In the current economic climate, most people are struggling with where to put their money that will give them a decent rate of return and prepare themselves for retirement. Most IRA's and 401K's took a beating in the crash of 2008 and have yet to return fully to their levels of 4 years ago. Compounding this problem and making retirement a bleak prospect for many, the Dow Jones is no higher than it was 12 years ago. This means that if your 401K or IRA has matched the performance of the Dow, your retirement account is worth no more than it was over a decade ago. There's no question that real estate was severely impacted by the recession of 2008 also, but I'm going to share 3 reasons why I think real estate is a better investment in the long haul.
1. Better Return on Investment
The chart to the left shows how stocks have performed compared to real estate since 2000. With a 43% return rate, real estate has clearly outperformed all 3 major stock indexes
2. Cash flow
Real estate returns are made up of both equity appreciation and cash flow from rental income. Unlike stocks, real estate still produces returns through rental income even if there is a devaluation of the asset.
3. Leverage. By financing real estate, an investor can achieve high rates of return on a small amount of their own money. For example, a $50,000 investment in stock with a 5% annual rate of return will generate a gain of $13,814 over 5 years. An investment property acquired for $50,000 that appreciates 5% will generate the same $13,814 gain, however since the real estate was acquired with financing and a $10,000 down payment, the cash on cash return over 5 years is a whopping $138% and that doesn't even include the rental income generated during that time.
Most financial managers and fund managers recommend stocks because it's what they know and what they get paid on. If you're not satisfied with the performance of your retirement fund and want to explore the world of real estate, check out our website to see how you can get started,
How to Invest in Cash-flow Properties
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