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How does real estate stack up against other investments?

Outside of the argument to diversify, there are real outcomes that we as investors should consider when comparing different investment types. Sure, real estate is a hedge against inflation, an investment in a physical object, and driven by a market that has a separate behavior from the stock market. But, when we compare the wealth-producing outcomes of different investment types (stocks, bonds, cash, real estate), there's a reason that real estate remains a top wealth-building strategy among investors. While each investment type has its merits, none seem to encompass all the wealth-building tools as effectively as real estate. Let's take a look at these investment types to see how real estate stands out.

A graphic showing the investment types of Real Estate, Stocks, Bonds, and Cash, and how they all perform using the top wealth-building tools of cash flow, appreciation, loan pay-down, and tax benefits.
Real estate assets check the boxes for the most powerful wealth-building criteria of cash flow, appreciation, loan pay-down, and tax benefits.

💵 Savings Fall Short

It's a common misconception that stashing money in savings is a foolproof strategy for building wealth. However, relying solely on savings has its limitations. Money parked in savings accounts tends to grow at a rate that struggles to outpace inflation, leading to diminished purchasing power over time. Moreover, savings do not actively work for investors, missing out on the opportunity for compound growth that other asset classes can provide.

While savings are essential for emergency funds and short-term financial goals, the real potential for substantial wealth creation lies elsewhere.

🏦 Bonds: Stability Over Growth

Bonds are heralded for their stability and low-risk nature, making them a preferred choice for risk-averse investors. However, their performance in terms of wealth creation leaves much to be desired. Bonds excel at preserving capital but lack the ability to generate substantial growth.

While bonds play a crucial role in diversifying and stabilizing investment portfolios, their conservative nature might limit their contribution to overall wealth accumulation, especially in the long run.

📈 Stocks: Appreciation with Limitations

Stocks are renowned for their potential to appreciate over time, providing investors with the opportunity for capital growth. They are relatively accessible, with a low learning curve and minimal initial investment requirements. However, when compared dollar-for-dollar with real estate, stocks often fall short in terms of cash flow and net wealth outcomes.

While stocks can yield cash flow and offer leverage opportunities, the consistent and high yields that real estate can deliver make it a more attractive option for those looking to build substantial wealth.

🏘 Real Estate: The All-Inclusive Wealth-Building Tool

Real estate stands out as the ultimate wealth-building tool, offering a unique combination of high yield, appreciation, and tax advantages. Real estate investments provide investors with the potential for both regular rental income and property value appreciation, resulting in a dual-pronged approach to wealth accumulation.

📜 Acquiring on Leverage

One of the key advantages of real estate is the ability to acquire assets worth multiples of the initial investment, through financing (mortgages). This leverage magnifies returns and accelerates wealth-building, allowing investors to control properties worth five times or more than their actual investment.

💰Invested Tax Savings Accelerate Wealth

Moreover, real estate offers unparalleled tax benefits. Deductions for mortgage interest, property depreciation, and operating expenses significantly reduce taxable income, leaving investors with more money in their pockets. This additional capital can be reinvested in real estate or diversely allocated to other asset classes or personal ventures. Not to mention the opportunity to reinvest profits from the sale of real estate in order to defer capital gains tax, an opportunity not available to investors looking to cash out of their stock portfolios.

Don't be fooled by the "Gurus"

There are plenty of bad actors out there trying to hype people up on the "2x equity" returns of real estate deals when all you have to do is "write a check and sit back while your money grows." Don't be fooled by those guys who unfortunately give real estate investing a bad wrap. Real estate investing takes more time than putting your money in savings, or in bonds, or in the stock market. It takes more work to manage your investment, and it requires more money to get started. These are indisputable facts with little to no workaround. These realities should not be overlooked, but when an investor is able to face them and weigh them against her potential wealth-building, she's more likely to make a responsible and informed decision about her investing plan.

The combination of high yields, appreciation potential, leverage opportunities, and tax advantages sets real estate apart from other asset classes. Investors looking for a holistic approach to wealth creation should consider the unique benefits that real estate brings to the table. In doing so, they position themselves for long-term financial success and the fulfillment of their diverse financial goals.


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