Is there any instrument with real-estate-like returns?
Similarly to buying property on your own, REITs cannot get to good returns without leveraging. If you buy an investment property 100% cash only - chances are that 10% ROI is a very very optimistic scenario. If you use leveraging (i.e.: take out a mortgage) - you're susceptible to interest rate changes. REITs invest in properties all around all the time. They invest in mortgages themselves as well (In the US, that's the only security REITs can hold without being disqualified). You can't expect all that to be cash-only, there have to be loans and financing involved. When rates go up - financing costs go up. That brings net income down. Simple math. In the US, there's an additional benefit to investing in REIT vs directly holding real estate: taxes. REITs pay dividends, which have preferential (if qualified) taxation. You'll pay capital gains taxes on the dividends if you hold the fund long enough. If you own a rental property directly, your income after all the expenses is taxed at ordinary rates, which would usually be higher. Also, as you mentioned, you can use them as margin, and they're much much more liquid than holding real estate directly. Not to mention you don't need to deal with tenants or periods where you don't have any, or if local real-estate market tanks (while REITs are usually quite diversified in kinds of real estate they hold and areas). On the other hand, if you own real estate, you can leverage it at lower rates than margin (with HELOCs etc), and it provides some safety net in case of a stock market crash (which REITs are somewhat susceptible to). You can also live in your property, if needed, which is something that's hard to do with REITs....
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We buy Promissory Notes, Real Estate Trust Deeds, Seller Carry Back Notes, Land Contract, Contract for Deed, Privately Help Notes, Commercial Mortgage Notes &amp; Business Promissory Notes.   Contact Us: Cash Note USA 1307 W.6th St.Suite 219N, Corona, CA 92882 888-297-4099 cashnoteusa@gmail.com http://cashnoteusa.com/ I was emailing back and forth with a manager in a different department on how real returns are being calculated, and he said that the industry standard is 1 + real returns*(1+inflation) - fees, and to not use my formula because it can double count inflation, making fees lower. However, real returns are not observable in the future, and I do not why he uses that formula. The returns were used in an Excel spreadsheet.   What are your thoughts about this? Have you considered a self-directed IRA to invest, rather than the stock market or publicly traded assets? Your IRA can actually own direct title to real estate, loan money via secured or unsecured promissory notes much like a hard money loan or invest into shares of an entity that invests in real estate. The only nuance is that the IRA holder is responsible for finding and deciding upon the investment vehicle.  Just an option outside of the normal parameters, if you have an existing IRA or old 401(k) or other qualified plan, this might be an option for you. "One way to ""get into the real estate market"" is to invest your money in a fund which has its value tied to real estate. For example, a Real Estate Investment Trust. This fund would fluctuate largely inline with the property values in the area(s) where the fund puts its money. This would have a few (significant) changes from 'traditional' real estate investing, including:" Your question may have another clue. You are bullish regarding the real estate market. Is that for your city, your state, your nation or for the whole world?  Unless you can identify particular properties or neighborhoods that are expected to be better than the average return for your expected bull market in real estate, you will be taking a huge risk. It would be the same as believing that stocks are about to enter a bull market, but then wanting to put 50% of your wealth on one stock. The YTD for the DOW is ~+7%, yet 13 of the 30 have not reached the average increase including 4 that are down more than 7%. Being bullish about the real estate segment still gives you plenty of opportunities to invest. You can invest directly in the REIT or you can invest in the companies that will grow because of the bullish conditions.  If your opinion changes in a few years it is hard to short a single property. Reasons for no: In your first sentence you say something interesting: rates low -  prices high.  Actually those 2 are reversely correlated, imagine if rates would be 5% higher-very few people could buy at current prices so prices would drop. Also you need to keep in mind the rate of inflation that was much higher during some periods in the US history(for example over 10% in the 1980) so you can not make comparisons just based on the nominal interest rate. Putting all your eggs in one basket. If you think real estate is a good investment buy some REITs for 10k, do not spend 20% of your future income for 20 years. Maintenance - people who rent usually underestimate this or do not even count it when making rent vs mortgage comparisons. Reasons for yes:   Lifestyle decision - you don't want to be kicked out of your house, you want to remodel...     Speculation - I would recommend against this strongly, but housing prices go up and down, if they will go up you can make a lot     of money. To answer one of questions directly: 1. My guess is that FED will try to keep rates well bellow 10% (even much lower, since government can not service debts if interest rates go much higher), but nobody can say if they will succeed. Apples and oranges. The stock market requires a tiny bit of your time. Perhaps a lot if you are interested in individual stocks, and pouring through company annual reports, but close to none if you have a mix of super low cost ETFs or index fund.  