Standard and Poor’s 500 indexes (S&P500) and Commercial Real Estate (CRE)

The old good question of what is more lucrative, investing in real estate vs the stock market. Investing is defined as expending money with the expectation of achieving a profit or material result by putting it into financial plans, shares, or property, or by using it to develop a commercial venture. It can also be defined as committing (money or capital) to gain a financial return. 

We all agree that investing one’s capital is always sensible to create a profit. Both the stock market and commercial real estate have been historically the most durable sources of achieving returns. But why should I consider real estate as opposed to the stock market? 

If we used the S&P500 compared with CRE during 2022, S&P500 has fallen by >6% during September and October 2022, however, this trend has been going on since the beginning of 2022. There was an increase of 27% during 2021, with a subsequent descent of 24%, offsetting most of the initial gain. Not surprisingly there have been massive losses including retirement funds.

Commercial real estate also saw gains during 2021, however not as dramatic as the stock market. The industrial gain was 17.9%, self-storage 13.6%, multifamily complex 8.1%, offices 6.8%, hotels 4.1%, and retail 2.8%. Conversely commercial real estate growth accelerated with increases in the first 6 months of 2022 of 13% in industrial real estate, 15% in self-storage, 10% in apartment complexes, 3.8% in offices, 13.7% in hotels, and 3.8% in retail. 

The recent change in Federal Rate is significantly affecting both areas, but the stock market is feeling the effect more dramatically. This is because CRE moves more slowly than S&P500. The amplitude of change of CRE is modest compared to the stock market, The total return over the long run.

The compound annual growth rate over the past 20 years has been, CRE 7.8% compared to S&P 5.3%. 

The main advantages of real estate:

• More inflation-resistant. Can be passive or active 

• Long-term or short-term leases.

• Variety of tax advantages 

• Leverage and financing options. 

• The sector’s much lower volatility. 

The importance of real estate is to have long-term investments that can give dividends in the long run. It is always important to diversify your source of passive income and real estate is an excellent vehicle that withstands the past of time.