One of the many reasons why my clients are investing in real estate is because of the great financial return. Higher risk tends to generate higher returns.
So, in the stock market, for example, you may see individual stocks performing very well. As a basket of stocks, the risk is reduced and the returns are reduced. In fact, the S&P index showed an annual return of 5.9% over the past 20 years. Because bonds have lower risk, they have lower returns than stocks. In real estate, historically we see an appreciation of 7.4% per year in the detached house market over the past 20 years. This is due to a combination of low supply and high demand. On top of this, you’d also see regular steady rental income from your property.
So, the combination of higher returns from cash flows and appreciation makes real estate a better risk-adjusted investment.
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