Category: Real Estate Investing
Posted: 4/10/2012
If 4% returns are too much to ask of stocks, what does that say about real estate?
By John Dixon
Folks who don't like real estate investing argue that it entails more risk than alternative investments. And there's no question that a lot of money has been lost since 2006. But then, that's been true of most investments, including stocks and bonds.
When I look at the returns to be had on various assets, real estate looks better all the time. Robert Shiller -- the Yale economist who helped develop the S&P/Case-Shiller Index that tracks home prices --  is also widely known for his insights into stock returns. And right now, he says the current stock market valuations predict something like a 4 percent return after inflation.
That's not much of a return on an investment with the risk of the stock market, in my opinion.  He cites data showing a 7 percent stock return over a 200-year period, but in a recent interview with CNN Money, he said the future may do worse than that. 
That doesn't mean he's necessarily bullish on real estate, but I am. We're seeing more investors at our auctions, and they're bidding more aggressively on all kinds of properties, including homes, lots and commercial properties. Let's say you can buy an investment home or commercial property at a substantial discount to its former price. You can lease it for a very attractive rate and still earn a return that beats 4 percent by a long shot  -- even if the price doesn't go up right away. 
Even better, with the amount of cash looking for a home,  a lot of investors now are able to pay cash for their properties or at least own them with relatively little debt. That translates into low risk. Let's not forget that when the self-made experts were talking about building a real estate portfolio for "little or no money down," that translated into a highly leveraged investment in an overextended real estate market with little or no room for anything to go wrong.
And in the real world, things go wrong. Our best protection is to own the best portfolio we can, at the lowest possible price, with the least possible debt. That calls for a marketplace exactly like the one we're seeing now. 
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