How much real estate investment return do you need to be happy?

Written by: David Wilkening

“What’s your number?” sometimes refers to what might be called the parlor game of just how much money do you need to retire? A tough choice, most of us agree. The reasons are obvious: How long are you going to live plays an integral part here.

But when you retire, do you expect to stay home a lot and play penny ante bridge? Or do you expect to roam the world while staying at luxury hotels? Perhaps somewhere in between those two? A modest level of comfort without a lot of worry about where your next meal or house payment is coming from? That brings us to another number: How much interest rate will real estate investments bring you?

What’s a reasonable and realistic return? What will make you happy, anyway?

As you may know by now (and may have heard it many different times), real estate investing is generally best for the patient in it for the long run.

This is not the stock market, Kansas, where huge increases come over a weekend in a stock price (up or down, of course, and certainly not always up). The return of some investments is easier than others to track. The first example that comes to mind is a savings account.

You know how much is there in the account, and you know the interest rate, so this is highly predictable. And while no one can tell you this will be a high rate of return, some investors are happy with it. And why not? If you have accumulated a great deal of money and can live on your income, a low rate may still give you peace of mind if things happen to get tough or the world turns ugly.

Maybe your present income is enough, anyway, to keep you content with your lifestyle. Whatever you do with your money, there is risk  –  which rises, of course, as you get away from long safe and user-friendly investments such as savings. But if you’re risking your capital (and perhaps you don’t have a lot of surplus to risk), what is a reasonable rate of return and what can you expect?

Skyrocketing returns are not what you should expect. But what about your expected rate of return from real estate investments? How about an average of 8.4% a year? That figure was the average return over a ten year period from 2000 to 2010, according to the National Council of Real Estate Investment Fiduciaries (NCREIF). It’s a private market company with no vested interest in the subject.

Of course, not everyone did that well. And we all know about real estate values fluctuating up and down. Many financial analysts say this is a good return as opposed to, say stocks, which are in most cases far more subject to huge fluctuations.

Real estate investments are backed by something substantial: bricks and mortar. In some ways, this makes them less dependent on the integrity and competence of managers and others in the stock market, for example.

But if you make intelligent choices about buying real estate, and when to buy it, and where, of course, an expected rate of 8.4% more value each year is enough to make most of us happy.

No, maybe not rich, but happy enough.


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How much real estate investment return do you...

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