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Updated almost 5 years ago,
Why Are Real Estate Cash Returns so Low?
I've been reading a lot lately about investing in real estate. I'm considering transitioning the bond allocation in my portfolio to real estate if I can get a 10% net return on my investment.
My big concern is that I charge a percentage of the value as rent, I hear 1% is solid in a good area. At 50% expenses, I'd keep just 6%.
Learning this whole field of real estate for a 6% return seems ridiculous when you could get better returns via a basic stock index. For lifestyle or flipping as a job, I get it. I personally would love to have my own solid home base so even if I dont invest, I'll still have it as part of my allocation.
But really, why do you invest when the returns are so low? 12% net sounds great but to focus so much of my net worth into a single location seems foolish compared to buying stock that is diversified across many products, continents, and laws. Real estate investing also requires more input of time and energy. Leverage is the only situation in which this makes sense but again, you can leverage stocks quite easily and cheaply.