Why I'll Never Invest in Residential Real Estate...

There are many different asset classes and strategies you can use to build wealth.

But, there’s one that I’m staying clear of.

Residential real estate.

Something doesn’t sit right with me about using people’s homes as an engine to build wealth for myself.

I don’t have a problem with other people who do, but I want no part of it, and here are a few reasons why.

Lack of Liquidity

Liquidity is one of the main reasons why I choose to avoid real estate.

Liquidity means how fast you can convert an asset into cash. It doesn’t take a genius to work out that residential properties aren’t particularly liquid investments.

Compare real estate to the stock market, for example.

It could take weeks, or months to extract capital from real estate, which is not a problem with the stock market.

As a result, I prefer to stick to more liquid asset classes:

• Stocks

• ETFs

• Cryptocurrencies

Sure, you could look at REITs, but the reasons below back up why I’m not interested in those either.

Contributing to Housing Crisis

The real estate market has been rising and rising for years, and it’s for one simple reason.

Residential properties are now not only for people to live in.

They’re now used for investments.

• Landlords.

• Private equity.

• Governments.

Residential properties are price inelastic. This means that demand won’t change that much due to price rises.

In other words, people need homes to live in, so of course the rich are going to start seeing them as investments.

Propping prices up won’t affect demand, because the only alternative is homelessness.

More people are getting priced out of owning a home, and need to rent.

Meanwhile, the rich get richer by earning rental income without losing any equity.

This, doesn’t quite sit right with me.

I get that this is life. The game’s the game, but I don’t want to be a part of it.

And, when you factor in the other two points, you understand why I choose not invest in the real estate market.

Great Returns Elsewhere

If real estate was a more dominant asset class, I’d consider it more because I’d feel left out.

But, you can still get fantastic returns elsewhere.

The S&P 500 has returned 8–10% a year on average for investors since the second world war.

Sure, real estate might be higher at times, and when you factor in rental income, you’ll be better off.

But, is it worth the hassle?

I can buy stocks, sit back and watch the returns roll in.

I don’t have to worry about:

• Managing properties

• Bad tenants

• Big costs (water leak etc.)

The only thing I have to worry about is the performance of the companies I’m invested in.

And if I don’t like what I see? I can sell the investment in 30 seconds.

Liquidity!

I understand the benefits of real estate investing.

But, I can still do very well without exploiting those less fortunate me for my financial gain.

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