Is Real Estate a “Good” Investment?

04/15/2014 04:42 PM (CST)


The answer is… depends who you ask and the definition of “good.”

Even though the real estate recovery is shaky at best, as the market shows signs of recovery, so does America's faith in housing as an investment.

According to a Gallup poll, a majority of Americans now think of real estate as the "best" long-term investment, followed by gold, stocks and mutual funds, savings accounts/CDs, and bonds.

Although a dose of optimism is always welcome, one should not forget cold, hard facts.

When adjusted for inflation, the average house has appreciated little since 1987. Furthermore, real housing prices have risen just a little too.

The picture looks a lot different for the other investments Gallup asked about it in its polls, writes Christopher Matthews in the Fortune magazine blog.

“The S&P 500, for instance, has produced an inflation-adjusted annual return of 6.32% since 1929, while investing in government debt would have returned roughly half that figure. Gold, interestingly enough, has performed pretty well on an inflation-adjusted basis, averaging a 4.12% return per year since the end of the Bretton-Woods monetary order in 1971.”

If you break down the Gallup data into income groups, the answers are even more revealing. For one, wealthy Americans are more likely to pick stocks as the best investment than any other income group. This makes sense, as investing in the stock market is -- as the above data shows -- the best way to become wealthy.

Secondly, it appears as if people are likely to say investments they own are the "best." According to the Gallup report:

Upper-income Americans are much more likely to say real estate and stocks are the best investment, possibly because of their experience with these types of investments. Upper-income Americans are most likely to say they own their home, at 87%, followed by middle (66%) and lower-income Americans (36%). Gallup found that homeowners (33%) are slightly more likely than renters (24%) to say real estate is the best choice for long-term investments.

Ultimately, investing is a highly personal act. From a purely monetary standpoint, buying one’s own home is rarely a “good” investment, whereas purchasing a rental property (provided it happens at the right time in the right place) may very well surpass the returns of an average stock. And yet for the most Americans buying their own house would always count as a “god” investment, while managing a rental property may prove to be just too much work.