They say buy a home. They say buy another one and put in on rent. Repeat.

I did the same and bought two properties over the last 4 years, enough to get a taste of it. What I learned is that unless real estate is your primary profession it's one of the worst investments that can cost you your freedom.

🦕 Undiversified

A home is a highly undiversified asset.

We obsess over diversification of our stocks and bonds, and then on the other hand buy a single piece of property which is directly affected by so many changing factors (development next door, climate change, city, taxes, schools, neighborhood, transportation).

💰 Illiquid & High Transaction Costs

Imagine Robinhood takes 4 months and 6% when you sell your stocks.

You can't buy or sell real estate with a click of a button. It locks you to months (sometimes years) long lengthy periods depending upon market conditions. Moreover the transaction costs are high, especially the money that goes to buyers' and sellers' agents.

🪨 Geo Binding

Creates more missed opportunities by forcing you to settle down.

It's not just illiquidity and high transaction costs that deter you from moving, it's the hassle of moving all the stuff you have acquired. It subconsciously takes away the choice to say yes to that out of state job.

📉 Low returns

Long-term avg. real estate returns trail that of S&P500 index.

Historically, residential real estate made an avg 3% gain or less, while its around 8% for a diversified index fund. You might get lucky during a boom, but you don't make a real profit unless you sell it and don't buy another more expensive home.

🏃 Not Passive

We have all heard stories of things breaking down.

You must deal with contractors, rental churn, HOA, etc. If you want to outsource it, rental management companies take between 8-10%, there goes your profit. You don't even get all the tax breaks if you're not actively participating.

What to do instead?

I understand the obsession with real estate. It's not just about shelter; it's a permanent place that holds our most prized possessions; it's where memories are made; it's a legacy we build.

Buy a home for personal consumption, not for investment.

If you'd like to have real estate as an asset class in your portfolio, look for REITs instead. They come without any of the above cons, and you can also double down on a sector type (residential, commercial, healthcare, etc.).