title: What about Investing in Real Estate? description: [AFW S.12.20] Securities Objection #20 published: true date: 2026-06-30T08:12:06.985Z tags: editor: markdown dateCreated: 2021-11-11T07:36:07.240Z
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Read Nick Murray's Interactive Newsletter, 2017-02, page 6.
“Real estate is a business, not a passive investment.” ―David McDanal
Performance¶
Which generates a greater return on investment: stock ownership of Google, Exxon Mobil, Coca-Cola and JP Morgan Chase, or the buildings they occupy?
The absolute silliest of all real estate illusions is that one's home (or rental property) provides significant growth of capital. Since 1945, according to the Nobel laureate Robert Shiller, American family home prices have risen at a rate of about 4% per year.
Whereas the return of the American Funds Investment Company of America since 1945 has been 12%. And you don't have to heat the the ICA in the winter.
"Someone who claims to think that buying an apartment complex or an office building or a strip mall ― or all three ― will produce a greater return on his capital than does owning a basket of the 500 largest, most profitable, most soundly financed and most innovative companies in America and the world is not rational." ―Nick Murray
Security¶
Most people invest in real estate because they don't understand equities or think they're "risky". They believe that real estate is a safer investment than equities.
But are they really?
If you own and are liable for the mortgages of those four companies’ buildings mentioned above, your position inherently carries much greater risk than if you owned the stocks, where there is no personal liability. (That, among other things, is actually the genius of common stocks, and indeed of the corporate form of organization.)
There is also one overwhelming benefit of mutual funds, which is of course diversification (as an example, the American Funds Growth Portfolio consists of over 1,200 stocks from all over the world). If you end up, late in life, with the huge preponderance of your net worth in essentially the same leveraged, illiquid asset class, it won’t matter what the relative risks of equities and real estate are perceived to be: you will have raised your own personal risk profile to and beyond the red line.
Maintenance, Costs & Flexibility¶
Real estate is inherently illiquid, incurs substantial acquisition and disposition costs, and demands significant management oversight. It is subject to recurring expenses, such as property taxes, homeowners association fees, and maintenance costs, which are paid separately.
In contrast, mutual funds present a more streamlined investment proposition. They incur a one-time cost (which is waived for investments exceeding $1M), and have low annual expenses which are deducted directly from the account.
The flexibility of mutual funds is evident in their withdrawal and reallocation capabilities. Should you wish to withdraw a portion of your investment, this can be easily accomplished. Conversely, real estate does not offer this flexibility, as partial withdrawals are not feasible, and relocating investments requires substantial time and financial resources.
Moreover, real estate income is fixed, regardless of your immediate needs. For instance, if a rental property generates $1,000 per month, but you require only $800, the excess $200 cannot be 'left' in the property. Mutual funds, however, allow for such flexibility, as you can withdraw only the amount needed, leaving the remainder to compound for future growth.
Similarly, lump-sum withdrawals are more straightforward with mutual funds. If you require $25,000 from a $300,000 real estate property, you cannot simply extract this amount; a loan would be necessary. In contrast, mutual funds permit direct withdrawal of the required amount, with the remaining balance continuing to compound.