied with your current investments? Tell us why in the comments!

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Topics: Real Estate Investment Alternative Investments Learn How