The real estate investing you propose is, at some point, a serious time commitment. Unless you use a management company to handle incoming calls and to dispatch repair people. But that's a cost that will eat into your potential profits. If you plan to do this 'for real,' I suggest using the 401(k), but then having the option to take loans from it. The ability to write a check for $50K is pretty valuable when buying real estate. When you run the numbers, this will benefit you long term.  Edit - on re-reading your question Rental Property: What is considered decent cash flow? (with example), I withdraw my answer above. You overestimated the return you will get, the actual return will likely be negative. It doesn't take too many years of your one per year strategy to wipe you out.  Per your comment below, if bought right, rentals can be a great long term investment. Glad you didn't buy the loser. Realistically, it is CDs with longer terms or are callable.  You pretty much have to accept more risk if you want higher returns. If you are willing to accept that risk by losing the FDIC protections the next level up is probably high rated Government bonds. You could look into an index fund or ETF that invests primarily in Real Estate Investment Trusts (REIT's). An REIT is  any corporation, trust or association that acts as an investment agent specializing in real estate and real estate mortgages Many investment firms offer an index fund or ETF like this. For example, Vanguard and Fidelity have funds that invest primarily in real estate markets. You could also invest in a home construction ETF, like iShares' ITB, which invests in companies related to home construction. This ETF includes more companies than just REITs, so for example, Home Depot is included. would buying the stock of a REIT qualify as a 'Like-Kind' exchange? Short answer, no. Long answer, a 1031 (Starker) exchange only applies to real estate.  From the Wikipedia page on the topic: To qualify for Section 1031 of the Internal Revenue Code, the properties exchanged must be held for productive use in a trade or business, or for investment. Stocks, bonds, and other properties are listed as expressly excluded by Section 1031 of the Internal Revenue Code, although securitized properties are not excluded. A REIT, being stock in a real estate company, is excluded from Section 1031. Ok, have your father 'sell' you the house with a RECORDED land contract for x dollars and a gift of equity(GOE) of y.  He writes of the max he can each year for the GOE (ask a tax attorney on this one), and your cousin lends him the money for his FL prop.  Consult a tax attorney on the capital gains, but you can write off the actualized gains at sale if you LIVED in the prop for 2 of the last 5 or 7 years (I can't remember) and were on title.    Years later, you use the recorded land contract, with the verifiable on time payments you've been making, to a conforming lender and do a R&T refi. yes, i am incorporating monte carlo return scenarios for both equity and real estate.  yeah there is a lot to consider in the case of the property being a condo where you have to account for property taxes as well as condo fees.   the two projects have entirely different considerations and it's not like the money that is injected to one is similar to the other (very different) which is why i figured there should be differing discount rates.  in any case, thanks for the discussion and suggestions. well yes but you should also begin to understand the sectoral component of real estate as a market too in that there can be commercial property;  industrial property and retail property; each of which is capable of having slightly (tho usually similar of course) different returns, yields, and risks.  Whereas you are saving to buy and enter into the residential property market which is different again and valuation principles are often out of kilter here because Buying a home although exposing your asset base to real estate risk isnt usually considered an investment as it is often made on emotional grounds not strict investment criteria. "The iShares Barclays Aggregate Bond - ticker AGG, is a ETF that may fit the bill for you. It's an intermediate term fund with annual expenses of .20%. It ""seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Barclays Capital U.S. Aggregate Bond Index""" "All of these frameworks, Markowitz, Mean/CVaR, CARA, etc  sit inside a more general framework which is that ""returns are good"" and ""risk/lack of certainty in the returns is bad"", and there's a tradeoff between the two encoded as some kind of risk aversion number.  You can measure ""lack of certainty in returns"" by vol, CVaR, weighted sum of higher moments, but even sector/region concentration.  Similarly do I want more ""returns"" or ""log returns"" or ""sqrt returns"" in the context of this tradeoff?  You don't need any formal notion of utility at that point - and I don't know what formal ideas of utility beyond ""I want more returns and less risk"" really buys you. The Sharpe ratio only really gets its meaning because you've got some formal asset-pricing notion of utility.   In my view the moment that you're putting constraints on the portfolio (e.g. long only, max weights, don't deviate too much from the benchmark ...) - really you're operating in this more general framework anyway and you're not in ""utility-land"" anymore."