Real Estate Investment Alternatives - Find Better Returns Elsewhere

When the real estate investment market burst back in 2008, many of those who’d invested in property saw the value of their investments fall, and some fell dramatically.

And although the real estate investment market has certainly improved since the crash, it’s no longer seen to be as the relatively safe and reliable investment it once was.

So it’s good sense to learn what your other investment options are before deciding how you’d like to go about your investing.

In this article, I’m going to talk about several different alternatives to real estate investment that may yield a better return.

And without further ado, let’s get started. (Please feel free to scroll ahead to any section that jumps out at you.)

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1. Real Estate Investment Trusts (REITs)

Of the various alternatives to investing in standard real estate, the most similar option is to invest in real estate investment trusts, or REITs.

An REIT is simply a pool of money used to purchase and occasionally sell real estate properties. So it’s very similar to investing in real estate the usual way.

However, there are notable differences between the two that make REITs a more attractive option…

With an REIT, it doesn’t fall on you to put the necessary time and effort in to make improvements to any of the properties. You don’t have to manage the properties.

And, you will receive a steady stream of income in the form of dividends, so it’s very much considered to be a means of passive income.

What’s more, whereas an average return on investment for residential real estate (in the US and according to the S&P 500 Index) comes in at 10.6 percent, and for commercial real estate comes in at 9.5 percent, it turns out that the return on investment for REITs is noticeably higher, coming in at 11.8 percent.

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2. Commodities

A commodity is basically any raw material or agricultural product that can be bought and sold. Examples of commodities can include oil, gas, grains, gold, or silver. So commodities are clearly a rather broad category.

Yes, there can be risks with investing in commodities, because they aren’t all guaranteed to appreciate in value, and sometimes they could even cost you money.

However, as summarized in The Periodic Table of Commodity Returns (2012-2021), by Visual Capitalist, there are certainly many options that appear more than merely promising.

For example, in the year 2016, the average return on investment in coal reached a whopping 103.67 percent, while in the year 2021, this reached a staggering 160.61 percent.

The Visual Capitalist also states that “The S&P Goldman Sachs Commodity Index (GSCI) was the third best-performing asset class in 2021, returning 37.1% and beating out real estate and all major equity indices.”

The partial resumption of travel and the reopening of businesses in 2021 really boosted the price rise of energy commodities, including the likes of coal, crude oil, and natural gas.

During this time, although the average return on investment fell for precious metals such as gold and platinum, the average ROI for base metals, such as copper, nickel, zinc, aluminum, and lead, remained positive.

This is thought to be due to the use of these commodities for clean energy, renewable energy, and electric vehicle batteries.

Also, the UN Food and Agriculture Organization’s food price index reached a 10-year-high in 2021, rising by a whopping 17.8% over the course of the year.

So, although investing in commodities can yield very favorable returns in a great many instances, if you wish to do so, you should proceed with caution, because quite often a commodity may perform very well one year, then drop in value the next.

While the returns may be higher than those in real estate, it is generally considered a more volatile and risky market.

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3. Collector’s Items

There’s also a very broad range of collectible items that you can choose to invest in. Examples of items you can collect that are likely to grow in value include classic cars, fine art, whiskey, baseball trading cards, and much more.

The biggest caveat to investing in collectibles, however, is that to invest safely and establish a good return on your investment, you will usually need real and genuine interest in whatever it is you decide to collect, because this will be how you learn how to make your collection not only maintain its value, but also grow in value.

According to Unbound Investor, “The return potential for collectibles is at least 10%, and with the right knowledge and timing, returns as high as 20% are definitely possible.”

However, it’s important to note at this point that the gain collected from selling a collectible is taxed at a brutal 28%, 

Let’s explore an example…

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Wine

Wine is one thing that there’s always a demand for. And there are lots of vintages that are regarded as timeless, rare, and highly desirable. Such wines appreciate in value, and it’s generally a less risky investment than real estate.

But whereas residential and commercial real estate investment produce an average ROI of 10.6 and 9.5 percent respectively, wine has consistently produced an annual ROI of a whopping 13.6 percent for the last 15 years.

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Wrap Up

So, by now it should be clear that traditional real estate investment is not your only investment option, and you could see better gains elsewhere.

The biggest factor affecting your investment decisions may be the timing of when you want to cash in on your investments.

Collector’s items often require a great deal of time before they see a sizable increase in value, whereas investing in REITs means that you can expect a steady stream of passive income year-on-year.

And while the commodities market can be very profitable on occasion, it’s perhaps not as safe an investment as real estate.

If any of these options appeal to you, be sure to do your homework on it, so that you know exactly what you’re doing, and how much money you can make.

Your pay stubs will be a great resource to find out figures needed to calculate net income etc.