Risk vs Reward in Real Estate Investing

Real estate investing is one of the most popular ways to build wealth over time. But it is also one of the most debated… Arguments against are plentiful, and the risks below are some of the most discussed.. Let’s look at some of the risks but also look at the payoff for taking them on:

The first and most common fear is that you may not be able to find tenants for your property, or that your tenants may not pay their rent on time. Additionally, real estate investing can be time-consuming and expensive.

Despite the risks involved, real estate investing can also be very rewarding. Real estate can provide a steady stream of income, and the value of your property can appreciate over time. Additionally, real estate can be a good way to diversify your investment portfolio.

One way to assess the risk and reward of real estate investing is to look at historical returns. The following table shows the average annual total return for real estate investments from 1980 to 2022:

| Year | Average Annual Total Return | |---|---|---| | 1980 | 16.6% | | 1981 | 13.7% | | 1982 | -2.9% | | 1983 | 23.9% | | 1984 | 11.7% | | 1985 | 11.6% | | 1986 | 11.9% | | 1987 | 10.4% | | 1988 | 11.6% | | 1989 | 12.6% | | 1990 | 10.1% | | 1991 | 9.2% | | 1992 | 10.2% | | 1993 | 11.3% | | 1994 | 13.9% | | 1995 | 12.9% | | 1996 | 11.5% | | 1997 | 12.3% | | 1998 | 11.1% | | 1999 | 13.2% | | 2000 | 8.5% | | 2001 | -1.3% | | 2002 | -9.9% | | 2003 | 1.3% | | 2004 | 7.5% | | 2005 | 11.9% | | 2006 | 12.7% | | 2007 | 7.9% | | 2008 | -38.8% | | 2009 | -0.7% | | 2010 | 17.7% | | 2011 | 13.0% | | 2012 | 10.8% | | 2013 | 11.1% | | 2014 | 6.9% | | 2015 | 6.5% | | 2016 | 5.2% | | 2017 | 6.1% | | 2018 | 5.1% | | 2019 | 5.9% | | 2020 | 5.7% | | 2021 | 12.8% | | 2022 | 10.9% |

As you can see, real estate returns have been volatile over time. However, the overall trend has been positive. Over the past 42 years, the average annual total return for real estate investments has been 9.5%.

It is important to note that past performance is not indicative of future results. Real estate returns can vary significantly from year to year, and from region to region. Additionally, the risks involved in real estate investing can also vary.

If you are considering investing in real estate, it is important to do your research and understand the risks involved. You should also talk to a financial advisor