Real estate investment is not an instant rewarding investment vehicle like stock/option. And the barrier of entry is higher than stock market investment. In other word, if you screw up in real estate, you could also lose big. For example, you bought a house at too high a price, causing you negative cash flow no matter how aggresive you try to rent it. However, if you be careful on most aspect, such as cash flow, exit strategy, holding and landlording strategies, then, real estate can become the most profitable business.

Don’t be misled by these false argument presented in Motley Fool’s article. Yes, they are right, inflation adjusted return is not much, like 2-5% a year. But the key is not this small return. The key is you have borrowed banks’ money to buy the house. You didn’t put down your own money too much. Therefore, 2-5% return on borrowed $500K could yield great return. All you have to do is to rent it out and manage the tenants, collect the rent and pay the mortgage.

Suppose you borrow on 2 houses, each for $500K, your total return on $1 million asset will be huge over the long term, even if the absolute return is only 2-5%. The key you have to understand is you have very little of your own money invested. Almost 90% of the money are borrowed.

If you don’t understand cash-on-cash return, you don’t understand real estate. The author for the Motley fool article is clearly not very familiar with real estate investment business. He is only a stock trader, Motley fool is a stock trading advisory company. What can you expect them to say anything intelligent about real estate??