How many financial planners and wealth creation gurus are advising clients to have multiple income streams? Pretty much all of them! The concept is, that if one stream gets blocked, the other streams still continue to flow (cashflow that is). And multiple income sources ultimately lead to a bigger pool (your overall wealth and/or retirement income). It all makes perfect sense.
Now for the tricky part: How does one create all these income streams, yet still have a life and manage to sleep a couple of hours each night? There are infinite paths to take here: employment income, creating a business(es), multi-level marketing, equity investments that pay dividends, drive for Uber, create an online course …. We could go on and on … but this is a real estate investing blog! Therefore, we will focus on income from investments. Many investors divide themselves into 3 camps: those who invest in equities, those who invest in real estate, and those who invest in both. A recently published research article took a look at just this issue.
“The Total Risk Premium Puzzle” was published in March of 2019, by Jorda, Schularick and Taylor. These scientists constructed a new database of equity returns and real estate returns from 1870 to the present. The database includes information from the USA, and 15 other “advanced” countries. The question was how to measure the returns on RE over time and across countries—then compare it to the yields from equities. In their full sample (USA plus other countries) housing had an overall return of 6.9% and equities an overall return of 6.7%. The key difference was that housing returns had lower risk/volatility. So historically, real estate investing shows less risk for similar returns when compared to stocks (and other equities). Is this a future guarantee—absolutely not!
But when you’re considering multiple paths to your financial freedom, the science just proved that real estate deserves careful consideration. EACH property can be thought of as a business. And each property generates multiple income opportunities: positive cashflow, principle paydown, instant appreciation (buy below market value), forced appreciation (do fabulous renovations to increase value), and the possibility of long term appreciation (if the sale price of your property rises in 5-10 years). So if you’re an investor who carefully evaluates risk, return on time, and return on investment—from each of your income streams—we encourage you to take a closer look at real estate investments.
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