About a year and a half ago, I posed the question, "Should you invest in residential real estate?" In that post, I suggested that a reasonable rate of return would be around 8%, assuming that the investor has adequate skills in management, hands-on maintenance of real property, chooses the right property at the right price, and has some luck.
The 8% assumption could be a little higher than what is realistic, and it would be interesting to hear any thoughts / opinions that real estate professionals and others may have. Many of us feel that real estate is a good investment, but it needs to be compared to the alternatives. How much more or less could one realize by, for instance, investing in a publicly traded real estate investment trust? Given the increased liquidity, one would expect that there is a lower return on a REIT. There are some fairly secure preferred stocks that pay close to 8% with no need to worry about tenants trashing the place or not paying the rent. How would you advise a potential investor who is weighing the risks and rewards of residential real estate vs. the stock market?