Is real estate really the best investment?

Question

I think we all know real estate is a wonderful investment and a proven track to wealth.

But my question is: is it always the answer? I know many people on this blog are diehard real estate investors and would not even consider investing in anything else...but what about different types of investments such as 529 plans, simple indexed annuities, The stock market, your employer's retirement plan, etc...would you ever invest in these things or is real estate just always the better solution and all your money should go towards that?

I am really not looking for speeches on how great real estate is and how you get lower returns in the stock market or problems with insurance policies etc, but more of the question when is it better or is it ever better to put money in those other accounts versus always funneling every penny into real estate and real estate will take care of all your problems from paying for your children's education, to securing retirement, to estate planning, etc.

Thanks.

Mindy Jensen · Answer

@Kyle Scholnick, I have hopped back and forth between real estate and the stock market most of my adult life. I make money flipping houses, and then take a break for a while and put the money in the market to grow (hopefully) while I look for another deal. I have made money both ways and consider both valid investments.

If your employer offers a 401(k) match, I would put as much as you need to into their program to get the entire match. It is free money that you are throwing away if you do not.

After the match, you can decide whether to add more to the program or not. Some companies give great 401(k) options, while others offer really bad programs, and you just have to choose the best of the worst.

The 401(k) is pre-tax, which can help reduce your tax obligations at the end of the year, so there are benefits to that program. You pay taxes on the money when you take it out. After retirement perhaps you are in a lower tax bracket, saving you even more taxes.

Post-tax investments are self-directed. I read a lot of personal finance blogs, and almost all recommend the same thing, Vanguard Index Funds. Vanguard was started by a brilliant investment mind named John Bogle. Like Warren Buffett and Charlie Munger, I would follow John Bogle almost blindly, he is so good.

Trying to time the stock market, or trying to pick individual stocks to purchase is just another way to gamble. You can make a lot of money, but you can also lose a lot of money.

But as @Brent Paul stated, a diversified portfolio is the best way to go. I wouldn't recommend all your money in any one thing.

Brent Paul · Answer

That's a good question and I think you will find a wide variety of answers here.

I think it's wise to diversify if you can.  Maybe have some in real estate but other money elsewhere.  There is definitely no sure thing in real estate.  Property values drop, rental rates don't go up, taxes raised.  I think you have to do what you feel is best for you.

If you don't feel comfortable investing all your money in real estate then I say do what you feel is right.

Me personally I will definitely have real estate, but I also have a 401k which I contribute to as well.  I am not an all your eggs in one basket type of person though.

Eric Taylor · Answer

1)  401 K with match

2)  529 tough to beat having money available for if your kid gets into Harvard

3)  Diversification with an emphasis on what you truly know best and are most comfortable with.

Kyle Hipp · Answer

If you choose the right basket there is no problem having a singular focus. The richest folks in the world didn't become that way through diversification but rather extremely wise/lucky focus on one path. That being said these folks also diversify down the road as well. I focus primarily on real estate with my investment focus. However I also invest pretty heavily in my companies 401k and ROTH 401k. I don't have to do very much with those retirement plans. I monitor monthly and make small adjustments but not much major. It does not require a large amount of effort on my part which allows me to focus my energy on the various aspects of Real estate investing. Those retirement funds also make me more loan able as they act as reserve funds.

I have not started a college fund for my children as I feel the restrictions on those plans are limiting me. I feel there are other ways to mitigate those education costs. I do have a day job and would like to eventually go full time in the next 5 years or so. As I shift to full time real estate my focus will need to shift to generating more income from real estate related income/business outside of the cash flow from investment properties. There is only so much time in a day and only so far you can stretch your mental and physical capacities.

Che Chiu Wong · Answer

Since you ask this question, it is correct to assume that you have doubted Real Estate (RE) is always the best investment.

Your doubt is absolutely right.  There are times where other asset classes outperform RE.

Look at our recent financial crisis.

During the crisis, gold spikes up (herding into safety assets).

During the beginning of the post-crisis (2010-2012), stock market way outperform the real estate market (at least certain parts of the country).  This is very typical as the stock market tends to be a "leading indicator" of our investment market in general.

Then afterwards (2014-15 and beyond), Real Estate market starts to pick up again.

It often depends on the timing and the investment climate.

Steve Vaughan · Answer

Aside from indexed annuities (gag!) I completely agree to diversify into paper equities.  I like that my mutual fund or stock doesn't bother me with snakes int the backyard or shady tricks in court when trying to evict!  They don't have a roof that leaks, never need paint or to be made rent ready.  Multiple streams of income and asset types is the way to go!

All that said, I still happen to be over 90% of assets in real estate @Kyle Scholnick. (Haven't had a J.O.B. since '02, though)

Is real estate really the best investment?

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