Weekly Blog #21
“Buy land. They’re not making it anymore.” Anonymous
Long before formal monetary systems existed, land represented wealth, power, and security. Wars were fought over it. Dynasties were built upon it. For most of human history, property ownership was limited to the elite — the landed gentry.
As feudalism faded and property rights, rule of law, and capitalism took hold, real estate evolved from a symbol of status into something far more practical: an income-producing asset. A growing economy needed factories, warehouses, apartments, storefronts, and homes. Capital flowed not just into commerce, but into the physical infrastructure that supported it. Over time, capitalism did something remarkable—it democratized real estate ownership. Ordinary people could now own not just the roof over their heads, but rental property. Entire fortunes were built slowly and methodically this way, and the rags-to-riches real estate story became almost cliché.
Which brings us to today. With the Housing Affordability Index hovering around 106, mortgage rates well above pandemic lows, and starter homes routinely priced north of $400,000, it is reasonable to ask whether real estate still makes sense as an investment. From a purely fundamental standpoint, the answer is mixed at best. Prices are high relative to incomes, financing costs are elevated, insurance and taxes are rising, and transaction friction is real. These are not the conditions that typically inspire enthusiasm.
And yet, real estate continues to attract capital. To understand why, it helps to step back and ask a simpler question. If you were suddenly handed $1 million, where could you realistically put it? There are only a handful of broad asset classes available to investors: stocks and bonds, real estate, precious metals, commodities, collectibles, and a growing bucket of so-called alternative assets.
Over long periods of time, stocks have outperformed most other asset classes on a total-return basis. That fact is not controversial. Despite that, equities—including all retirement accounts, mutual funds, and direct holdings—represent roughly 35% of total U.S. household wealth, while real estate accounts for close to 30%. That disparity is not accidental.
Real estate is different from other growth investments for two reasons. The first is leverage. In the stock market, leverage is rare, limited, and generally discouraged. Margin amplifies gains, but it also amplifies losses, and forced liquidations tend to occur at precisely the wrong time. Most investors are rightly warned away from borrowing to buy stocks, and those who do are typically professionals operating under strict risk controls.
In real estate, leverage is not the exception — it is the rule. Nearly every real estate investor uses it. Long-term, fixed-rate, non-recourse leverage is not only available, it’s encouraged. A buyer can control a large asset with a relatively small amount of equity, lock in financing for decades, and allow inflation to work against the liability rather than the asset. This alone dramatically changes the math of returns on equity. A modest appreciation rate, when combined with prudent leverage, can produce outcomes that are difficult to replicate elsewhere.
The second differentiator is cash flow. Stocks are excellent long-term growth vehicles, but they are poor income assets. The S&P 500 currently yields ~1% in dividends. That income is discretionary, volatile, and subject to corporate policy. Investors seeking income from equities often have to sell shares to generate cash, which introduces sequence risk and tax considerations.
Real estate, by contrast, can produce meaningful ongoing income. A well-selected rental property can generate 5% to 7% or more in cash-on-cash returns, while still participating in long-term appreciation. The income is contractual, tangible, and often inflation-responsive. Rents tend to rise over time, while fixed-rate debt remains unchanged. This combination of income and appreciation is what makes real estate fundamentally different from most other growth assets.
None of this is to say that real estate is risk-free. It is illiquid. It is management-intensive. It is subject to local market conditions, regulatory risk, and capital expenditure surprises. Leverage cuts both ways, and poor underwriting can quickly turn a seemingly reasonable investment into a problem.
But the question is not whether real estate is perfect. It is whether it offers something unique. And it does. Real estate sits at the intersection of leverage, income, and long-term appreciation. It allows investors to use borrowed money in a way that is structurally discouraged in other markets. It produces cash flow in a world where most growth assets do not. And it remains one of the few asset classes where disciplined investors can still add value through judgment, management, and structure rather than simply riding market beta.
The fundamentals today are not great. That much is clear. But real estate has never been a purely fundamentals-driven investment. It has always been a capital structure and income story. For those who understand that distinction—and who underwrite conservatively—real estate still provides one of the best means by which one can accumulate wealth over time.
The fundamentals today are not ideal. Prices are high, rates are elevated, and margins are thinner than they were a few years ago. That reality demands more patience, more discipline, and better underwriting. It does not, however, negate the asset class.
Real estate has never been about timing the market. It has been about time in the market, capital structure, and income durability. For investors who understand those dynamics — and who are willing to be selective rather than aggressive — real estate remains what it has always been: not a shortcut to wealth, but a durable, compounding engine for it.
Mark Lazar, MBA
CERTIFIED FINANCIAL PLANNER™
