What average annual return is typical for a long term investment in the real estate sector?

Investing, Real Estate
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June 2018

Average annual returns in long-term real estate investing vary by the area of concentration in the sector. Average 10-year returns in the commercial real estate sector underperformed the S&P 500 Index, running at around 6.1%. Residential and diversified real estate investments do a bit better, averaging 7.5%. The S&P 500 Index's average annual return over the past 10 years is approximately 9.14%.

Real estate investment trusts (REITs) perform best, with an average annual return of 10%. The real estate sector has bounced back and performed well following the drastic collapse in housing prices during the 2008 financial crisis.

Residential and Commercial Real Estate

The real estate sector is divided into two main categories: residential and commercial real estate. Within either category, there are vast and varied opportunities for investors, such as raw land, individual homes, apartment buildings and large commercial office buildings or shopping complexes. Investors can choose to invest directly in residential or commercial real estate or invest in real estate company stocks or bonds. There are also mutual funds and exchange-traded funds (ETFs) available that track the real estate sector.


One way investors can easily obtain diversification in real estate investments is through investing in one of the best-performing real estate investment instruments, REITS. REITS are securities that trade on an exchanges, just like regular stocks. REITs may be invested in properties, real estate or property management companies, mortgages, or any combination of these. They are specially regulated and offer tax benefits and investment advantages, such as dividend reinvestment plans. REITs have established a reputation for offering investors liquidity, diversification and good overall investment returns.

Investors can invest directly by buying shares of REITs or obtain access to them through real estate sector mutual funds or ETFs that have major portfolio holdings of REITs.

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