There was an interesting article today on CNN Money.  The basic idea of the article was that investing in the stock market out performed investing in Real Estate during the last 20 years roughly 13% to 9% nationally. While the percentages may very well point in the direction of the stock market, lets point out a couple of things that that eluded the author of this article.

First, although investing in Real Estate yields a less of a return in the long haul, in the short term, especially with good research and a little common sense, the yield is definitely greater.

Secondly, investing in Real Estate, especially residential rental and commercial rental properties, yields an investment that has, in most cases, little to no cost. The interest is paid by a third party, and the gains can be put immediately to use obtaining more properties via 1031 Exchange.  Capital gains tax is deferred until the property is sold and cashed out.  Where else can you have a $300,000.00 dollar asset and it cost you little to nothing to own.

Third, leverage, because of the size of the investment, Real Estate outshines the market.  Let's say you have $10,000 dollars to invest.  You decide to invest it in the market and you do phenomenal, 15% gain over 5 years.  You would have roughly 21,200 dollars.  If you bought an investment property for $100,000 and put that 10% as a down payment, and the growth rate was a 3.5% national average, your $10,000 investment would turn into a house that is worth $118,800, or $28,800. That is $7,600 dollars more than investing in the market. Plus you get the added tax break of depreciation, and you get to defer your capital gains tax by retaining or 1031 exchanging your rental property.

I am a big proponent of diversifying your portfolio, low risk, high risk, Real Estate, Bonds, Mutual Funds, etc... but don't forget to see all sides of an issue and please, please don't trust most of what is written by a journalist on the internet, have a trusted advisor that you can talk to and have them help you whip up a plan of strategy to make yourself wealthy.  It drives those of us in the industry crazy when someone who has never purchased a home starts arguing with those of us who have done hundreds of transactions about the direction the industry is headed because they read an article on Yahoo! about the impending demise of the mortgage industry all together. 

Financial literacy is the greatest weakness in this country's children, let's solve it.