Over the past decade, as stocks and bonds have become more volatile, investors seeking greater control have turned to private real estate investing. Let’s examine which investment path has generated better returns for investors with lower risk.
- BONDS RETURNS: Bonds typically have lower risk and lower returns. They often expire after a given amount of time and stop paying out any returns. In a recent study encompassing the years from 1870-2015 the average bond yield was 2.5% annually and were often negative. While bonds offer some stability, paying about the same amount to investors each month, the cost in lost returns over the long haul is high.
- STOCK RETURNS: Considered a liquid asset, meaning they can provide quick cash flow, income from stocks is passive and individual investors have little to no control over the amount of this income. Stocks do allow for diversification over industries and there is no minimum amount to invest in them. The downside to investing in stocks is that it can take decades for them to produce significant income for investors, unless you are one of the lucky ones to get in on a successful IPO. In the same report as above, these equities yielded 6.9% average annual return.
- PRIVATE REAL ESTATE RETURNS: These investments are considered an illiquid investment that is known for its lower risk and high returns. In the same study referenced above for bonds, the rate of return for residential real estate yielded a 7.05% annual average return (average CA trust deed offering return is 8-12%). Real estate is a physical asset that offers many benefits stocks and bonds do not. Profits can be increased through improving the valuation of the property or boosting rental income. Additionally, there is a tax benefit associated with real estate investments.
Historically, real estate investments have been viewed as a safe haven for investments and an opportunity to preserve wealth for generations to come. It is plain to see why many investors make real estate investments an essential portion of their portfolios.
For those of you interested in investing in real estate for higher returns and live in California, call our office at 707-523-2099 and maybe we can get some business going. Here at Sun Pacific Mortgage we have been in business since 1988 offering alternative financing for real estate needs.