Is real estate a good investment?

I disagree, buying real estate as a primary residence is not an investment, it's a liability until you own it. Buying real estate for investments, a plan to buy and sell is different than buying a primary residence because the goal is to earn income and using leverage with real estate is the best alternative to earning huge profits.

Jim,

                  Great points, plus I have people that bought from me when I worked for another builder they cannot sell because there are other builders in there and it is usually hard to beat the builder, but I told them they could rent it out if they wanted as there is less than a month supply of rentals in South Katy.

Stock portfolio are more liquid and cost less to sell. But when all is said and done, you can't LIVE in your stock! During times when real estate is not so liquid (hard to sell) even homes bought as investments have a usefulness, whereas stock is just a pile of paper.

Jim, congrats on the well deserved feature!  I saw it this morning in the Active Rain Newsletter that I get. 

I think owning a home can be part of a long term investment strategy.  This post and it's comments will be serving as inspiration for a future post. 

Real estate continues to be the greatest investment of all time. Two thirds of our nation's wealth comes from real estate. Look at the wealthiest clients that you have, the wealthiest people you actually know. Did they get it by working for a corporation and collecting a paycheck? No! I'll bet they got most of it from real estate, either inheriting real estate, or owning real estate.

I argue the stocks vs real estate argument all the time. Its a no brainer for 4 major reasons. #1 you can leverage it, #2 you can collect an income stream, #3 it appreciates, #4 you get tax savings.

Example: With $25,000 you can buy a $100,000 property and collect a $6,000 (NET) per year income stream. In 4 years you have a no-cost investment that is now a $6,000+ per year income stream, and the property has most likely appreciated in that time by 4% annually. The likelihood that it will drop even 1% is very minimal risk.

Give me one stock that you can do that with? Can you buy $100,000 worth of stock for $25,000? Can you take $25,000 and buy any stock that will pay you a $6,000+ per year net annual income stream? So sure you can pick a risky stock and get lucky and maybe beat the 4% annual appreciation, but there is also the big risk that it will decrease, you dont have that amount of risk with real estate. A stock has the potential to be worth ZERO. Real estate will never, no matter what, never ever be worth zero.

Like Gordon Gekko said in 1987 ~ "The richest one percent of this country owns half our country's wealth, five trillion dollars. One third of that comes from hard work, two thirds comes from inheritance, interest on interest accumulating to widows and idiot sons and what I do, real estate speculation. It's bullshit. You got ninety percent of the American public out there with little or no net worth. I create nothing. I own. We make the rules, pal. The news, war, peace, famine, upheaval, the price per paper clip. We pick that rabbit out of the hat while everybody sits out there wondering how the hell we did it. Now you're not naive enough to think we're living in a democracy, are you buddy? It's the free market. And you're a part of it. You've got that killer instinct. Stick around pal, I've still got a lot to teach you."

Shelter.......That is what you buy and secure the cost of when you purchase a primary residence.  Even if it should appreciate, you trade that equity in for a new liability when you sell and move.  If we have learned anything over the last few years a primary residence should not be considered an investment.

Secure the cost of shelter for your family and then if you want to speculate on tulips, pet rocks, hula hoops, tech stocks, real estate or any other hot "Investment", go for it.

Great perspective! Can I steal this from you? What a valuable case for homeownership, as a home...and the rest is icing on the cake!

Great blog and a great reminder of what a 'home' really is!

Wow, what a wonderful comparison! Thank you for sharing.

Ah yes, but you cannot move every 2 years and expect to make a profit!  I've come to believe that stability is the number one factor in deciding whether one should buy a home.   

Jim,

Great post and great points.  Since one has to live somewhere, owning one's own home is very wise and a very good investment.  I don't remember where I saw this but I read once that 90% of all wealth in this country was made through real estate.

Great post Jim.  I've run similar numbers with rent vs. buys over the past decade.  Its amazing how many renters don't realize that renting is a lifetime commitment.

Real estate purchased for a personal residence is not an investment.  It is a consumer good.  Any appreciation is a bonus and not guaranteed.  If you purchased a San Diego condo in 2005 you would be waiting until at least 2020 to break even.  Home buyers should buy a home they can afford with a reasonable down payment, or buy well below market (i.e. a short sale or foreclosure) and be prepared to lose that down payment or "sweat equity" when the sell.  If they make out, great.  If not, at least they could prepare for it upfront.

Real Estate will always be a good investment for the most part, but as you pointed out, there are caveats. Depending on a professional Real Estate Agent to show you the ropes is imperative if you are a first time Buyer. Not all properties are created equally---like any investment, there is a learning curve.

Jim...I now pay more for a vahicle than my first house that is worth about $140k. I have never lost money on real estate. We have lost 10's of thousands in the stock market.

I like real estate but that apple looked good.

Way to point out the psychological points of home investment.

This is a question that will always be asked. It is a good long-term investment, not a great short-term.

Jim, a very well done article...sorry I'm getting to it so late.  Real estate is a great investment if you buy it right.  The big difference between RE and stocks is that stocks are traded on an open market, and someone can get today's price in seconds.  The lack of liquidity in real estate causes some sellers to get VERY MOTIVATED, much more so than a stock owner would be.  While you never have to sell a stock for less than today's price, if you want to sell real estate FAST, you have to sell it well below today's market value.  I buy a lot of properties from motivated sellers at 20-30% under market value, so even with very modest appreciation, we make great cash on cash returns.