~~Almost risk free is a bold statement. I say this while comparing real estate investing to stock market investing which will probably get me in hot water with stock brokers!
I doubt the debate about what is a better long term investment, real estate or stocks will ever be over, but I wanted to point out the reasons for my bold statement.
In my opinion real estate takes a big hit because a lot of real estate is bought to provide personal residences for us and when things go wrong in our lives the home with the big mortgage is the first thing to suffer.
Another thing that affects real estate in a negative way is the fact that it is VERY easy to use leverage to buy investment property. In contrast, most stocks are bought for all cash. Prudent investors rarely get in trouble using leverage to buy but inexperienced investors can run into trouble using too much leverage.
So, for prudent investors who use good business principles why do I make the bold statement that real estate in almost risk free? My first statement of fact comes from a Standard and Poor’s Release that came on the 50th anniversary of the S&P 500 index. You can read the entire story in the attached link below but the part I like is, “Over the past 50 years, 86 original constituents of the S&P 500 have survived through time.”
If that sounds impressive to you I suggest that you get a copy of a 1957 multiple listing book and take a look at what investment property was doing then. Pick out a few listing or you can even look at every one of the properties in that book. Now get a current book and have a look at what they are worth today.
In larger cities in our country the property will be worth 400-500% more than it cost in 1957. I’m not talking just about the really nice property and nice areas of the city I’m talking about all the investment property. Some older buildings may be gone and be replaced by fancy new apartment buildings and condos but all the rest will have made large increases.
So, you can choose to invest where 82% of the companies aren’t around 50 years later or where virtually 100% are still here and have made tremendous gains in value.