Real Estate Post World War II Rate of Return
Check out my article on the Passive Real Estate Investing
The average real estate rate of return since World War II has been around 8-10% per year, including both rental income and capital appreciation. This rate of return takes into account the various ups and downs of the real estate market over the past several decades, providing a historical average for investors to consider.
It’s worth noting that real estate is a long-term investment and the rate of return can vary greatly depending on several factors, including location, property type, market conditions, and the investor’s strategy. For example, real estate investments in major metropolitan areas with strong job growth and attractive amenities tend to perform better than those in declining regions with a weaker economy. Similarly, residential properties tend to have a lower rate of return compared to commercial properties, but also come with lower risks.
The rate of return on real estate investments can also be influenced by macroeconomic factors, such as interest rates, inflation, and economic growth. When interest rates are low, real estate investments can be more attractive as the cost of borrowing money is reduced, making it easier for investors to purchase and hold onto properties. Conversely, when interest rates are high, the cost of borrowing money can become prohibitively expensive, reducing the rate of return on real estate investments.
It’s important to keep in mind that past performance is not a guarantee of future results, and the rate of return on real estate investments can be affected by a variety of unpredictable factors. Therefore, it’s important for investors to do their due diligence, carefully evaluate potential investments, and consider their individual financial situation, risk tolerance, and investment goals before making a decision.
Adding Real Estate to your portfolio
Including real estate investments in a stock market portfolio can be a way to balance and diversify the portfolio, potentially reducing overall risk and improving returns. Real estate investments and the stock market tend to respond differently to economic conditions, which can help to mitigate losses in one asset class when the other is performing poorly.
For example, during times of economic uncertainty, stocks may experience significant declines, while real estate investments may hold their value or even appreciate. Conversely, during periods of strong economic growth and rising interest rates, stocks may perform well, while real estate investments may underperform. By diversifying into real estate, an investor can potentially reduce the impact of market downturns and achieve a more stable rate of return over the long-term.
There are a variety of ways to invest in real estate, including direct ownership of rental properties, real estate investment trusts (REITs), and real estate crowdfunding platforms – such as Fundrise. Each option has its own unique risks and benefits, so it’s important for investors to carefully evaluate their investment goals, risk tolerance, and financial situation before making a decision.
Read my full Fundrise platform review here.
In general, real estate investments can provide a stable stream of passive income in the form of rental income, as well as the potential for long-term capital appreciation. By including real estate investments in a stock market portfolio, an investor can potentially increase the portfolio’s diversification, stability, and overall return potential.
Check out my article on the Passive Real Estate Investing